Introduction
Real estate remains one of the most lucrative investment options in Nigeria. However, the property market is fraught with legal risks ranging from land ownership disputes to overlapping titles and encumbrances. Many investors and individuals have fallen victim to fraudulent transactions due to poor legal due diligence. This article explores the essentials of legal due diligence in Nigerian property transactions, common pitfalls to avoid, and best practices to safeguard investments.
What is Legal Due Diligence in Property Transactions?
Legal due diligence is the process of investigating the legal status and documentation of a property before purchase or lease. It ensures that the buyer is acquiring a valid title free from encumbrances or defects. Due diligence provides clarity on the ownership, legal history, usage restrictions, and any ongoing or potential legal issues relating to the property. It is a critical step for preventing disputes, financial loss, or invalidation of title in the future.
Key Components of Legal Due Diligence in Nigeria
- Title Verification
Confirming that the seller has a valid and transferable title is the cornerstone of property due diligence. This involves:
a) Requesting and reviewing the original title documents such as the Certificate of Occupancy, Deed of Assignment/Transfer/Agreement, Deed of Sublease, or Governor’s Consent.
b) Conducting a search at the relevant land registry to verify the authenticity of the documents and confirm the registered owner.
c) Ensuring there are no competing claims, existing liens, restrictive covenants, or pending litigation affecting the property.
2. Verification of Survey Plan and Land Size
Cross-check the survey plan against the actual land coordinates and conduct a physical inspection to avoid issues such as encroachment, boundary disputes, or size discrepancies. Engage a licensed surveyor to confirm the accuracy and registration status of the survey plan.
- Search at the Corporate Affairs Commission (CAC)
If the seller is a company, conduct a CAC search to:
a) Confirm the corporate ownership of the property.
b) Ascertain the names of directors and authorised signatories.
c) Check for registered charges, debentures, or encumbrances on the company’s assets.
d) Ensure the company has passed a board resolution authorising the sale.
- Investigation of Encumbrances
Examine whether the property is subject to:
a) Legal mortgages, equitable interests, or registered charges.
b) Ongoing or concluded litigation.
c) Government acquisition, revocation, or urban development plans.
d) Environmental restrictions, right-of-way reservations, or adverse claims by third parties.
This can be done through your lawyer by visiting the appropriate bodies and offices to conduct searches and obtain relevant information.
- Verification of Land Use and Zoning Laws
Confirm the permitted use of the land under relevant planning and zoning laws. For instance, property located in a residential zone may not be lawfully used for commercial or industrial purposes. Verify any special development controls, building approvals, or change-of-use applications where necessary.
- Community and Traditional Ownership Checks
In rural or peri-urban areas, land is often governed by customary tenure. It is essential to engage with the local community and traditional rulers to verify ownership claims and resolve grey areas. For family land, the sale must be conducted or expressly consented to by the family head. Even if you are not buying directly from the family, but from someone who purchased from them, it is important to trace the root of the title. This includes reviewing the Deed of Transfer to ensure that the family head duly executed or consented to the original sale. Failure to do so may render the transaction void or expose the buyer to litigation. Furthermore, it is important to:
a) Engage with local community leaders, family heads, or traditional rulers.
b) Confirm the legitimacy of the seller’s claim under customary tenure.
c) Ensure that all key stakeholders, including family members, have consented to the transaction.
d) Prevent double sales and communal disputes by obtaining written confirmation or ratification where applicable.
Governor’s Consent and Stamp Duties
Where land has been granted under a Certificate of Occupancy or similar title, any subsequent transfer of interest requires the Governor’s Consent in accordance with the Land Use Act. Additionally, stamp duties must be paid in line with the Stamp Duties Act. Without the Governor’s Consent and proper stamping, the transaction remains unperfected and may not confer full legal ownership.
Common Pitfalls in Property Transactions
Some of the common pitfalls in property transactions are:
a) Failure to Conduct Independent Searches: Relying solely on documents presented by the seller without independent verification exposes buyers to the risk of fraud and misrepresentation.
b) Buying from Unauthorised Parties: Transacting with family members, agents, or caretakers who lack legal authority can result in invalid transfers and costly disputes.
c) Incomplete Documentation: Acquiring property without duly executed and registered documents, such as Deeds of Assignment or Assent (in the case of inherited property), may render the buyer’s title defective.
d) Neglecting Regulatory Compliance: Failure to obtain the Governor’s Consent, pay stamp duties, or file necessary applications may delay or nullify title perfection.
e) Overlooking Physical Inspection: Legal due diligence should be complemented by physical inspection to confirm the property’s location, boundaries, topography, and any signs of encroachment or adverse possession.
Best Practices to Mitigate Risk
Some of the best practices are:
a) Engage a qualified property lawyer who practices within the jurisdiction to conduct a thorough due diligence process.
b) Document all stages of the transaction in writing, including receipts, payment acknowledgements, survey reports, and executed agreements.
c) Avoid emergency sales or suspiciously undervalued offers that attempt to sidestep due process.
d) Do not pay until all legal checks are complete.
e) Where the land is held under customary tenure, ensure all necessary community or family consents are properly obtained and documented.
f) Ensure that your lawyer drafts/reviews the Deed of Agreement.
Verifying Estate Property Acquisition
When acquiring estate property, it’s essential to verify the following in addition to the above:
- Primary Buyer: Confirm the original buyer’s identity and purchase history.
- Secondary Buyer: If the property is being resold, verify the seller’s ownership and any outstanding interests.
- Estate Rules: Review the estate’s governing documents, such as:
– Deed of Assignment
– Certificate of Occupancy (C of O)
– Estate bylaws and regulations
Conclusion
Investing in real estate in Nigeria requires more than just financial capital. It requires due diligence, legal foresight, and careful risk management. Buyers who conduct proper legal due diligence can avoid costly litigation, defective title, and avoidable losses. Engaging a qualified legal professional early in the transaction process is not only advisable, it is essential for securing a valid and enforceable interest in property.