Private investors seeking to use leased public land as loan collateral will now be required to provide third-party guarantors and strictly adhere to lease terms, under new Treasury measures to protect public assets from loss through loan defaults.
A new advisory from Treasury Cabinet Secretary John Mbadi to State officials said allowing private investors to use leased public land as collateral without adequate safeguards could expose the government to the risk of land loss.
Now, Mr Mbadi has moved to tighten controls on public land leased to private entities-especially within Special Economic Zones (SEZs) and Export Processing Zones (EPZs)-by introducing a stricter clearance process for investors seeking business loans using such land as collateral.
Under the new directive, investors intending to use leased SEZ or EPZ land to secure business loans will require explicit approval from the relevant board and the cabinet secretary of the line ministry before such land can be used as collateral.
Mr Mbadi said the application must be accompanied by clear conditions ensuring that all lease terms remain fully enforceable throughout the loan period and that any breach of terms automatically discharges the public entity from obligations related to the financing arrangement.
‘Any board and cabinet secretary of the line ministry approval-granting consent for the use of public leased land as collateral should clearly provide that all conditions of the lease shall apply during the term of the loan facility and any breach of the Lease terms shall discharge the public entity from any related obligations,’ said Mr Mbadi in the December 8 circular.
The investors will be required to provide a ‘comprehensive business continuity and repayment guarantee’ to safeguard public assets during the full duration of the loan. This will ensure public land is not placed at risk due to weak project financing or poor business performance.
Mr Mbadi said the State will roll out measures that prevent financial institutions from assuming ownership of leased land following loan defaults.
‘The government should implement policy measures that prevent the permanent transfer of leased SEZ/EPZ land or any other public entity land to financial institutions in the event of loan default, ensuring that land reverts to public ownership,’ he said.
The advisory also introduces stricter rules on lease structures. Master leases issued by the government must now be longer than any sub-leases by a minimum of 10 years.
The move aims to ensure the State retains long-term control over the land while allowing investors sufficient time to develop and operate their projects. In instances where the lessee intends to sub-lease the land, the terms and conditions will closely mirror those of the original lease agreement to prevent dilution of government protections through layered leasing arrangements.
‘A lessee who intends to use the leasehold interest as collateral must obtain the lessor’s written consent. The validity of the consent will be dependent on the lessee’s continued compliance with its obligations under the lease agreement,’ reads Mr Mbadi’s circular in part.
The Treasury’s directive comes on the back of increasing activities in SEZ and EPZ that have mounted pressure on the State to strike a balance between facilitating access to capital and protecting public resources.
Data from the State Department of Trade shows the number of EPZs grew by 32 in the year to June 2025 compared with 12 in the prior financial year.
The State Department said the target was surpassed due to the rigorous promotion activities and more inquiries turning into actual projects.
The review period saw EPZ firms export goods worth Sh126 billion, an 8.9 percent rise from Sh115.71 billion in the previous period. The value of local purchases from these zones hit Sh20 billion from Sh16.58 billion a year earlier.