Decree Holder v Interested Party (Apportionment of Rental Income in Escrow Account)
The bottom line
#When splitting rental income from a property sale, the court prioritizes the percentage of the purchase price paid over the exact date of payment.
What this practically means
#Executive summary
#Key legal issues
#Basis of apportionment of rental income held in escrow between decree holder and auction purchaser
Apportionment follows the purchaser's paid equity (32%) against the decree holder (68%), calculated up to the date of the last payment of the purchase price (22nd March 2019)
The court reasoned that by the time the escrow account was opened on 25th July 2018 the interested party had deposited Kshs. 21,600,000, so the decree holder was already enjoying the benefit of those deposits. It would be inequitable for the decree holder to benefit from the sale proceeds while denying the purchaser equivalent rights in the rent. Registration of the transfer on 28th January 2019 conferred legal and equitable interest, but the last payment date was the relevant cut-off.
Whether the decree holder's advocates' taxed costs of Kshs. 2,100,000 are payable from the rental income under section 101(c) of the Land Act
The court declined to determine the issue, holding it was not for determination in the application since the law firm is not a party to the escrow account
The applicant argued that rental income attached towards satisfaction of the decretal sum constituted proceeds of sale of charged land, so taxed costs fell within the section 101(c) priority. The interested party countered that rental income is not sale proceeds and the certificate of costs was against the judgment debtor. The court sidestepped the statutory question, confining the application to apportionment between the two escrow parties.
Legal principles established
#- Where a purchaser has paid part of the purchase price before an escrow account of rental income is opened, apportionment of that rental income should be based on the proportion of the purchase price actually paid, not on the date of registration of the transfer or payment of the final instalment
Court orders
#- 1.The apportionment shall be calculated up to 22nd March 2019, the date of the last payment of the purchase price
- 2.The sum in the escrow account shall be apportioned based on payments made by the interested party, being 32% of the purchase price: rental income to accrue to the interested party at 32% and 68% to the decree holder
- 3.Each party to bear its own costs
- Jurisdiction invoked
- Sections 1A, 1B & 34 of the Civil Procedure Act, Order 22 Rule 1 of the Civil Procedure Rules, 2010 and Section 101(c) of the Land Act
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Decree Holder v Interested Party (Apportionment of Rental Income in Escrow Account)", Case Analysis (2020). Notice of motion application dated 13th May 2019. Source:
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.