In this month's Finance Briefing, we provide an update on our Brief Note of January 2018 (the Previous Updater) that focused on the amendments to the Land Act, 1999 (the Land Act) which were introduced in the Written Laws (Miscellaneous Amendments) (No. 5) Bill, 2017 (the Bill). The new Written Laws (Miscellaneous Amendments) (No. 1) Act, 2018 (the Act) that came into force on 9 February 2018 provides some clarity on some of the questions that we posed in the Previous Updater. These are some of the amendments that have been made in the Act:
A person may mortgage any land for the purpose of obtaining money from the local or foreign bank, or local or foreign financial institution for developing his land or for any other investment. (section 120A (1) of the Act).
We noted in our Previous Updater that this provision was drafted quite restrictively in that it only permitted landholders to use their land to secure a loan from local banks or financial institutions as opposed to foreign banks or foreign financial institutions. However, the amended provision makes it clear that in addition to mortgaging land to local banks or financial institutions, landholders can also mortgage their land to foreign banks or financial institutions.Furthermore, it is clear that under this provision, land can be mortgaged for purposes of developing the mortgaged land or for investment purposes only. However the introduction of a new section 120C clarifies that this provision only applies to Granted Rights of Occupancy (GRO), which is general land managed by the Commissioner for Lands (the Commissioner). Acccordingly, land held under a Customary Right of Occupancy (CRO), which is village land allocated by a village council, can not be mortgaged to a local bank or foreign bank or to a local financial institution or foreign financial institution.
|2||Money obtained from a mortgage from a local or foreign bank, or local or foreign financial institution referred to under section 120A shall be invested in Tanzania. (section 120B (1) of the Act).||Initially, this provision only referred to mortgaging land to local banks or financial institutions which, as mentioned above, appeared to be restrictive. This section has now been amended to include foreign banks and financial institutions. Accordingly, money obtained from mortgaging land to a foreign bank or foreign financial institution must also be invested in Tanzania.|
|3||Where the mortgagee is a local or foreign bank, or local or foreign financial institution, the mortgagee shall submit to the Commissioner a declaration that the money obtained from the mortgage is invested in Tanzania. (section 120B (3) of the Act).||
There is a reciprocal obligation on the mortgagee to inform the Commissioner how the loan monies have been utilised for the development of the mortgaged land.
As noted in our Previous Updater, this provision is intended to be used for purposes of monitoring compliance with section 120A (2) which provides how loan monies must be utilised depending on the type of land (i.e. be it developed or undeveloped / underdeveloped).Although the form or manner in which the mortgagee shall submit the information to the Commissioner has not been expressly provided in the Act, it has now been made clear under the new section 120E that this will be provided in the Land Regulations.
For purposes of this section-
“local bank” means any bank licensed by the Bank of Tanzania to undertake the banking business in Tanzania;
“local financial institution” means any entity licensed in Tanzania to engage in the banking business, but limited as to size, locations served, or permitted activities as prescribed by the Bank of Tanzania or required by the terms and conditions of its licence;
“underdeveloped” in respect of land, means a land which is not developed in accordance with the conditions of relevant rights of occupancy;“undeveloped” in respect of land, means a land without improvement in, on, under or over such land or without any change of substantial nature in the use of such land. (section 120B (3) of the Act).
When the the Bill came out last year there were a lot of questions surrounding the meaning of "local bank and financial institution" pursuant to amendments made to the Land Act.
A new definitions section has now been provided which aims to clarify the position. The definitions of "local bank" and "local financial institution" provided in the Act conform with those provided under the Bank of Tanzania Act, 2006 (the BOT Act).It is also important to note that the BOT Act defines 'banking business' as: 'the business of receiving funds from the general public through the acceptance of deposits payable upon demand or after a fixed period or after notice, or any similar operation through the frequent sale or placement of bonds, certificates, notes or other securities, and to use such funds, in whole or in part, for loans or investments for the account of and at the risk of the person doing such business'.
|5||The provisions of sections 120A (2), (3) and 120B (1) shall not apply to land held under the Certificate of Customary Right of Occupancy. (section 120C of the Act).||Land in Tanzania is held either under a GRO or a CRO. As mentioned under point 1 above, this section prohibits landowners from mortgaging land acquired under a CRO.|
|6||The procedure for administration and enforcement of section 120A and 120B shall be prescribed in the Regulations. (section 120E of the Act)||
A new section 120E has now been included confirming that the Land Regulations shall provide for the procedure for administration and enforcement of the abovementioned new sections of the Act. As of the date of this updater, the Land Regulations are not publicly available.