An Overview of the Land Use Amendment Bill

1. Background

The promulgation of the Land Use Decree (later the Land Use Act[1] (the “Act”)) in 1978, brought about the vesting of exclusive powers over land comprised in the territory of any given State in the Governor of the State[2]. The effect was that radical ownership of land was vested in the Governor and private persons were only entitled to a leasehold interest through a right of occupancy. The Act further requires that the consent of the Governor, has to be obtained prior to any method of alienation of property by the holder of a right of occupancy[3]. The effect of this was that any assignment of interests or mortgages required the consent of the Governor to be legally enforceable.

The Land Use (Amendment) Bill (the “Amendment”), is currently being deliberated upon by the National Assembly. The Bill seeks to review the exclusive powers of the Governor in relation to the alienation/parting of possession with property. This paper reviews the provisions of the Bill and its potential effect on land ownership in Nigeria.

2. Removal of Requirement for Governor’s Consent

Sections 21-22 of the Act, prohibits the alienation of either a customary right of occupancy or a statutory right of occupancy via an assignment, mortgage, transfer of possession, sublease, or otherwise without the consent of the Governor. The above stated provisions have resulted in a plethora of issues relating to transfer of property transactions. Firstly, the process of obtaining the Governor’s consent is costly, in Lagos State, for example, it costs up to 15% of the deemed value of the property. Further, even though there have been improvements to the process it still takes a long time to obtain the consent, which significantly delays the completion of commercial transactions. Additionally, the requirement to seek the Governor’s consent for mortgage transactions has also proved to be an impediment in the introduction of financial tools such as mortgage backed securitisation, which requires an element of certainty in terms of the rights to the underlying securities in the mortgages to be securitised.

As a result of the above stated issues, the Amendment has been proposed to alleviate the burdens currently faced by investors in the real estate market and to provide property investment incentives. The primary amendments to the Act can be found in sections 5 & 6 of the Bill.

Section 5 of the Bill provides for the amendment of Section 21 of the Act by deleting all words after “assignment” and the inclusion of a sub section stating “the right of a holder of a customary right of occupancy to alienate such right by mortgage is hereby recognized”. The effect is that holders of a Customary Right of Occupancy will now be empowered to alienate their rights by way of a mortgage, transfer of possession, or sub-lease without requiring the approval/consent of the Governor. However, it should be noted that any alienation by way of an assignment will still require the consent of the Governor prior to the assignment.

Similarly, section 6 of the Bill provides for the Amendment of Section 22 (1) and (2) of the Act by deleting the words “mortgage, transfer of possession, sub lease, or otherwise” immediately after the word “assignment”; the deletion of the proviso after sub section (1); and the creation of a new sub section (3) stating “the consent of the Governor shall not be required for the creation of a mortgage or sub lease under this section. Therefore, like the holder of a customary right of occupancy, a statutory holder may alienate his rights by mortgage, transfer of possession, or sub-lease without requiring the consent of the Governor.

Consequentially, the proposed amendments to the Act also remove the powers of the Governor to impose a penalty for the failure of a holder of a statutory right of occupancy to obtain its consent prior to the alienation of a property by way of mortgage, transfer of possession, sub-lease, or by bequest[4] and also the powers of the Governor to revoke a right of occupancy where the holder of said right alienates the property by way of assignment, mortgage, transfer of possession, sub-lease, or otherwise contrary to the provisions of the Act or without the requisite Governor’s consent or approval[5].

3. The Requirement of Consent of Holder of a Statutory Right of Occupancy to a Sub-Underlease

Section 7 of the Bill introduces new provisions to replace the current section 23 of the Act as follows:

A sub-lessee of a statutory right of occupancy may, with the approval of the holder of the statutory right of occupancy, demise by way of sub-underlease to another person, the land comprised in the sublease held by him or any other portion of the land.

Under the current provisions of section 23 of the Act, the consent and approval of the Governor is required prior to the sub-underlease of a right of occupancy. Whilst we agree that it is now necessary to remove this requirement from the Act, in view of the other amendments proposed, the substitution of Governor’s consent with the consent of the holder of the statutory right of occupancy may cause other problems. Firstly, it may lead to the imposition of “signing or consent fees” by holders of the statutory rights of occupancy. The current draft of the Bill does not appear to anticipate the emergence of these fees and as such does not regulate it. This could therefore lead to significant costs in the completion of property transactions. Additionally, it may also lead to significant delays. It is our strong view that that section 23 as a whole should be deleted. Parties to individual transactions may choose the option of retaining such consent as a contractual requirement and not a statutory requirement.

4. Conclusion

The proposed Bill seeks to restrict the requirement of the Governor’s consent to solely alienation via an assignment or sale.

In light of the above, should the Act be amended as is proposed, the holder of a right of occupancy will have a statutory avenue for avoiding the requirement of Governor’s consent when of alienating his right to a third party. It should be noted that a holder of a right of occupancy, seeking to transfer title her/his right may do so by way of an assignment or sublease. The major difference between an assignment and a sublease is the reversionary interest reserved by the transferor, when transferring via a sublease. Thus, a person transferring her/his title via a sublease will be achieving the same goal as when transferred via an assignment.

Also, a holder of a right of occupancy seeking to enter into a legal mortgage, or seeking to bequest her/his property to a third party will no longer require obtaining the Governor’s consent prior to s/he entering into such a transaction.

The proposed amendment is a welcome development, due to the fact that it will encourage alienation transactions as well as reduce the difficulties currently being faced by persons seeking to transfer title, but are hindered from effectively and timeously achieving their aim, as a result of the cumbersome and expensive process of obtaining the Governor’s consent.

We hope you find the information contained herein useful. This Note is for general purposes and guidance only and should not be regarded as legal or professional advice. Any questions, comments or clarifications may be directed to:

Odujinrin & Adefulu

29, Marina

Lagos enquiries@odujinrinadefulu.com

Mobile: +2348022240888

[1] Laws of the Federation of Nigeria Chapter. L5

[2] S.2 Land Use Act

[3] S. 21 and 22 Land Use Act

[4] S. 5(1f) Land Use Act

[5] S. 28 Land Use Act

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