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Market spotlight

Trends and prospects

What are the current trends in and future prospects for the real estate market (both commercial and residential) in your jurisdiction?

The Nigerian real estate market has undergone significant development in the recent past due to capital investment by banks, individuals and other financial institutions. However, this development has slowed of late due to the recession and low global oil prices.

Rights and registration

Rights

What types of holding right over real estate are acknowledged by law in your jurisdiction?

The Land Use Act (LFN Cap L5 2004) governs all existing land tenure systems subject to its limitations regarding land holding and the exercise of land rights. By making all land tenured, the act aims to enhance the leasehold principle, under which the land in each state is vested in the state governor to hold in trust for the benefit of citizens in that state.

Granting a citizen the right to hold, occupy and use land for a certain period is known as a right of occupancy and is the highest available legal interest. Section 5(1) of the act provides for, among other things, the issuance of certificates of occupancy or a customary right of occupancy as evidence of land ownership.

Are rights to land and buildings on the land legally separable?

No. Under the Land Use Act, the owner of a piece of land owns everything on that land, including any buildings. However, there are certain exceptions to this rule with regard to minerals beneath the land and ‘economic trees’ (ie, commercially productive trees), among other things, which are subject to the prevailing customs of where the land is situated.

Which parties may hold and exercise rights over real estate? Are there restrictions on foreign ownership of property?

All Nigerian citizens have the right to acquire and own immovable property anywhere in Nigeria. However, under Section 7 of the Land Use Act, a state governor cannot grant a statutory right of occupancy or consent to the assignment or sub-letting of a statutory right of occupancy to anyone under the age of 21.

There are restrictions on foreign land ownership in Nigeria. A foreign individual or corporation cannot acquire an absolute interest in land. Under the various state laws, the highest interest that a foreign party can hold in land is a leasehold interest (Native Land Acquisition Laws, Cap 80, Laws of Western Nigeria 1959; Acquisition of Land by Aliens Law, Cap 2, Laws of Eastern Nigeria 1963; Land Tenure Law, Cap 59, Laws of Northern Nigeria 1963).

Further, foreign parties cannot acquire land for more than 90 years in the northern states or 99 years in the eastern states. In Lagos state, no foreign party can acquire a right of absolute ownership over land from a Nigerian party. However, foreign parties can hold a lease for up to 25 years (Section 2 of the Acquisition of Land by Aliens Law, Cap A2, Laws of Lagos State 2003).

How are rights, encumbrances and other interests over real estate prioritised?

Statutory rights of occupancy are prioritised on a first-come, first-served basis.

Registration

Must real estate rights, interests and transactions be registered in your jurisdiction? What are the legal effects of registration?

Yes, the Land Registration Act (36/1924 Cap 515 LFN 2004), which each state has adopted and enacted, regulates the registration of instruments concerning land transactions, rights and interests in Nigeria.  

Effects of registration A registrable instrument concerning state land will be void where it is not registered within six months (Section 15 of Cap 56 (western and northern states); Section 14 of Cap L58 Lagos 2003; and the corresponding provision in the laws of the other states).

An unregistered registrable instrument is inadmissible as evidence of an interest, although it may be admitted as an acknowledgement of payment.

What are the procedural and documentary requirements for entry into the national real estate register(s)? Can registration be completed electronically?

Parties must complete the relevant application or registration forms. At present, registration cannot be completed electronically.

What information is recorded in the national real estate register(s) and to what extent is such information publicly available?

The National Real Estate Register records:

  • the file number of the land;
  • the plot number;
  • the district in which the land is located;
  • the purpose of the land’s use;
  • the date on which the right of occupancy was granted;
  • the plot size;
  • the annual rent;
  • the plot owner’s name; and
  • any encumbrances or charges.

This information is publicly available by way of a legal search on the payment of a fee.

Is there a state guarantee of title?

There is no state guarantee of title, especially if the title is unregistered.

Sale and purchase

Brokerage

How are real estate brokers regulated in your jurisdiction (eg, through caps on commission or disclosure obligations)?

No standard regulation governs real estate brokers. However, when buying a property, it is customary to pay 5% of the property price to:

  • the agent, as a commission; and
  • the lawyer who prepared the agreement, as legal fees.

Due diligence

What due diligence should be conducted before conclusion of a real estate sale contract?

Before concluding a real estate sale contract, the buyer should:

  • conduct a site visit;
  • conduct a legal search of the Land Registry;
  • interview individuals with prior knowledge of the title; and
  • identify the seller and compare signatures using the seller’s means of identification.

Preliminary agreements

Are any preliminary agreements typically entered into before conclusion of a sale contract?

Yes – for example, confidentiality and broker fee agreements.

Contracts

Must sale contracts be concluded in writing? If so, must they be notarised?

Yes, sale contracts must always be in writing and may be notarised for the purposes of registration in the Land Registry.

Can sale contracts be concluded electronically?

No, sales contracts cannot be concluded electronically.

What provisions are usually included in a sale contract?

The following provisions are usually included in a sale contract:

  • the transacting parties’ identities and addresses;
  • the mode and date of the payment;
  • the parties’ consent to a perfect title; and
  • the deed and title transfer’s date of execution.

Obligations and liabilities

What are the seller’s disclosure obligations and other liabilities, and what are the consequences of breach?

The seller’s disclosure obligation includes full disclosure of any outstanding:

  • fees;
  • levies;
  • taxes; or
  • third-party interests (equitable or legal).

In the event of a breach of this obligation, the court may specifically order the seller to perform the obligation under the contract or refund the buyer’s costs and expenses.

What contractual warranties are usually given by the seller?

Sellers usually warrant:

  • the deposit of the original title documents;
  • the execution of various transfer documents; and
  • that the buyer will be free from charges and any form of encumbrance.

Are there any other obligations on the buyer, aside from paying the purchase price?

Yes, buyers must:

  • pay the applicable agency fees and any other fees and taxes; and
  • take steps to perfect the title with the Land Registry.

Taxes

What taxes are payable on the sale and purchase of real estate? Are any exemptions available?

The following taxes are payable on the sale and purchase of real estate:

  • consent fees;
  • registration fees;
  • stamp duties; and
  • capital gains tax.

The amount of taxes and duties paid on properties varies depending on the state, but is usually based on the property’s value and location.

Transfer of title

When does title in the property transfer?

Title is transferred when consent has been obtained from the relevant governor or minister and the deed has been formally stamped and incorporated in the Land Registry. However, an equitable transfer of interest may be acknowledged on payment of the property’s full price.

Timeframe

What is the typical duration of a sale transaction?

A typical sales transaction can ordinarily be concluded within three days from confirmation of the search report.

Leases

Contracts

Must a lease agreement be concluded in writing?

While the law requires lease agreements to be in writing, it also recognises parol lease agreements. However, these cannot cover periods of more than three years.

Are there any regulations setting out mandatory or prohibited provisions in lease agreements?

No.

What provisions are typically included in lease agreements?

The following provisions are typically included in lease agreements:

  • the transacting parties’ identities;
  • a description of the property;
  • the rent payable;
  • the lease’s duration; and
  • the date of the lease’s commencement and termination.

What are the standard forms of lease agreement used in your jurisdiction?

Written agreements are the standard form of lease agreement in Nigeria.

Length of term

Are there any regulations on minimum and maximum terms of leases?

There are no regulations in this regard; rather, the length of a lease is subject to agreement by the parties.

Are long-term tenants accorded any special rights as to the extension or renewal of leases?

Yes, long-term tenants have the right of first refusal to renew a lease.

Rent

What regulations (if any) govern rent increases?

The various states’ rent control laws govern rent increases. However, at present, the Federal Capital Territory has no law which governs rent increases within the territory.

What regulations (if any) govern rent security deposits?

No regulations govern rent security deposits.

Can the tenant withhold rent payments on any legal grounds?

Tenants cannot withhold rent payments unless the lease agreement expressly provides otherwise.

Sub-letting

Under what circumstances is sub-letting typically allowed?

Sub-letting is prohibited unless the lease agreement expressly provides otherwise.

Obligations and liabilities

What are the general obligations and liabilities of the landlord in respect of the property and what are the consequences of breach?

In general, landlords must:

  • maintain the property’s structure and roof; and
  • pay ground rent and any other levies imposed by the relevant government agencies or authorities.

Where a landlord breaches its liabilities and obligations, the tenant can sue for breach of contract.

What are the general obligations and liabilities of the tenant in respect of the property and what are the consequences of breach?

In general, tenants must:

  • pay rent as and when it is due;
  • keep the property in good condition;
  • pay utility bills; and
  • not use the property for any use other than that for which it was leased.

Where a tenant breaches its liabilities and obligations, the landlord can file a suit for recovery of the premises and payment for outstanding arrears, mesne profits and damages.

Taxes

Are any taxes payable on rental income? If so, are any exemptions available?

No, but this is subject to the landlord’s personal income.

Insurance

Are the landlord and tenant bound by any insurance requirements?

Landlords and tenants are not bound by insurance requirements unless they have expressly agreed otherwise.

Termination and eviction

What rules and procedures govern termination of the lease by the landlord and the tenant’s eviction from the property?

The termination of a lease is governed by:

  • the effluxion of time, as stated in the tenancy agreement; and
  • the institution of an action to recover the premises.

Finance

Finance providers

What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?

There are no restrictions as to which parties can provide financing. Typical providers include:

  • commercial banks;
  • federal mortgage banks;
  • private mortgage banks;
  • private individuals and companies; and
  • foreign investors.

Financing structures

What are the most common structures used to secure real estate financing and how are these security interests perfected?

The most common structures used to secure real estate financing are:

  • an assignment of the developer’s rights under the finance lease agreement; and
  • registration of the legal mortgage in the Land Registry.

Security is perfected by the registration of the legal mortgage deed.

What covenants are typically made in financing agreements?

Covenants made in financing agreements generally concern:

  • the financing amount;
  • the financing’s purpose;
  • the financing’s tenor;
  • the applicable interest rate;
  • the source of repayment;
  • amortisation;
  • security;
  • a cross default clause;
  • a default clause;
  • the right to set-off; and
  • a wavier.

Enforcement of security

How are security interests enforced in the event of default?

Security interests are enforced by way of:

  • foreclosure, in the case of a registered mortgage; and
  • a court order for the sale of security.

What is the typical timeframe for the enforcement of security?

For a registered mortgage, the law requires that six months’ notice be provided to the mortgagee on default of payment before sale. However, in the case of a court order, the length of enforcement is determined by the time of delivery of the court judgment, which may be subject to appeal before a higher court.

Investment

Investment climate

What is the general climate of real estate investment in your jurisdiction?

Return on investment is usually high, especially when the property is located in a prime real estate area.

Investors

Who are the most common investors in real estate?

Local private investors, foreign investors and corporations are the most common investors in real estate.

Are there any restrictions on foreign investment in real estate?

There are no restrictions on foreign investment in real estate. However, a foreign party cannot acquire absolute title in land for more than:

  • 90 years in the northern states; or
  • 99 years in the eastern states.

In Lagos state, no foreign party can acquire a right of absolute ownership over land from a Nigerian party. However, foreign parties can hold a lease for up to 25 years (Section 2 of the Acquisition of Land by Aliens Law, Cap A 2, Laws of Lagos State 2003).

Investment structures

What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?

N/A.

Planning and environmental issues

Planning

Which government authorities regulate planning and zoning for real estate development and use in your jurisdiction and what is the extent of their powers?

The following authorities regulate planning and zoning for real estate development and use in Nigeria:

  • the Department of Development Control;
  • the Department of Lands Administration;
  • the Ministry of Lands and Survey; and
  • the Development of Urban and Regional Planning.

The powers of these authorities are clearly stated under the different laws which established them.

What are the eligibility, procedural and documentary requirements to obtain planning permission?

To obtain planning permission, developers must provide:

  • a building plan or drawing;
  • details of the proposed purpose of the land use;
  • details of the area’s density;
  • an environmental impact assessment test report;
  • a soil test report; and
  • a valid title.

Can planning decisions be appealed? If so, what is the appeal procedure?

Planning decisions can be appealed through various procedures before the Urban and Regional Planning Tribunal.

What are the consequences of failure to comply with planning decisions or regulations?

The consequences of failure to comply with planning decisions or regulations include:

  • prosecution;
  • demolition of the structure; and
  • government revocation of the title.

What regime governs the protection and development of historic and cultural buildings?

UN conventions and domestic laws governs the protection and development of historic and cultural buildings, which are usually enforced by the Department of Museums and National Monuments.

Government expropriation

What regime applies to government expropriation of real estate?

Real estate is not generally subject to expropriation in Nigeria except where there is an overriding public interest or the real estate is a proceed of or connected to fraud or another crime. In such cases, the courts can issue an order as to the right of the investor or the government.

What is the required notice period for expropriation and how is compensation calculated?

Nigerian law does not provide a specific notice period, but the owner of the statutory right of occupancy must be duly served with notice of revocation. Failure to do so may result in the expropriation being successfully contested in court.

Expropriation is usually compensated by the provision of alternative land to the owner of the right that has been expropriated. Monetary compensation by the government is uncommon.

Environmental issues

What environmental certifications are required for the development of real estate and how are they obtained?

Developers must obtain the following certifications from the Department of Development Control:

  • building plan approval;
  • an environmental impact assessment test report; and
  • a soil test report.

These certifications are usually obtained by submitting an application to the relevant department and paying the official processing and approval fees.

What environmental disclosure obligations apply to real estate sales?

Details of the proposed purpose of the property’s use must be disclosed.

What rules and procedures govern environmental clean-up of property? Which parties are responsible for clean-up and what is the extent of their liability?

The rule of strict liability applies.

Are there any regulations or incentive schemes in place to promote energy efficiency and emissions reductions in buildings?

No.