The typical forms of security created over real property in Nigeria are: (i) legal mortgage; (ii) equitable mortgage; and (iii) charge.
It is important to note that the creation of security and the nature of interest created over real property is subject to the consent of the Governor of the State where the property is situate and either the consent of the Minister of Housing and Urban Development or the Minister of the Federal Capital Territory in the case of a property covered by federal title or located within the Federal Capital Territory, Abuja respectively. The security is also to be registered at the appropriate Land Registry under the relevant provisions of the Land Use Act/ Land Instrument registration Law of the relevant State and registration of the security at the Corporate Affairs Commission where the borrower/owner of the property is a corporate entity. The requirement to obtain Governor’s/Minister’s consent is applicable regardless of the differences between a legal and equitable mortgage.
Last modified 13 Mar 2025
The rights over which security can be granted include right of reversion, right of redemption and right of occupancy. A right of reversion is the right to resume ownership or possession of property upon the occurrence of a certain event which a borrower/mortgagor can grant to a lender as security. This implies that the lender would be entitled to any reversionary interest which may arise from the property of the borrower/mortgagor.
A right of redemption implies that upon discharging a loan or mortgage, a mortgagor is entitled to re-possess his property. This right can be used by a borrower to acquire more loans and the right of redemption would then be bestowed on the lender as security for money loaned.
A right of occupancy is one created from acquisition of property. It is a right of ownership and possession. It can be granted as security to a lender.
Assets considered to be real estate are land, buildings, intangible assets such as easements and rents, fixtures or machinery permanently fixed to land, property or building attached to land so that the law deems them to become part of the land.
A lender may create security interests over the above rights and assets
Last modified 13 Mar 2025
The concept of a trust is recognized under Nigerian Law in relation to investments amongst others. Where a trustee holds, property, such property is held in trust for the benefit of designated beneficiaries. Legal ownership rights are vested on the Trustee while the Beneficiaries retain the beneficial ownership interests in any property. This concept is commonly used with investment structures such as collective schemes and is extensively regulated by the stipulated provisions of the law and the Securities and Exchange Commission.
Last modified 13 Mar 2025
Debt trading is subject to the agreement of parties in the facility or loan agreement. Where there are no restrictions in the agreement between parties, all or a portion of the loan debts can be transferred to a third party. Receivables under a credit facility can be transferred to another lender by (i) assignment; (ii) novation; and (iii) sub-participation arrangements.
Last modified 13 Mar 2025
Generally, a Nigerian company may source for funding through various means including borrowing, subject to the provision of its memorandum and articles of association. A lender may take as security; rights over the property of the company including real property but any security interest on the property must be registered at the relevant lands registry and the Corporate Affairs Commission. There are restrictions to the grant of security in real property to a foreign lender in Nigeria.
In practice, a foreign lender may take security in real estate through an incorporated Nigerian Special Purpose Vehicle (SPV). Where the borrower’s real estate is owned through an SPV, the foreign lender may create security over the shares held by the borrower in the SPV.
A registered entity in Nigeria may be appointed by a foreign lender as a security trustee to hold the real property asset being used as security.
Last modified 13 Mar 2025
The grant of enforceable security is subject to the perfection requirement. By the provisions of the law, any transfer purporting to grant an interest in land whether by way of an assignment, sublease, mortgage or transfer of possession is required to be effected subject to the consent of the Governor or Minister as the case may be and without which consent; the transfer of interests is voidable. The perfection process involves: (i) obtaining the consent of the Governor or Minister; (ii) Stamping of the specific transfer instrument (usually Deed of Legal Mortgage); and (iii) registration with the land registry. Some of the applicable charges and fees in this regard include: the consent fee, stamp duties, registration fees, and such other sundry charges as may be determined by the relevant State’s Lands Bureau.
Last modified 13 Mar 2025
Previously, it was unlawful for a company to provide financial assistance including but not limited to guarantee, security or indemnity, loan or any form of credit and any financial assistance for the purpose of a person acquiring or proposing to acquire its shares, the company acquiring its own shares or the shares in its holding company.
However, under the Companies and Allied Matters Act, 2020, the rules on financial assistance have been revised to provide flexibility and to match international standards for corporate transactions. A limited liability company may purchase its own shares including redeemable shares, subject to certain conditions. Other instances include:
(i) where any payment is made pursuant to an order of the Federal High Court under a scheme of arrangement; (ii) a scheme of merger or any other scheme or restructuring of a company done with the sanction of the Federal High Court; (iii) lending in the ordinary course of the company’s business, (iv) an assistance given by a company where its principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company.
Directors stand in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf thus a director of a company must only act in a way that he considers in good faith, is most likely to promote the best interest of the company. In this regard, a director is required to consider the rationale for decisions taken by the board in connection with assets of the company including real estate.
It is also important to note that under Nigerian law, any conveyance mortgage, payment etc done or made in relation to property, which if done or made in bankruptcy of an individual shall be deemed as a fraudulent preference, and if done or made against a company shall be deemed as fraudulent preference of its creditors and therefore invalid when done or made in the event of a winding up.
Last modified 13 Mar 2025
There are no restrictions to repayment of foreign loan facilities under financing documents. However, it is worthy of mention that the foreign lender should obtain a certificate of capital importation (CCI) at the point of advancing the loan capital to the Nigerian entity. A CCI guarantees ease of repatriation of the loan capital and or investment return in foreign currency at the official foreign exchange rate.
Last modified 13 Mar 2025
Generally, secured creditors rank in priority over unsecured creditors, also a registered security ranks above an unregistered security interest. A secured creditor may by contract take subject to the interest of another secured creditor which was subsequently granted a security interest in the property. This arrangement is typically documented in an inter-creditor agreement or subordination/priority agreement.
Also, under Nigerian law, a fixed charge on any property has priority over a floating charge affecting the same property; however, the floating charge may take priority over any subsequently registered fixed charge where the terms upon which the charge was granted prohibited the Company from granting a later charge having priority over the floating charge and where the latter security holder had actual notice of the prohibition at the time the charge was granted to it.
Last modified 13 Mar 2025
Parties have the freedom to decide the governing law of a contract and the courts will generally give effect to the parties’ choice of law and only intervene where the terms of the contract are contrary to public policy. However, there are instances where the local court may not be deprived of jurisdiction and this includes where the subject matter of the dispute is real estate, the applicable law with respect to real estate is the lex situs, the law of the place where the property is located.
Last modified 13 Mar 2025
Under Nigerian law, the enforceability of a security interest so granted is determined by the status of the perfection of such security interests. Specifically, the perfection requirement for a security interest in real property requires:
In the absence of the consent of the governor, a purported security interest so created is void and unenforceable; where the relevant conveyance documents are not duly stamped, same cannot be admitted in evidence in a court of law as evidence of a security interest in the property. Failure to register the security interest at the CAC within the stipulated period makes any such security interest created void against a liquidator or any other creditor of the company.
Last modified 13 Mar 2025
Generally, environmental liability is borne by the owner or occupier of the real estate. The holder of security interest in the property, not in possession will not be liable for environmental pollution except caused by it.
Last modified 13 Mar 2025
Usually, the loan facility agreement states the events of default, an occurrence of which triggers the rights of the lender to enforce its security. The means of enforcement may be by way of an exercise of power of sale, appointment of a receiver, foreclosure, action in court to recover the principal and interest or by taking possession.
Where the lender intends to enforce the security by exercise of the power of sale, it is to be noted that the power of sale must have arisen and the power must have become exercisable. The power of sale arises where the mortgage debt is not paid on the agreed date.
On the other hand, the power of sale becomes exercisable only where any of these conditions are fulfilled:
Other forms of enforcing security over real estate, such as; appointment of a receiver, foreclosure, action in court to recover the principal and interest are usually set in motion by instituting proceedings in court for an order of the court to enforce any of the securities. Where the lender seeks to appoint a receiver, such appointment and the powers of the receiver shall be in accordance with the provision of the relevant law.
Last modified 13 Mar 2025
One of the formal rescue procedures is by way of a scheme of arrangement with the creditors or a corporate restructuring. This would involve a meeting and the passing of a special resolution (75% of the members present and voting in person or by proxy), the approval of the Securities and Exchange Commission and the sanction of the Federal High Court.
The law recognises company voluntary arrangements such as appointing an administrator who may do all such things as may be necessary for the management of the affairs, business and property of the company. Another is the appointment of a receiver/manager. Once a receiver is appointed, the power of the directors and shareholders to deal with the assets over which the receiver was appointed ceases and same is vested in the receiver. If a receiver is also appointed manager, he has the power in law to carry on and manage the business of the company while the directors remain in office.
The rights of the lender with security usually depend on the agreement of the parties. In practice, the schemes or arrangements of the debtor company of business does not affect the rights of the lender to enforce security. The secured lender may appoint the receiver/manager for the purpose of enforcing and realising security. The effect of a scheme of arrangement or restructuring with the creditors is to be able to give effect to the repayment of the loan and/or realising the security.
Last modified 13 Mar 2025
Provided that the security interest created by the Lender was duly perfected prior to the insolvency of the borrower, the lender can validly enforce its security against the borrower. Under Nigerian law, any court attachment, sequestration, execution put in force against the estate or effects of the borrower or any disposition of property of the company when in the course of a winding up proceeding shall be void.
Last modified 13 Mar 2025
The order of priorities is as follows:
It is worthy of mention that where the security interest created is registrable at the Corporate Affairs Commission, as stipulated by the Companies and Allied Matters Act 2020, the registration of such security interest gives the secured creditor priority over any other subsequent interest on the security assets by a creditor or a duly appointed liquidator of the company.
Last modified 13 Mar 2025
Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?
Debt trading is subject to the agreement of parties in the facility or loan agreement. Where there are no restrictions in the agreement between parties, all or a portion of the loan debts can be transferred to a third party. Receivables under a credit facility can be transferred to another lender by (i) assignment; (ii) novation; and (iii) sub-participation arrangements.
Last modified 13 Mar 2025