New Amendments To The Land Act Affecting Mortgaging In Tanzania

Introduction

The Government of Tanzania has recently passed the Written Laws (Miscellaneous Amendments) No. 1 of 2018, an Act that amends certain written laws. The Act amends sections 45 and 120 of the Land Act, 1999 (Land Act) and introduces new sections 120A, 120B, 120C, 120D and 120E.

The amendments introduce new restrictions on borrowing by landowners from financial institutions, both locally and internationally. The introduced restrictions cover the use of funds borrowed by landowners. Prior to these amendments, landowners were allowed to use the proceeds of the loan obtained from financial institutions by mortgaging their land - these amendments introduce some restrictions in that respect.

First, they provide rights for landowners to mortgage their land for the purposes of obtaining loans from banks or financial institutions, both locally and internationally. Secondly, there are restrictions on the use of the obtained loans - the amendments provide that landowners can only use their loans via mortgaged land (i) where the land is already developed, for further developments or any other investment purposes, (ii) where the land is underdeveloped or undeveloped, for the development of part or whole of such mortgaged land. Undeveloped, as defined in the law, means "in respect of land, land which is not developed in accordance with the conditions of relevant rights of occupancy" and underdeveloped is defined as "land without improvements in, on, under or over such land or without any change of substantial nature in the use of such land". This provision means that borrowing, by using land as a security, should be for the purposes of developing the mortgaged land only. One might say that this restriction is another way of protecting banks and financial institutions and ensuring that the borrowed money is not invested in other businesses, which might make recoveries difficult for banks that subsequently find themselves with securities which are not liquid enough to absorb the liabilities of the mortgagors.

On the other hand, the provisions might be the government's move to ensure that people are not using their properties solely as a means of getting quick money, without developing the mortgaged property. In addition, these provisions intend to give mortgagees the chance to increase the value of their mortgaged property with the requirement that, after having obtained the money from the issuing bank, the mortgagor is required by law to inform...