A borrower walks into a bank seeking a loan. He offers land as security and confidently declares: ‘I am a bachelor’. He swears an affidavit confirming that he is unmarried and that the property is not matrimonial. The bank accepts his word, registers the charge and advances the money. Years later, a spouse appears and says, ‘I live on that land. It is our matrimonial home. I never consented to the charge’. What happens when the lender discovers that the affidavit was not the end of the inquiry, but the beginning of it?
The decision in SBM Bank Kenya Limited & another v Khanaka & another [2025] KEELC 4464 provides a fundamental answer. For financial institutions, the case is a reminder that reliance on a chargor’s representation cannot substitute for meaningful due diligence where matrimonial property may be involved.
The Facts: A Charge, a Marriage and a Disputed Sale
The dispute concerned Title No. Butsotso/Shikoti/5826, registered in the name of Sila Shilungu Okongo. SBM Bank had advanced loans to Central Division Youth Committee, with Okongo guaranteeing the facilities using the property as security. A first charge was registered in 2015 for a Kshs. 3 million facility, followed by a further charge in 2017 for Kshs. 5 million. The bank relied on an affidavit from Okongo stating that he was a bachelor and that the property was not matrimonial. When the loan fell into arrears, the bank commenced enforcement proceedings.
Jacqueline Khanaka, Okongo’s wife, challenged the charges. She maintained that they had contracted a Luhya customary marriage in 2004, had children together and had lived on the property. Although their church marriage was formalised later, she argued that the property had long been their matrimonial home. She had never consented to the charges. The trial court invalidated the charge and restrained the intended sale. The bank and auctioneer appealed.
The Bank’s Case: We relied on the Chargor’s Representation
The appellants argued that the bank had acted reasonably. The charges pre-dated the parties’ formal church marriage. More importantly, the chargor had sworn that he was unmarried and that the property was not matrimonial. The bank therefore contended that the respondent had no overriding interest capable of defeating the charges. It also argued that the outstanding indebtedness was not disputed and that the court should not restrain the bank from exercising its statutory power of sale.
The Respondent’s Answer: Look Beyond the Title
The respondent’s answer was straightforward: the bank should have looked at the property, not merely the paperwork. Evidence before the Court included the bank’s own valuation report, which recorded developments on the property and circumstances indicating that it was being used as a matrimonial home. The respondent was also in occupation. The Court found that the bank had not produced evidence of adequate pre-loan investigation showing that it had established who occupied or had developed the property. The appeal was dismissed with costs.
Spousal Consent Is More Than a Signature
The legal framework is significant. Section 28 of the Land Registration Act, 2012 impliedly recognises spousal rights over matrimonial property as overriding interests. Such interests may affect registered land even when they are not expressly recorded on the register. The Land Act, 2012 also protects matrimonial homes. A charge over a matrimonial home requires the participation or consent of the spouse living there. The law therefore places an obligation on a lender to establish whether the property being offered as security is, in substance, a matrimonial home.
The Matrimonial Property Act, 2013 reinforces this protection by restricting the alienation of matrimonial property without the consent of both spouses. The important point for lenders is that registration in one person’s name does not, by itself, answer the question of spousal rights.
Due Diligence Means Looking Beyond the Register
The Court’s most important message was that due diligence cannot be reduced to an official search and the chargor’s affidavit. The Court relied on Daniel Kipruto Metto v Chase Bank (Kenya) Limited [2018] KEELC 616, where the court emphasised that proper due diligence may require a lender to investigate the history and physical circumstances of the property, including inquiries beyond the land registry. The Court also referred to Rajab Kipkoskei Magut v Sidian Bank Ltd [2019] KEHC 7273, which recognised the lender’s duty to inquire into marital status for purposes of spousal consent. Finally, the Court relied on Mugo Muiru Investment Ltd v EWB & Others [2017] for the principle that, a spouse’s interest in a matrimonial home may constitute an overriding equitable interest, notwithstanding registration in the name of only one spouse.
What Did the Bank Miss?
The Court pointed towards practical safeguards that lenders should incorporate into their credit processes. In particular, the Court observed that the bank could have:
- conducted a pre-loan physical site visit
- established who was occupying the property
- identified persons who had developed or lived on the land
- made reasonable inquiries from neighbours or persons familiar with the property
- retained photographs and a detailed site inspection report
- considered the physical evidence alongside the chargor’s declaration and
- investigated any inconsistency between the chargor’s representations and information appearing in a valuation report.
These are not merely administrative formalities. They can determine whether a lender’s security is ultimately enforceable.
The obiter: A wider warning to lenders
Although the Court was deciding the particular dispute before it, its observations carry wider significance. A lender should not assume that an affidavit stating ‘I am unmarried’ conclusively settles the question of spousal consent. Nor should a lender treat the absence of a spouse’s name from the title as proof that no spousal interest exists. The physical reality of the property may tell a different story. The judgment therefore moved the concept of due diligence from a paper exercise to a factual inquiry. A lender dealing with land as security should ask not only ‘who owns this property?’ but also ‘who lives here? who has developed it? and what rights might arise from that occupation?’
A clarion call to financial institutions
For banks, SACCOs, microfinance institutions and other lenders, the taking of land as security should be supported by robust and practical due diligence procedures. A chargor’s declaration remains relevant. But where the circumstances reasonably suggest that the property may be a matrimonial home, the prudent course is to investigate further and obtain the necessary spousal consent. The cost of a site visit, photographs, neighbourhood inquiries and proper documentation is modest compared to the cost of defending an invalid charge or losing the ability to realize the security. Effective due diligence begins where the search ends!