Real estate transactions in Nigeria are governed by a complex legal framework that dictates property acquisition, ownership, and transfer. In this context, it is crucial to understand the sui generis nature of real estate transactions and the legal challenges that can accompany them. In Nigeria, as is expected, a wide array of properties ranging from residential to commercial and agricultural land are available. These properties can be owned outright or managed through leasehold arrangements.
The process of purchasing real estate in Nigeria typically follows a series of steps, including property searches, due diligence, negotiations with the seller regarding terms and pricing, the drafting and signing of the relevant purchase agreement, the payment of a deposit (usually around 10% of the purchase price), the completion of the sale with necessary approvals, and finally, the registration of the property with the relevant land registry. Despite the foregoing, it is not unusual to notice a range of legal hurdles one has to skillfully surmount for real estate transactions in Nigeria. These legal challenges amongst others include the following:
- Land Ownership: The Land Use Act’s provision that vests all land in the state government needs to be well understood. It is because, without a proper reflection of this, individuals may wrongly assert customary land rights. Federal lands are governed by the Land Use Act of 1978, which vests ownership in state governors who hold the land in trust for the people. Individuals or entities can acquire usage rights through a Certificate of Occupancy issued by the state government. The Act allows state governors to control and manage lands, with the power to revoke rights under certain circumstances. Exceptions exist for federal lands reserved for federal purposes, which remain under the direct ownership and control of the federal government. The Act also recognizes customary community rights to land ownership, ensuring compensation for community lands used for federal purposes.
- Inadequate Land Records: Inadequate record-keeping and documentation contribute to land disputes, making it difficult to establish clear ownership or the chain of ownership over the land.
- Fraud and Land Scams: Fraudulent activities like the use of forged documents, deceitful land sales, and the sale of the same property to multiple buyers can result in significant legal complications for both buyers and sellers.
- Land Use and Zoning Laws: Adherence to land use and zoning regulations is crucial; failure to comply can lead to legal challenges and potential demolition of structures that do not conform.
- Lengthy Legal Processes: Nigeria’s legal system can appear slow and inefficient and this has contributed to the unforeseen delays and unnecessary bureaucratic processes that affect real estate transactions.
- Corruption: Corruption within the land administration system can trigger legal challenges and unfair practices in real estate transactions.
- Lack of Access to Finance: Real estate transactions are often capital intensive and a lack of financing options can obstruct property acquisition.
These legal challenges have far-reaching implications some of which are:
- Uncertainty: Property ownership disputes and unclear land titles create uncertainty for investors and property buyers thus by extension undermining their confidence in the real estate market.
- Economic Impact: Legal challenges can lead to delays or the cessation of real estate projects therefore impacting economic growth and development.
- Investor Confidence: Legal issues can deter both local and foreign investors, reducing the flow of capital into the real estate sector.
- Social Disruption: Land disputes can incite community conflicts and social unrest, unsettle the peace and stability of the affected area.
- Barriers to Development: Inefficient legal processes and land-related disputes can obstruct urban planning and development initiatives, resulting in a lack of infrastructure and services.
The Nigerian real estate sector offers immense promise and investment opportunities, yet it is not without its share of legal challenges. For anyone looking to buy, sell, or invest in properties in Nigeria, understanding and avoiding these common pitfalls is paramount. Some challenges in Nigeria’s real estate transactions include[i]:
- Lack of Title Documents and Ownership Issues: Many real estate transactions in Nigeria face challenges due to a lack of clear title documents. This can lead to disputes over property ownership. Issues may arise from unregistered land, unclear inheritance laws, or inconsistent land records. It’s crucial to establish a legal title to the property before any transaction.
- Fraudulent Activities: Real estate transactions are susceptible to fraud in Nigeria, hence the need for skilled persons to be engaged to represent either of the parties to the transaction. Fraudulent practices may include the presentation of forged title documents, illegal land sales, or deceitful property descriptions. Due diligence is essential to avoid falling victim to such scams.
- Contractual Disputes: Disputes often arise from disagreements over the terms and conditions of real estate contracts. This may include disputes related to the sale price, payment schedules, property conditions, and other contractual obligations. It is vital to have a well-drafted and legally binding contract to minimize such disputes.
- Property Documentation and Due Diligence: Inadequate documentation and a lack of due diligence can lead to complications in real estate transactions. It is important to verify the authenticity of title documents, land surveys, and property history. Incomplete documentation can cause delays and disputes.
- Land Grabbers (Omo-Onile)[ii]: Land grabbers are a significant challenge in Nigeria, especially in urban areas. These individuals or groups often claim ownership of land and demand fees from legitimate landowners or buyers. They may resort to violence or intimidation. Dealing with land grabbers requires a combination of legal action, community involvement, and strategic negotiation.
- Non-Compliance with Statutory Laws and Regulations: Real estate transactions must adhere to various statutory laws and regulations. Failure to comply with zoning laws, environmental regulations, and building codes can lead to legal problems, including the demolition of structures or financial penalties.
- AVOIDING PITFALLS IN NIGERIA REAL ESTATE TRANSACTIONS
Without a doubt, real estate transactions in Nigeria hold great promise and potential for investors and homeowners alike. However, these transactions come with their fair share of legal challenges that can turn a promising deal into a legal nightmare. Here are key strategies that can help navigate the complexities of the Nigerian real estate market and avoid potential pitfalls[iii].
- Importance of Legal Counsel: Having a skilled legal advisor serves as your initial safeguard in the intricate and sometimes perplexing realm of Nigerian real estate. They help by protecting your interests and ensuring that you avoid unintentionally getting involved in legal intricacies.
- Conduct Due Diligence[iv]: One of the most critical steps in the real estate journey is due diligence. This is essentially a comprehensive investigation into the property’s history and title. It involves thorough research and verification to confirm the property’s authenticity and legality and this can uncover hidden issues, such as outstanding mortgages, unpaid property taxes, or ownership disputes, helping you make an informed decision and avoid unexpected complications.
iii. Request for Relevant Documents: Request and meticulously review all pertinent documents related to the property. These documents may include the Certificate of Occupancy, Land Certificates, Deeds of Assignment, Survey plans, building approvals, and previous transaction records. They serve as your primary source of information and help establish the property’s legitimacy and history.
iv. Verification with Relevant Authorities: Confirm the property’s status with local land and property authorities. These agencies can provide vital information, such as verifying the property’s title, any disputes, or zoning regulations that must be adhered to. This step adds an extra layer of protection, ensuring that the property complies with all legal requirements.
D. HIGH INCIDENCE OF DEFECTIVE TITLES: A PERSISTENT ISSUE USING LAGOS STATE AS A CASE STUDY
Lagos state is arguably a magnet for real estate developers and investors. However, beneath the city’s glitzy façade, a troubling issue plagues the real estate market, which is the sale of properties with defective titles. Example of notorious cases showing the defect of title or requisite approvals includes but are not limited to the following:
- Lekki Gardens Building Collapse (2016)[v]:
In 2016, Lekki Gardens, a prominent real estate developer, made headlines for all the wrong reasons. A building in one of their developments tragically collapsed, claiming multiple lives. Subsequent investigations unearthed structural defects, but the issues ran deeper. The developers had allegedly failed to obtain necessary approvals and permits for the construction. This incident underscores the dangers of developing without clear titles and the due diligence required for construction.
- Otodo Gbame Forced Evictions (2017)[vi]:
The Otodo Gbame community faced forced evictions in 2017. The government cited defective titles and the need for development as reasons for clearing the area. Activists, however, argued that the land tenure system and property rights in the area were ambiguous, leading to disputes and mass evictions. This case underscores the human cost of unclear land tenure and property rights.
- Fake Land Titles and Property Scams:
Reports of real estate companies and individuals selling properties with fake or questionable land titles are prevalent. These scams have left many investors embroiled in legal battles to reclaim their properties, highlighting the perils of buying into a market with lax title verification.
- THE ROLE OF GOVERNMENT IN ADDRESSING LEGAL CHALLENGES[vii]
The Nigerian real estate sector is a vital component of the nation’s economy, attracting investments and offering shelter to its citizens. However, it is also fraught with legal challenges, and the role of the government in addressing these issues is pivotal. The role of the government in addressing legal challenges in Nigeria’s real estate transactions cannot be overstated. Government intervention provides the legal clarity, protection of property rights, and dispute resolution mechanisms necessary for a healthy and transparent real estate market.
Government intervention in the real estate sector is crucial for several reasons:
- Legal Clarity and Certainty: Government intervention can provide clear and standardized legal frameworks for property ownership, transactions, and dispute resolution. This helps reduce ambiguity and uncertainty in real estate deals.
- Protection of Property Rights: The government plays a fundamental role in protecting property rights. This ensures that individuals can invest in real estate with confidence, knowing that their investments are legally safeguarded.
- Dispute Resolution: Government institutions can offer mechanisms for efficient and fair dispute resolution in the event of conflicts related to property transactions. These mechanisms help reduce the burden on the courts and expedite the resolution process.
- Market Regulation: Government intervention can introduce regulations and oversight to prevent fraudulent activities, reduce the prevalence of fake titles, and ensure that real estate transactions adhere to statutory laws and regulations.
- EXISTING GOVERNMENT EFFORTS TO TACKLE LEGAL CHALLENGES
- Land Registration and Titling Programs: The Nigerian government has made significant strides in digitizing land registration and titling processes. Initiatives like the National Electronic Land and Building Information System (NELBIS) aim to create a centralized database of land records, making it easier to verify property titles and reduce fraud.
- Zoning and Urban Planning Regulations: Governments at various levels in Nigeria have been working to update and enforce zoning and urban planning regulations. These regulations help ensure that property development aligns with city and regional plans, reducing legal disputes arising from non-compliance.
- Property Rights Advocacy: Government agencies and NGOs collaborate to promote property rights awareness. These efforts aim to educate citizens on the importance of proper documentation, due diligence, and the legal aspects of real estate transactions.
- Anti-Land Grabbing Initiatives: Land grabbing, a persistent issue in Nigerian real estate, has been the target of government interventions. Special task forces and agencies have been established to combat land grabbing and restore order in disputed areas.
- Tax Reforms: Taxation can be a source of legal challenges in real estate transactions. Governments have been working on tax reforms to simplify the tax system and reduce tax-related disputes.
- Alternative Dispute Resolution Mechanisms: The Nigerian government promotes alternative dispute resolution mechanisms, such as mediation and arbitration, to expedite the resolution of real estate disputes without clogging the court system.
- CONCLUSION
Avoiding pitfalls as explained above is paramount. This is because successful real estate transactions have the potential to be a strong backbone of economic growth, offering shelter, generating investments, and stimulating development. Ensuring that the market is transparent, secure, and legally sound is essential for the prosperity of both individual investors and the nation as a whole.
Legal pitfalls can lead to financial losses, legal disputes, and emotional stress. They can erode trust in the market, stifle investments, and deter potential buyers and investors. Conversely, avoiding these pitfalls ensures that real estate transactions in Nigeria remain a thriving and reliable investment avenue for all. While individuals and investors have a crucial role to play in safeguarding their real estate endeavors, we also extend a call to action to the Nigerian government. The government’s involvement is indispensable in addressing the challenges that persist. Initiatives such as land registration programs, zoning regulations, and property rights advocacy are commendable steps in the right direction.
But there is more work to be done. As a collective call to action, we urge the government to intensify its efforts in creating a robust, transparent, and legally secure real estate market. Stricter regulation of land transactions, more effective measures against land grabbers, and streamlined property documentation processes can further enhance the sector’s integrity.
In conclusion, the potential of Nigeria’s real estate market is undeniable, and with the right precautions, it can be a source of prosperity for all. By recognizing the challenges, emphasizing the importance of avoiding pitfalls, and rallying for continued government intervention, we can collectively create a real estate industry that is not only vibrant but also legally sound, paving the way for a brighter future in Nigeria’s real estate sector.
[i] https://www.linkedin.com/pulse/7-major-challenges-facing-real-estate-sector-nigeria-dennis-isong
[ii] https://www.linkedin.com/pulse/real-estate-investment-problems-people-face-buying-land-ifeoluwa\
[iii] https://guardian.ng/property/how-to-avoid-pitfalls-in-land-house-purchase-by-expert/
[iv] https://www.linkedin.com/pulse/buying-property-nigeria-mistakes-avoid-iyiola-olatunde-oyedepo
[v] https://www.premiumtimesng.com/regional/ssouth-west/235709-building-collapse-lekki-gardens-boss-others-docked.html?tztc=1
[vi] https://www.theguardian.com/cities/2017/may/31/destroyed-community-lagos-nigeria-residents-forced-evictions-demolitions
[vii] https://www.propertypro.ng/guide/challenges-real-estate-developers-nigeria
Written by Esegi Maureen and Deborah Onafadeji for The Trusted Advisors
Email us: [email protected]