March 14, 2019

Land acquisition in Tanzania: what foreign investors should know

The strength of a land title in Tanzania may define the validity and security of an entire project, with significant implications on its bankability as a whole. Large areas of land in Tanzania are unsurveyed village land and foreign entities may want to access such land when investing in the agricultural sector. Various construction projects may also require access to village land for hydroelectric power projects, telecommunication tower installations or wind farms. The investment opportunities are undeniable but investors should be aware of the legal technicalities involved. This article addresses whether a foreign company can access village land in Tanzania and what the available options are.

In order for a foreign company to access village land, it must first process a conversion of the village land into general land

In order to provide some context to this briefing note, it is important to define some of the basic terminology that is used.

For the purposes of land management in Tanzania, land is categorised into the following:

  • "general land", which is managed by the Commissioner for Lands. The certificate of a Granted Right of Occupancy ("GRO") can be granted in respect of this land. Further to that, a Derivative Right to occupy and use land may be created out of the GRO;
  • "village land", which is the land within the area declared to be a village and is managed by the Village Council in which a Customary Right of Occupancy ("CRO") may be issued. The GRO or a Derivative Right to occupy and use land may only be granted over village land after conversion of the village land to general land; and
  • "reserved land", which is land that is set aside under various laws for various purposes, including but not limited to forests, national parks, highways and hazardous land

Land titles that can be issued in Tanzania

The following are the various land titles available in Tanzania:

  • GRO – means a right to occupy and use land under a long term lease of either 33, 66 or 99 years which is granted by the President in general land or reserved land for a period up to but not exceeding 99 years. A GRO is one of the highest forms of land tenure in Tanzania and effectively constitutes a 99 year lease from the Government.
  • CRO – means a right to occupy and use land under a long term lease of either 33, 66 or 99 years which is granted by a village council.
  • Derivative Right – means the right to occupy and use land created out of a GRO and includes a lease, a sub-lease, a licence, a usufructuary right and any interest analogous to those interests. A Derivative Right can be granted for a period of 10 days less than the period for which the GRO has been granted.

General restrictions on occupation of land in Tanzania by foreign companies

The Land Act states that non-citizens shall not be allocated or granted land, unless it is for investment purposes under the Tanzania Investment Act (Section 20(1) of the Land Act). The Land Act further states that, a body corporate registered in Tanzania, whose majority shareholders or owners are non-citizens, shall be considered a foreign company for the purpose of this Act (Section 20(4) of the Land Act).

In Tanzania, village land is regulated by the Village Land Act ("VLA"). A foreign company cannot occupy village land in Tanzania on the basis set out below:

  • Unlike the Land Act which provides for the possibility of a foreign company owning land in Tanzania by way of a Derivative Right or a lease, the VLA does not have a similar provision, hence a foreigner cannot own village land (through a CRO) or lease , even if it is for investment purposes.
  • Section 22(2) of the VLA allows a group of persons (including a company) to apply for a CRO. However, section 17(1) of the VLA provides a limited and prescriptive list of "non-village organisations" which can occupy village land - a foreign company is not included in this list.
  • A foreign company cannot acquire any legal title to village land in Tanzania because a CRO can only be granted to citizens of Tanzania or a group of persons, all of whom are citizens of Tanzania. Accordingly, an organisation whose shareholders are both citizens and non-citizens will not qualify for a grant of a CRO.

Options available for a foreign company looking to access village land in Tanzania

In order for a foreign company to access village land, it must first process a conversion of the village land into general land and upon conversion, the foreign company may acquire:

  • a GRO, if the majority of the shareholders of a company are citizens of Tanzania; or
  • a Derivative Right through the Tanzania Investment Centre ("TIC"), if the majority of the shareholders of the company are non-citizens of Tanzania.

The procedural requirements for acquiring a Derivative Right involve a number of steps. Indeed, a key feature is that if a foreign company is interested in acquiring village land for the purposes of investment, the village land must be converted into general land before the TIC can grant a Derivative Right to the investor to use the land. This is one of a number of hurdles to overcome and further advice should be sought should this be a process that you wish to undertake.

It should be also noted that should a foreign company fail to meet the conditions of investment agreed upon on the granting of a Derivative Right, the TIC can re-acquire the land. However, the foreign company will be entitled to compensation on any developments that have been made on the land.

Other options for foreign companies looking to gain access to land more generally (i.e. not limited to just village land) include by way of a long lease or joint venture.

  • Under a long lease, foreign companies could enter into a lease with local land owners for the most part of the term of right of occupancy of the land. The maximum term will be up to 99 years with an option of renewal.
  • Under a joint venture, a foreign company joins ownership with a Tanzanian entity and takes over 51% of the shareholding of the company so is then able to use the land as a Tanzanian company. 

We can advise further on these options should both or either be under consideration.

Challenges that foreign companies should be aware of when looking to access village land in Tanzania

The reality is that enforcing Derivative Rights can sometimes be perceived as problematic. This is because their enforcement can theoretically be challenged, most obviously by the TIC. The result is that banks in Tanzania can sometimes be cautious about taking Derivative Rights as forms of security. However, as indicated above, in the event that land is re-acquired, a foreign company will be entitled to compensation for any developments made on that land.

A further challenge associated with Derivate Rights is the timing of issuance of the title. Relevant approvals at the local government authorities, Ministry of Lands and the TIC to the point of issuance of the title can take a year or more depending on the complexity of the matter, which is after the investor will have made all necessary payments associated with acquisition. However, for land already registered under the TIC, it can take just two to three months.

As indicated above, if you would like a detailed procedure for acquisition of village land by a foreign company in Tanzania, please do not hesitate to contact us.

We hope that this update has been useful. Should you require further information, please do not hesitate to contact us.

Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. Further advice should be taken before relying on the contents of this summary. Clyde & Co Tanzania accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co Tanzania.