Land is a significant asset that appreciates daily, making it a popular investment choice. However, despite the frequency of land transactions in Nigeria, there is always a risk of purchasing land with a defective title, land earmarked for public use, or land with some form of encumbrance, such as pending litigation. This highlights the importance of adhering to the legal principle of “caveat emptor,” which means “let the buyer beware.”
Conducting thorough due diligence on a piece of land or property before purchase is crucial to avoid acquiring land with an unenforceable or defective title. The adage “it is better to take precaution rather than seek remedy” is particularly true for land transactions. By conducting due diligence, one can prevent the need to rectify a faulty title, which often incurs higher costs than conducting thorough due diligence initially.
In Nigeria, it is common for individuals to buy land without thoroughly conducting due diligence, leading to problems later on. This article will delve into the critical importance of due diligence and provide guidance on effectively carrying out due diligence in Nigeria, with a particular focus on Lagos State.
UNDERSTANDING DUE DILIGENCE IN LAND TRANSACTION
Due diligence may refer to the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction.[1]
Due diligence in land transactions refers to the thorough investigation and analysis conducted before finalizing a purchase or investment agreement. This process involves verifying the property’s legal status, ownership history, and any potential encumbrances or disputes. By undertaking due diligence, land buyers aim to protect themselves from negative experiences or financial losses that could arise from inaccurate or incomplete information about the property.[2]
WHY DUE DILIGENCE IS IMPORTANT IN LAND TRANSACTIONS
It is pertinent to highlight the importance of carrying out comprehensive due diligence on a piece of land or property before moving forward with a purchase. There are various risks associated with land transactions in Nigeria that may not be immediately apparent. Conducting due diligence is essential in mitigating any potential issue or issues that may arise from a land transaction. In the following discussion, we will delve into the three major issues that the due diligence process can prevent:
Property that is a subject of litigation (Lis Pendens)
Lis pendens is Latin for “suit pending,” and it serves the purpose of preventing the transfer of any property that is a subject of litigation. The Court has held in a plethora of cases that the sale of any property in dispute during litigation is null and void. It is immaterial whether the purchaser is aware of the dispute, as the seller does not hold a valid title to the property, following the principle of ‘Nemo dat quod non habet’ (Latin for “no one can give what they do not have”.
In the case of BUO ANEKAKWE & SONS (NIG) LTD & ANOR v. NMA & ANOR[3] where the court held thus:
“It is now settled that any sale of landed property acquired during the pendency of litigation is a nullity”.
The doctrine of ‘Nemo dat quod non habet’ operates to invalidate any sale or transfer of property that is the subject of litigation, as ‘lis pendens’ deprives the seller of a valid title to the disputed property. One cannot transfer ownership of something that does not rightfully belong to them. Therefore, potential buyers need to conduct thorough investigations to ascertain whether the property they intend to purchase is embroiled in any ongoing legal disputes to prevent the risk of not receiving what they are paying for.
Property earmarked for public use
It is pertinent to state that under Section 1 of the Land Use Act, all land in the territory of each State in the Federation is vested in the Governor of that State and such land shall be held in trust and administered for the use and common benefit of all Nigerians. In line with this, the government has the power to acquire any land where the same is to be used for any development geared towards public benefit.
The Land Use Act recognizes the Government’s authority to compulsorily acquire Land. Specifically, Section 28 of the Land Use Act grants the Governor of the State the power to revoke a Certificate of Occupancy where the property is required for public use.[4] It is therefore important to conduct due diligence to avoid purchasing land that is already committed or has been earmarked for government acquisition.
A clear instance is the demolition of properties in Lagos State (which has been a recurring issue), mainly due to a lack of proper due diligence by the occupants of these properties. Some of these properties have been designated for public use, but individuals known as ‘Omoniles’[5] have been illegally selling off these properties. Without conducting thorough due diligence on the land, it is very possible to fall victim to such fraudulent land transactions.
As of November 2023, the Federal Housing Authority had taken action by demolishing over 600 houses in Lagos. This action was a result of the occupants failing to obtain approval from the appropriate authority before constructing houses in these areas.[6]
BETTER TITLE
Title refers to the legal right, interest, or ownership that a person has in a piece of land or property. It serves as evidence of ownership and is essential for establishing property rights. In Nigeria, titles can be obtained through various means such as deemed right of occupancy, customary right of occupancy, or statutory right of occupancy which confers certain proprietary rights to individuals or entities.[7]
A Deemed grant right of occupancy is automatically created by operation of law. Section 34 of the Land Use Act recognizes the title of individuals on a Land before the commencement of the Act in 1978. The title given to a person who stays and develops a land before the Land Use Act comes into effect in 1978 is Deemed Grant Right of Occupancy. The Statutory Right of Occupancy, also referred to as the Certificate of Occupancy, is a legal title granted by the state governor in accordance with Section 5(1)(a) of the Land Use Act. On the other hand, the Customary Right of Occupancy is a title granted by the Local Government as specified in Section 6(1)(a) of the Land Use Act.[8]
On the Issue of better title, there are instances where one party may possess a deemed right of occupancy on a property while another party holds a Certificate of Occupancy (C of O) for the same property. Additionally, two or more C of O’s can exist for the same piece of land. These two salient instances will be discussed below:
In the first instance, the Court has held in a plethora of cases that a Certificate of Occupancy is not conclusive evidence of title to land, it can be revoked in certain cases at the instance of an individual with a better title.[9] In the case of JOBA v. NACHE & ORS, [10] the respondents were in exclusive physical possession of the land in dispute and were using it for agricultural purposes in a non-urban area or village called Otto/Ijanikin, Awori, immediately before the Land Use Act came into effect on 29th March 1978. As a result, they are considered holders of the customary right of occupancy for the land in dispute by operation of law when the Land Use Act took effect. On the other hand, the appellant obtained a Certificate of Occupancy while the deemed grant had not been revoked. The Court concluded that a deemed grant is just as effective as a customary right of occupancy expressly granted by the appropriate Local Government. Deemed grants, whether statutory or customary, are valid and cannot be invalidated by any subsequent unlawful dealings with the land by the original owners. Therefore, the Certificate of Occupancy granted to the appellant is null and void.
In the second instance, the Court has held in a plethora of cases that where two or more parties claim a title to land by virtue of a certificate of occupancy, the first in time shall prevail. Per ABIMBOLA OSARUGUE OBASEKI-ADEJUMO, JCA with regards to two or more parties with certificates of Occupancy on a piece of land, held in the case of OKONKWO v. OBI[11] thus:
“it is the law that when there is a dispute of land between two parties with certificates of occupancy, the first in time takes precedence except it has been validly revoked in accordance with the law before the second certificate was issued.”
In summary, the certificate of occupancy which is in existence and not having been revoked in accordance with the law, another one after such is void ab initio.
The issues discussed above highlight the importance of conducting a thorough due diligence process before buying land. Such a process is essential to ensure that there is no better title to the property in question.
Due diligence is crucial in land transactions to prevent falling victim to the risks associated with such deals. The question is, how does one conduct due diligence in Nigeria, especially in Lagos? We will discuss the process of conducting due diligence below.
STEP-BY-STEP GUIDE IN CONDUCTING DUE DILIGENCE
1. Documentation Review: The first step to take before purchasing a Land in Lagos State is to thoroughly review the land documents. It is essential to thoroughly review all the land documents, such as the Survey Plan, Deed of Assignment, and Certificate of Occupancy, to confirm their authenticity.
2. Physical Inspection: Conducting a physical inspection of a property is crucial to identify any potential encroachments and it helps one to determine if the perimeter of the property tallies with what is on the survey plan.
3. Title Verification: To verify if there are any legal burdens or disputes associated with the property, it is advisable to conduct a search at the Lagos State Land Registry. This will help ensure that the property has a clear title and is free from any encumbrances or legal issues.
4. Environmental and Zoning Compliance: When considering a real estate purchase, it is crucial to thoroughly research and assess various factors related to environmental and zoning compliance. A search should be conducted into any environmental concerns affecting the property and ensure that the property complies with zoning regulations.
5. Legal and Regulatory Compliance: Ensuring a construction project complies with local laws, building codes, and other regulations.
6. Ownership Verification: Confirming the seller’s identity and legal right to sell the property is essential to avoid falling victim to fraudulent transactions.
7. Pending Litigation: Investigating any ongoing or potential legal disputes involving the property is essential.
8. Financial Analysis: Where the property is to be used for a commercial purpose, evaluating the property’s financial potential, including rental income, return on investment, and realistic capital appreciation potential will aid in making a sound investment decision.
CONCLUSION
By conducting comprehensive due diligence, buyers can make informed decisions and mitigate the risks associated with land transactions. This proactive approach helps ensure that the investment is sound and free from unforeseen complications.
RECOMMENDATION
- Raise Awareness: The government should educate the public on conducting due diligence to reduce the number of individuals falling victim to problematic land transactions.
- Litigation Logging: Establish a section at the Land Registry to log details of properties entering litigation. This would allow for regular updates and enable people to check if a property is involved in litigation.
- Regulate Developers: The government should strictly regulate property developers to prevent the sale of properties with encumbrances.
- Professional Assistance: Purchasers should engage real estate lawyers, valuers, and estate surveyors to assist in the due diligence process before buying a property.
REFERENCES
[1] Merriam Webster dictionary
[2](2024): “Due diligence period when buying land: when to do it and what to look for” sellhometoday.com. Available at https://sellhometoday.com/due-diligence-period-buying-land/ Accessed on 07/08/2024
[3](2002 LPELR-57878 (CA)
[4] A.K. Otubu (2013): “Compulsory acquisition without compensation and the Land Use Act” Researchgate.net January. Available at https://www.researchgate.net/publication/269874725_Compulsory_Acquisition_Without_Compensation_and_the_Land_Use_Act (Accessed: 21st August, 2024)
[5] Omonile is a traditional Land Owner that usually claim right over a piece of land because of the customs, beliefs and traditions attached to the land.
Luxuryredwood (2023): “Real Estate Companies vs Omo Nile: Advantages” luxuryredwoodproperties.com 3rd July. Available at https://luxuryredwoodproperties.com/real-estate-companies-vs-omo-nile-advantages/ (Accessed: 22nd August 2024)
[6] (2023): “Examining Lagos Demolitions and its Trailing Controversies” This Day, 04 December. Available at https://www.thisdaylive.com/index.php/2023/12/04/examining-lagos-demolitions-and-its-trailing-controversies/#google_vignette (Accessed: 7th August, 2024)
[7] O. Olabode (2023): “Real estate Due Diligence (In Nigeria) A Comprehensive Note” Oladapoolabode.com 24 June. Available at https://www.oladapoolabode.com/2023/06/real-estate-due-diligence-in-nigeria.html?m=1 (Accessed 8th August 2024)
[8] Prince I. Nwafuru: Principles and cases on deemed grant right of occupancy. Academia. Available at https://www.academia.edu/12623272/PRINCIPLES_AND_CASES_ON_DEEMED_GRANT_OF_RIGHT_OF_OCCUPANCY (Accessed: 22nd August 2024)
[9] Songo v Akure (2014) LPELR-22636 (CA)
[10](2020) LPELR-52202 (CA)
[11] (2023) LPELR-60591 (CA)
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