UGANDA, Kampala | Real Muloodi News | In a recent decision that caught the attention of Uganda’s real estate and financial sectors, the High Court in Kampala delivered a landmark ruling in a case involving Gorrepati Srinivasa Reddy, Grant Thornton Management, and Visare (U) Limited. The case, originating from a loan default, revolved around the Visare luxury condominium development project in Kampala.
The heart of the issue lay in whether Reddy, who had purchased four of the condominium apartments, could prevent the sale of the property, despite a court order allowing its sale to settle a debt.
Background to the Case
The dispute traces back to February 24, 2017, when Visare (U) Limited obtained a substantial loan from KCB Bank Uganda Limited.
The purpose of this loan was to finance the construction of a block of forty-four luxury condominium residential apartments located in the upscale suburb of Kololo, at Plot 65A Lugogo Bypass in Kampala.
To secure the loan, Visare (U) Limited mortgaged the land title, LRV 2651 Folio 9 Plot 65A, to the bank.
Despite completing the construction of the residential units, Visare (U) Limited defaulted on its loan repayment, owing the bank a staggering US $1,930,813. As a result, KCB Bank initiated foreclosure proceedings.
In an attempt to halt the foreclosure and partly cover the outstanding debt, Visare (U) Limited, on December 31, 2019, agreed to sell twelve of the forty-four units to Grant Thornton Management for US $2,400,000.
As part of this deal, Grant Thornton Management paid US $500,000 to the bank to temporarily stay the foreclosure proceedings.
A tripartite memorandum of understanding was then signed on February 28, 2020, between Visare (U) Limited, Grant Thornton Management, and KCB Bank. This agreement outlined that the mortgage would be redeemed upon the payment of US $1,930,813.
In March 2020, a consent judgment was entered into whereby Visare (U) Limited had the option to buy back the twelve units by December 31, 2020.
However, if Visare (U) Limited was unable to raise the outstanding mortgage by this deadline, Grant Thornton Management was to pay off Visare’s outstanding mortgage balance, and in turn, regain full ownership and rights over the twelve units to transfer or sell.
Escalation of the Legal Battle
The legal battle intensified when Visare (U) Limited was not able to pay the debt within the specified time, defaulting once more.
However, Visare (U) Limited had failed to secure individual titles for the twelve units, leading Grant Thornton Management to apply for the attachment and sale of the entire land in April 2021.
Visare (U) Limited contested this move, claiming Grant Thornton Management only has authority over the original twelve apartments sold to them, not the entire building.
However, the Registrar initially ruled in favour of Grant Thornton Management, issuing an order for the attachment and sale of the entire land.
Appeal and Revision of the Court’s Decision
Visare (U) Limited appealed this decision, leading to a pivotal judgment on January 11, 2022. The court found that the earlier decision to sell the entire property was excessive and not in compliance with the Civil Procedure Rules.
The court emphasized that only such a portion of the property should be sold as necessary to satisfy the decree.
Following the court’s directive, a valuation was conducted, revealing the property’s market and forced sale values.
Based on this, the court issued a warrant of attachment and sale for specific apartment units, amounting to a total value of US $5,084,000, to recover the outstanding debt.
However, finding a buyer for only the twelve units proved challenging. Potential buyers showed interest in purchasing the entire property, leading Grant Thornton Management to request a variation of the earlier order. This development prompted the court to reconsider its stance.
The Court’s Ruling
In a decision dated January 23, 2023, the court recognized the market reality that selling only twelve of the units was not feasible and permitted the attachment and sale of the entire property.
The total value of the Visare luxury condominium development attached was US $7,964,000, aimed at recovering a decreed sum of US $5,885,540, excluding recovery costs. The warrant for the sale of the property was renewed on March 27, 2023.
Mr. Gorrepati Srinivasa Reddy’s Application
After the court’s decision, Mr Gorrepati Srinivasa Reddy sought legal intervention to release a portion of the property he claimed to own – specifically, four apartments he purchased for $1,200,000.
Mr Reddy had learned the Visare luxury condominium apartments were for sale in December 2022 from Vijay Reddy, director of Visare (U) Limited.
From his physical inspection, he discovered that the premises had three Blocks A, B and C. Each block had three or two-bedroomed apartments that were at the time comprised on one leasehold land title but were to be sold as Condominium units pending the application to the relevant authorities.
Vijay Reddy informed Mr Reddy that Blocks B and C were subject to a Commercial Court attachment order, leaving him with authority only over Block A. This block comprised sixteen units.
Mr Reddy also learned from the director that the plans for converting these into condominium properties had been approved and were ready for registration.
Consequently, after being assured that they were not part of any legal entanglements, Mr Reddy opted to purchase four three-bedroom apartments in Block A, with two units located on the fourth floor and two on the fifth floor, for $300,000 per unit, amounting to a total of $1,200,000.
He made a cash deposit of $30,000 for each unit, with the balance due upon Visare (U) Limited’s procurement of the condominium titles.
Following his $120,000 deposit, Visare (U) Limited provided Mr Reddy with both physical and legal possession of these four units, along with the keys.
He was introduced to the building’s caretaker and local authorities. Since then, Mr Reddy furnished the apartments, which he and his tenants had occupied, and met all utility bills including water and electricity.
However, Mr Reddy was later surprised to receive a notice from Quickway Auctioneers & Court Bailiffs, instructing him and his tenants to vacate the premises.
Mr Reddy then discovered that the entire property, including his four units in Block A, had been attached by the court and advertised for sale in the New Vision Newspaper on Monday, 27th February 2023, upon the instructions of Grant Thornton Management.
Mr Reddy claimed he purchased the apartments as an investment, and had resided in the apartments since December 2022 with his tenants.
Mr Reddy believed the physical possession and usage of the apartments granted him rights over them. He asserted that his possession was lawful and independent of the debt-related issues concerning the rest of the property.
Therefore, Mr Reddy requested either the release of the entire property or specifically the four apartments he occupied.
However, Grant Thornton Management & Visare (U) Limited contended that the four apartments were part of a property attached by court order to recover debts.
They argued that the entire property, including Reddy’s apartments, was legally attached as collateral for a debt.
They insisted that Mr Reddy’s claim did not exempt these apartments from being used to settle the debt.
The Court’s Final Decision
In its ruling, the court focused on the principle of possession in property law, distinguishing between physical and constructive possession.
The court agreed that while Mr Reddy had physical possession of the apartments, this did not automatically translate into a legal right to exclude them from the debt settlement process.
The court also examined the nature of Mr Reddy’s claim to the apartments. It found that while he had a contractual agreement to purchase them, this did not equate to a legal separation of his apartments from the rest of the property.
Without a registered condominium plan, the apartments were not legally distinct units, and therefore, Mr Reddy’s claim to them could not override the larger debt-related attachment of the property.
Implications of the Decision
The court’s decision underscores the risks involved in real estate transactions and the importance of understanding the legal status of a property before purchasing it.
According to Tara Advocates, a registered condominium plan is very important because unit owners’ interests are limited to only what is registered.
Therefore, in addition to the Certificate of title, an intending purchaser of a condominium unit ought to specifically examine the condominium plan before concluding a sale transaction.
In the case of the Visare luxury condominium apartments at Plot 65A Lugogo Bypass, the condominium plan had been approved, but it was still pending registration.
For Mr Reddy, the ruling was a significant setback. It meant that his claim to the apartments could not prevent their sale in the execution of the court’s decree for debt recovery.
For other potential real estate investors, this case highlights the need for clear legal documentation and due diligence in property transactions.
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