Bank of Tanzania: Circular on ratios of cost to income and non-performing loans
In this article, we look at how land in Tanzania can be used as collateral by lenders. We also explore various options for registering third party interests in land, how such options operate and their effectiveness in securing lenders' interests.
All land in Tanzania is public land vested in the President as a trustee on behalf of the people. Tanzanian citizens occupy public land through a right of occupancy. There are two categories of right of occupancy namely granted right of occupancy (GRO) and customary right of occupancy (CRO). A GRO is issued for general land that is surveyed as per the requirements of the urban planning authorities. A CRO is issued for village land by the village councils.
A GRO is subject to a term of occupation that does not exceed 99 years. On the other hand, the duration of a CRO may be for either an indefinite period, a definite period which does not exceed 99 years or for year to year or less as it may be determined by the village council.
Non-citizens and companies that are majority-owned by non-citizens (collectively referred to as Foreigners) cannot hold land under a GRO or a CRO as these are reserved for Tanzanian citizens. However, Foreigners can occupy general land either through a long term lease or a derivative right granted by the Tanzania Investment Centre. Foreigners cannot occupy village land either through a derivative right or a long term lease unless the village land is first converted into general land.
Land is commonly accepted by lenders as a form of collateral. This is in part due to the legal protections available to lenders when securing third party interests in land. We discuss below the various forms of securing third party interests in land.
A mortgage is the creation of an interest in a right of occupancy for securing the payment of money or the fulfilment of a condition. A mortgage deed must be registered with the Registrar of Titles to be effective. A mortgage created between a lender and a corporate body cannot be registered with the Registrar of Titles unless it has first been registered with the relevant registrar of that corporate body. For example, mortgages created by a company must first be registered with the Registrar of Companies (i.e. the Business Registrations and Licensing Agency) before they are registered with the Registrar of Titles.
Where the same property is mortgaged to several lenders, the mortgages must rank in priority according to the order in which they were registered unless the lenders enter into a security sharing agreement that would set out the ranking of the mortgages.
Recent amendments to the Land Act  require that a loan secured by a mortgage of an undeveloped or underdeveloped land be applied either wholly or partially towards developing that particular piece of land. The mortgagor is required to submit information to the Registrar of Titles on how the loan has been utilised to develop the mortgaged land. The Land Act also requires that the money obtained from a mortgage must be invested within Tanzania. Please review our previous updater here on recent regulations surrounding mortgaging of land.
The creation of a mortgage does not transfer the land title from the mortgagor to the mortgagee. A mortgage only acts as security giving the mortgagee interest in redemption upon failure of a person from paying the secured loan or fulfilling a similar condition.
The following remedies are available to a mortgagee or lender upon an event of default by a mortgagor or borrower:
Prior to taking any enforcement action under a mortgage the mortgagee must serve on the mortgagor a notice in writing of the said default.
A lien by deposit of documents is registered with the Registrar of Titles by filing a notice of deposit together with the original certificate of title for the charged property. The Registrar of Titles will then register the notice as an encumbrance in the land register and endorse the same on the respective certificate of title. The notice of deposit will remain in effect until it is withdrawn. Notice of deposit will have the following effect once registered:
A lien by deposit of documents is different from a mortgage as it does not automatically grant a lender the right of sale upon default. However, it protects the lender's interests by ensuring that the charged property is not transferred or disposed of without the lender's consent.
Another less common method of securing lenders’ interest in land is through registering a caveat. A caveat can be registered by any person who has an interest in a particular property held under a GRO. The caveat must be filed with the Registrar of Titles by submitting a prescribed form together with a statutory declaration stating the facts which support the caveat.
Once registered, a caveat only secures the interests of the person who so made it. The caveator will be notified by the Registrar of Titles if any action or disposition is intended to be registered on the property.
If a registrable document is presented to the Registrar of Titles for registration, such registration will be suspended for one month and the caveator will be notified accordingly. The one month notice period is intended to provide the caveator with an opportunity to challenge the proposed registration at the High Court of Tanzania (the High Court). The caveat will automatically lapse after the expiry of the one month time period and the Registrar of Titles will proceed to register the document presented unless the document has been withdrawn or the High Court has issued an order directing otherwise.
Due to its nature, a caveat may not be a suitable option for securing a lender's interest in land. Nonetheless, a caveat can be useful for any third parties who have an interest in keeping track of a disposition concerning a particular property.
Please do not hesitate to contact us should you have any queries.
 The Land Act, Cap. 113 R.E. 2019.