Under the Land Use Act, 1978 which covers the whole of Nigeria, the law does not differentiate between a Commercial, Residential or Mixed Development Lease. The nature of interests in real property after 1978 is leasehold for terms not exceeding 99 years.
In practice, the land is vested in the government and the Governor grants the interests to individuals and corporate entities to hold and use subject to the conditions of the grant.
Last modified 22 Mar 2024
Commercial lease terms are subject to the agreement of the parties. Usually, there are no limits to the length of the term that parties can agree and fix for a commercial lease if the grant does not exceed the term which the lessor holds under the head lease. A lessor can therefore, sublease the entirety of the term held under its proprietary title deed or grant a sublease for a lesser period subject to the conditions and covenants agreed by the parties and provisions of the head lease.
In state allocation or direct grants of proprietary real property interests by government, it is the discretion of the state as grantor to give any term of years, typically not exceeding 99 years.
Last modified 22 Mar 2024
The laws regulating leases in Nigeria are not specifically targeted to separate and distinct categories of real property. There are no specific laws promulgated to regulate real property in the categories of either residential, commercial, offices, retail or hotels. There are however, in the various states similar regulations applicable to all forms of tenancies, irrespective of the categorization of the property.
The Nigerian Constitution empowers the States within the Federation to make regulations with respect to recovery of premises, rent control, land use and property rights subject to the provisions of the Land Use Act.
In ascertaining real property interests and rights, much reliance is placed on case law as espoused by judicial authorities and are overriding and applicable as municipal laws regulating all forms of real property rights together with relevant statutes.
In Nigeria generally, the terms of contract pertaining to all commercial leases are enforceable by the courts, subject to municipal laws. In such instances, irrespective of the agreement of parties on matters such as re-entry and surrender of possession for breach of covenant to pay rent, or termination of the lease or even expiry of the terms agreed, the landlord must comply with the requirement to issue specific notices to quit or notice of owner’s intention to recover possession and wait for the notice period to lapse before commencing legal action to evict the tenant from the property.
Last modified 22 Mar 2024
A tenant (or lessee) of real property under any category whether residential or commercial is protected under the law to hold over possession even after expiration of the lease (or tenancy). The landlord (or lessor) does not have an automatic right to re-enter or recover possession of the property despite that the parties inserted in the contract a provision for re-entry into the property by the landlord, upon the expiry of the lease.
Where parties agree in the lease Agreement on the mode of notice to be issued before recovery of possession, same must be complied, otherwise, the landlord must comply with the requirement to serve on the tenant, all mandatory notices to determine the lease (notice to quit and notice of intention to recover possession) and seek an order of the court to recover possession and evict the tenant from the property.
A tenant holding over after the expiration of its lease is regarded as a statutory tenant and cannot be evicted except by laid down procedures which mandatorily are to be strictly complied with by the landlord. The tenant will, however, be liable to pay rent for the period spent in the property after the expiration of the lease.
Last modified 22 Mar 2024
Where the landlord has no intention of renewing the lease, it should engage with the tenant to agree on delivery of possession within a reasonable period before the expiry of the lease and ensure that all notices are issued within time. This is to give sufficient time for the tenant to make preparation to vacate the property and for the landlord to comply with the legal prerequisite of issuance of appropriate notices. The landlord should be prepared to take legal action immediately if the tenant holds over possession after the date agreed.
A tenant is shielded from forceful eviction upon expiry of the lease if it is convenient to remain in possession for as long as the eviction process will take and at the same rental. Therefore, contractual conditions that make it inconvenient and costly for the tenant to breach its obligations including holding over after expiry should be considered. Such provisions to include the tenant indemnifying the landlord against liabilities arising where certain services which are obligations on the part of the landlord are withdrawn after expiry and higher rates as mesne profits payable on the property by the tenant after expiry.
Last modified 22 Mar 2024
The parties to the commercial lease agreement can expressly provide for early termination of the term on the conditions agreed upon. The landlord can trigger the termination provision and comply with the agreed requirements and notices as provided in the lease agreement.
The landlord can also terminate a lease where the tenant is in breach of fundamental conditions of the lease agreement including, inability to pay rent, liquidation, assignment to third party without landlord’s consent etc, and where the tenant is unable to remedy within a reasonable period the breaches that can be remedied.
The right of the landlord to an early termination of the lease still does not guarantee that possession will be delivered immediately as the landlord is still obliged under law to give appropriate notices to the tenant and proceed to court to recover possession of the property. The process of evicting a tenant through the court is often tedious and long-drawn depending on the circumstances of the particular case.
Last modified 22 Mar 2024
There are specific instances in which the government, federal or state can terminate the leasehold interests in real property. Section 28 of the Land Use Act 1978 empowers the government through the governor of the state where the land is located, to acquire land compulsorily from land owners and the acquisition must be for ‘public purpose’ or for ‘overriding public interest’.
The term ‘overriding public interest’ is wide and may include instance where the property is required by the government for public purposes of government, or for mining purposes or oil pipelines, or for the extraction of building materials, or breach of any of the provisions or any term contained in the certificate of occupancy or in any special contract between the government and the occupier or alienation of the occupier’s proprietary interests (by whatever form) without the consent of the Governor as required by the Land Use Act.
The procedure requires that for compulsory acquisition of land, the government must ensure that adequate notice is issued and served on the owner of the land and compensation is paid by the government. By Section 28(6) of the Land Use Act the revocation shall be signified under the hand of a public officer authorized by the Governor and notice thereof given to the holder and upon receipt of the notice, the rights and interests in the property is extinguished.
The failure to serve the revocation notice on the land owner has been consistently held by the courts as capable of rendering the revocation as invalid. Also, the courts have held that the acquisition of an individual’s interests in property by government must be for public purpose otherwise the revocation is invalid.
There are no specific timelines provided in law for the procedure for the acquisition or revocation of a leaseholder’s interests.
Last modified 22 Mar 2024
Parties are at liberty to agree on protective clauses and provisions that envisage failure on the part of the tenant to meet up on obligations and specific covenants under the lease agreement. The usual instances which may engender the need for protection relates to events such as the tenant flouting its obligations to pay the rental for the leased property and failure of reinstatement or repairs of all damages on the property at expiry or termination.
The forms of security which the landlord may ensure that are in place and provided by the lessee are as follows:
The kind of commercial lease and the nature of the tenant’s undertaking or business will impact on the nature of the additional security that can be provided.
Last modified 22 Mar 2024
The landlord can restrict the use for which the property can be put by ensuring that there is a contractual provision with respect to use in the lease agreement. The tenant will be liable for breach of covenants and damages if the property is put to any use contrary to those specified in the agreement. Usually, tenant’s covenants specify the use of the property as either ‘residential’ or ‘commercial’, however, there can be a more specific restriction of the use to avoid the wide interpretation for which the words ‘commercial use’ can be inferred.
The Certificate of Occupancy or title deed usually also indicates the purpose for which the land is to be used and the landlord as holder of title is bound to comply and ensure compliance by the tenant with the conditions in the title document. A landlord cannot by contract impose an obligation on the tenant to use a property for a purpose at variance with the relevant states government’s specified approved land use and zoning regulations. Any such action or use of the property will be a contravention of the law and is a ground for revocation of the leasehold interest or imposition of fines for wrongful use.
The different states in Nigeria are responsible for development control and the regulation of physical and town planning through specific legislations in the different locations within the states. There are circumstances where the government will consider applications for change of use of a particular property and issue approval and in most instance, these occur in locations previously zoned for residential purposes being converted to commercial areas or mixed development uses.
The Advance Fee Fraud and other Fraud Related Offences Act 2006 restricts a landlord from knowingly permitting a tenant to use a lease premises for any illegal or immoral purpose which constitutes an offence under the Advance Fee Fraud and other Fraud Related Offences Act. A landlord who is found guilty of the offence is liable on conviction to imprisonment for a term of not more than 15 years and not less than five years without the option of a fine.
Last modified 22 Mar 2024
In contracts for commercial leases, it is usual to impose restriction that the tenant shall not alter or improve the property without the written consent of the landlord and subject to the landlord’s approval of the plans of the proposed improvements. In the absence of the landlord’s express consent a tenant in breach of the condition will be liable for damages.
All buildings are subject to government’s physical planning and building control agency’s approval before construction and the law requires that for structural alteration of buildings, the approval of the relevant agency is required and at a fee. It is therefore usual for the lease agreement to contain an obligation on the part of the tenant to obtain all necessary approval of the town planning authorities before commencement of alterations.
The landlord may impose an obligation that at the expiry of the lease, the tenant is to reinstate the property to its state at commencement of the lease. The landlord may choose not to enforce this covenant if it wishes to maintain the improvements.
Except for aesthetical changes to the property desired by the tenant, the obligation for structural repairs where there are damages to the property is the landlord’s responsibility. There is no obligation on the landlord to reimburse the lessee for the costs of the improvements of the property without its express consent.
Last modified 22 Mar 2024
The tenant can transfer its right and interests in the property to a third party subject to the specific covenants contained in the lease agreement with the landlord on the right to transfer. It is usual for lease agreements to impose an obligation on the tenant not to transfer the interests or cede possession of the property to any person without the written consent of the landlord.
For commercial leases, the tenant can only transfer the unexpired residue of the agreed term it holds upon fulfilment of any condition agreed for the transfer of the lease interests and this can be effected through the following methods:
The landlord may negotiate with the tenant in the lease agreement the conditions for the transfer of the interests in the property. Such restrictions may include the following:
Last modified 22 Mar 2024
Nigerian courts will uphold the sanctity of contracts agreed between parties to a commercial lease and will refrain from introducing provisions that parties did not contemplate and agree to in the lease agreement to be binding, particularly provisos on rental escalation rates and review mechanism.
The rent for long-term commercial leases do not have to remain the same for the entire term provided the parties agree in the lease agreement for a rent review clause or provision. Where the landlord fails to negotiate and insert in the lease agreement, a condition that the reserved rental can be reviewed within specified periods, the landlord cannot unilaterally vary the agreement and demand a rent review without negotiating with the tenant and obtaining its consent. It is not sufficient that the applicable commercial rates for similar properties in the location of the property differs from the rent paid by the tenant.
Commercial leases for shorter terms typically have provisions for rent review where on expiry, the lessee exercises an option to renew the lease for a further period. Furthermore, the landlord in a lease that is expiring is at liberty to negotiate new rent rates as a condition to renew the lease.
For leases directly granted by state pursuant to the Land Use Act, the Governor may revise the rent at such intervals as stipulated in the Certificate of Occupancy, otherwise, at such reasonable intervals within the term of the grant.
Where the parties by their contract specify that the rent shall be subject to review and explicitly indicate the review mechanisms, it becomes much simpler to review the reserved rental. This is achieved by inserting a detailed rent review clause in the agreement of the parties.
Last modified 22 Mar 2024
The parties are at liberty to contract and specify the rent applicable to the lease from year to year and at specific periods of the term of the lease. The lease agreement could at the onset of the lease indicate the rental, the period of review of the rent and the rates of escalation of future rents applicable for the lease or the determinants where no specific rates of increase are agreed in the agreement.
In determining the increase in rent, the landlord and the tenant may apply any rates, percentage increment on the base rent for the preceding period or a specific amount already mutually agreed in the lease agreement to be applicable upon renewal. The parties may also agree to use the central bank inflationary index or the market rental value for similar properties in the location.
It is usual for parties to indicate in the lease agreement that the rent shall be mutually agreed based on market value/rates and further specify that in the event of a disagreement on the rent, a professional qualified as an estate surveyor/valuer or any other qualified person may be engaged to advice on the rate of the increase of the rent.
Last modified 22 Mar 2024
The Value Added Tax Amendment Act 2007 (“VAT Act”) (as amended), forms the legal basis for imposition of VAT in Nigeria and provides that VAT is applicable at a flat rate of 7.5% on the supply of taxable goods and services, other than those good and services exempted under the Law. By the provisions of the Finance Act 2020 and the recent decision of the Tax Appeal Tribunal in Appeal No. TAT/LZ/VAT/029/2019 – Ess-Ay Holdings Limited v. Federal Inland Revenue Service, VAT is no longer applicable to rentals accruing from leases of premises whether residential or commercial. The former position was that only rentals from residential buildings are exempted from the incidence of VAT while commercial lease rentals were subject to VAT.
The Finance Act 2020 specifically amends the VAT Act to exclude land and building from the definition of ‘goods’. Section 46 of the Finance Act 2020 defines ‘goods’ as follows:
Lease transactions involve the transfer of interest in land and by the provisions of the Finance Act 2020 & 2023 such transactions do not fall within the definition of goods. VAT is payable only in respect of supply of goods and services. Thus, rentals from lease transactions are not subject to VAT.
Last modified 22 Mar 2024
There is no statute imposing costs on the lessee of property or exempting the landlord from responsibility to pay the costs usually payable by the landlord. Property taxes (land use charges) which comprises the municipal land rates (ground rents), tenement rates and all land based rates are by law the obligations of the landlord to pay. However, in Lagos State, it is the obligation of the owner to pay it. The word “owner” is described to mean the landlord or lessee. of a lease agreement of 10 years and above. The landlord may before commencement of the lease, negotiate with the tenant that the stamping costs of the lease agreement is to be borne by the tenant and the land charges which ordinarily is the responsibility of the landlord is either borne by the tenant or shared by both the tenant and the landlord in a proportion to be agreed by the parties.
The Stamp Duties Act as amended by the Finance Act 2020 requires lease agreements to be stamped within 30 days from the date of execution before it is received in judicial proceedings. The tenant has responsibility for stamping of the lease agreement, the obligation is usually not enforceable against the tenant except expressly agreed in the lease agreement. It is usual that for short term leases, a landlord bears the cost for stamping to enable the document to be received in judicial proceedings.
The law requires that leases of terms over three years should be registered at the State Land Registry. The costs for consent, stamping and registration are the responsibility of the tenant, purchaser, or person whom the property or lease interest is vested.
The landlord will usually insist that its solicitor is responsible for the preparation of the lease agreement and the lessee is to bear the costs for the solicitor’s fees for legal services rendered. The parties may however, agree to bear their own costs and pay for the services of any professional retained by them. The Tenancy Law of Lagos State 2011 which provides for each party to pay the fees of any professional engaged by it is only applicable in areas not considered to be highbrow locations.
A landlord may also insist on the lessee paying a certain sum of money as “Refundable Security Deposit”. This is a refundable deposit made by the tenant to cover any damage occasioned to the property due to the tenant’s fault or to be applied to cover to cover for the tenant’s payment default. The fee is refundable where there are no such damage to the property and no outstanding on the part of the tenant.
Last modified 22 Mar 2024
The payments for the costs of maintenance and repairs of common areas in a property comprising several apartment or office units occupied by numerous tenants are shared as service charges and maintenance costs by the tenants and paid to the landlord or its facility management company responsible for overseeing the maintenance and repair of the areas used in common.
In regulated developments, the landlord or its appointed facilities manager may provide services such as security, alternative power supply, cleaning, utility services, refuse and sewerage disposal and other ancillary services to the tenants of the development who are required to pay a service charge along with the rent.
The parties may negotiate the mode of payment for service charge and the time frame that is different from the agreed rent payment periods.
Last modified 22 Mar 2024
The standard practice is that the landlord is responsible for all external and structural repairs required for the property and all internal maintenance and repair within the premises exclusively occupied by the tenant is the responsibility of the tenant to bear.
However, the parties can deviate from the usual practice by negotiating and agreeing on the apportionment of responsibility for the maintenance and repairs of the property. Where a tenant takes a long-term lease of the whole property, it can by contract assume the responsibility for all maintenance works of the property for the period it occupies same.
Last modified 22 Mar 2024
The tenants of property are jointly responsible for the costs of the utilities, telecommunication and services used in common on the basis of their respective consumption rates or as may be determined by the property facilities managers in agreement with the respective tenants.
The tenants’ respective consumption rates for certain utilities like electricity, water and telecommunications are subject to metering on the basis of use and consumption with payments directly to the service providers or through the landlord to the services providers.
Last modified 22 Mar 2024
The nature of the lease determines the parties’ respective obligations to insure the property. Usually the landlord has an obligation to insure the property against damages covered by unforeseen issues like fire, natural disasters and such other causes which may occur. The landlord’s insurance however, does not have to extend to damages to the tenant’s chattels and other fittings within the property and for which the tenant has an obligation to insure.
In a property comprising of multiple apartments or office spaces with several occupiers as tenants, the landlord may undertake this obligation to insure the property (except lessee’s personal chattels) and recover the costs of the insurance premium from all the tenants, proportionally.
In other cases, particularly long leases, the landlord may pass the obligation to insure the property and the tenant’s chattels to the tenant with a further obligation that the insurance policy be taken in the joint benefit and names of the landlord and the tenant.
The incidents that may be insured against include but are not limited to the following – fire, lightning, storm, earthquake, flood, riot and civil commotion, malicious damage and such other risks as the parties may consider prudent to insure.
The Tenancy Law of Lagos State, 2011 imposes on the lessor the obligation to insure the property except the agreement of the parties states otherwise.
Last modified 22 Mar 2024
Will the rent payable remain the same as long as the lease lasts?
Nigerian courts will uphold the sanctity of contracts agreed between parties to a commercial lease and will refrain from introducing provisions that parties did not contemplate and agree to in the lease agreement to be binding, particularly provisos on rental escalation rates and review mechanism.
The rent for long-term commercial leases do not have to remain the same for the entire term provided the parties agree in the lease agreement for a rent review clause or provision. Where the landlord fails to negotiate and insert in the lease agreement, a condition that the reserved rental can be reviewed within specified periods, the landlord cannot unilaterally vary the agreement and demand a rent review without negotiating with the tenant and obtaining its consent. It is not sufficient that the applicable commercial rates for similar properties in the location of the property differs from the rent paid by the tenant.
Commercial leases for shorter terms typically have provisions for rent review where on expiry, the lessee exercises an option to renew the lease for a further period. Furthermore, the landlord in a lease that is expiring is at liberty to negotiate new rent rates as a condition to renew the lease.
For leases directly granted by state pursuant to the Land Use Act, the Governor may revise the rent at such intervals as stipulated in the Certificate of Occupancy, otherwise, at such reasonable intervals within the term of the grant.
Where the parties by their contract specify that the rent shall be subject to review and explicitly indicate the review mechanisms, it becomes much simpler to review the reserved rental. This is achieved by inserting a detailed rent review clause in the agreement of the parties.
Last modified 22 Mar 2024