In this month's Finance Briefing, we focus on the proposed amendments to the Land Act No. 4 of 1999 (the Land Act) which were introduced in the Written Laws (Miscellaneous Amendments) (No. 5) Bill, 2017 (the Bill). The Bill was tabled before the Tanzanian Parliament for an initial reading on 17 November 2017.

The Bill proposes to amend the Land Act by introducing new sections: 120A, 120B and 120C. The proposed amendments cover the following legal issues:

No. NEW PROVISION INTERPRETATION
1.

A person may mortgage any land for the purpose of obtaining money from the local bank or financial institution for developing his land or for any other investment (section 120A (1) of the Bill).

A strict interpretation of this provision suggests that landholders may use their land to secure a loan from local banks or financial institutions for purposes of developing the land or other investments only.

Although the provision expressly refers to local banks and financial instiitutions and there is nothing in the provision that specifically precludes landholders from mortgaging land to foreign banks or financial institutions, it can be argued that section 120A (1) of the Bill is potentially imposing a restriction on landholders' ability to mortgage land to foreign banks or financial institutions. Further clarification will have to be sought from the regulator once the Bill is passed into law as the drafting could obviously have wide ranging implications.

It can further be argued that under this provision, land can be mortgaged for purposes of developing the mortgaged land or for investment purposes only.
2.

Where part or the whole of the mortgaged land is undeveloped or underdeveloped, the money obtained from the local bank or financial institution shall be utilised to develop part or whole of such mortgaged land (section 120A (2) of the Bill).

Within six months, the mortgagor (the land holder) must submit to the Commissioner for Lands (the Commissioner) information as to the manner in which the money obtained from the mortgage is invested to develop the mortgaged land (section 120A (3) of the Bill).

Section 120A (2) of the Bill can be interpreted to mean that the proceeds of the loan must be used to partly or exclusively develop undeveloped or underdeveloped land which has been mortgaged. The apparent rationale for this new provision is to ensure that the value of the mortgaged property increases.

The mortgagor has an obligation to inform the Commissioner how the loan monies have been utilised for the development of the mortgaged land. This provision is intended to be used for purposes of monitoring compliance with Section 120A (2).

Section 120A (3) does not expressly provide the form or manner in which the mortgagor shall submit the information to the Commissioner. The details of information required to be submitted to the Commissioner are also unclear. Again, further clarification on this provision must be sought from the regulator once the Bill is passed into law.

3..

The money obtained from a mortgage from a local bank or financial institution must be invested in Tanzania (section 120B (1) of the Bill).

Where the mortgagor is a bank or a financial institution, the mortgagor must submit to the Commissioner a declaration that the money obtained from the mortgage is invested in Tanzania (section 120B (2) of the Bill).
The restriction imposed under this new section on using funds secured by a mortgaged property to invest outside of Tanzania compliments the current restriction on foreign direct investments found in the Foreign Exchange Circular No.6000/DEM/EX.REG/58 (the Foreign Exchange Circular) which specifically restricts outward portfolio and direct investments under the Foreign Exchange Circular. Again, the rationale for introducing Section 120B would be for purposes of enhancing the Tanzanian economy.
4.

Non-compliance with the requirements set out in Sections 120A and 120B of the Bill constitutes a breach of conditions of right of occupancy provided under section 45 (2) of the Land Act.

Section 45 (2) of the Land Act has been amended to allow the President to revoke a right of occupancy, for (amongst other reasons) contravention of the requirements set out in Sections 120A and 120B of the Bill.

Non-compliance with Section 120A and 120B of the Bill constitutes a breach of right of occupancy conditions (i.e. the right to occupy / hold a title deed over the property) which can lead to the revocation of the right of occupancy / title deed. Therefore, adherence to the new Land Act amendments will be key for property owners and investors once the Bill is passed into law.

Clyde & Co Tanzania's finance and real estate team has the legal expertise to support borrowers, property owners / developers and investors that may have any questions on the Bill and its implications on the use of landed property to secure debt. We are here to respond to any legal questions you may have on the subject.