As government continues to enact laws that encourage growth and inclusion in the real estate sector; investors, developers, landlords and tenants continue to deal with the varying realities and challenges the sector. Realities such as the increasing cost of building materials which is eventually transferred to the end users either by way of an outrageous sale price or rental sum.
The insistence by landlords in Lagos State on a yearly rent (or, in some cases, an initial two-year rent) has continuously made it difficult for average Lagos residents to afford a home for rent. Landlords in Lagos have insisted on this multi-year system of rent collection in a desperate attempt to either recoup their investments within a short time or meet their credit obligations to financial institutions.
Successive governments in the past had attempted to enforce a monthly rent collection policy on property owners in Lagos State but the reality, of which even government is aware, is that a system of monthly rent collection may (or will) pose a great challenge to private investors in the real estate sector. Nevertheless, the Lagos State Government has once again come up with a monthly rental policy with an intention to compel all landlords not to demand any rent above a monthly rent.
We have reviewed the state of the law and presented our views below on the potential issues that may arise in the enforcement of the monthly tenancy policy.
1. WHAT IS MONTHLY TENANCY?
Monthly tenancy (or month-to-month tenancy) is a periodic tenancy wherein the tenant rents from the owner on a monthly basis. This means the tenancy agreement and rental payment by a tenant, whether in advance or arrears, will be on a monthly basis.
Under Nigerian law, unless there is an express tenancy agreement on when rent is to be paid by a tenant, the law is that the rent may be paid in arrears i.e. at the end of the agreed term for the occupation, possession or use of a tenantable property.
2. WHAT IS THE LEGALITY OF MONTHLY TENANCY AND MANDATORY MONTHLY RENT?
Monthly tenancy is legal in Lagos and derives its basis in the Lagos State Tenancy Law 2011 (“Tenancy Law”) even though there is no express provision on what should constitute a monthly tenancy.
Please note that the Tenancy Law does not apply to some special areas like Apapa, Ikeja GRA, Ikoyi, and Victoria Island (unless the Governor so extends it by Order).
However, there is no law on mandatory payment of monthly rent in Lagos as of the date of this publication.
The monthly rental policy, according to the Lagos State Government, is to achieve the following:
(a.) To enable residents pay their rents according to their monthly earnings;
(b.) To ease off the burden of payment of yearly rent from tenants; and
(c.) To ensure that landlords get their rents upfront and when due.
As already stated above, there is no express provision or definition or terms of “monthly tenancy” under the Tenancy Law. Nevertheless, section 4 of Tenancy Law (which prohibits advance rent) and section 13 (1) (b) of the Tenancy Law (which provides for the length of notice that must be given for termination of tenancy both) can be argued to suggest the possibility and recognition for a monthly tenancy.
Section 4 of the Tenancy Law provides as follows:
“(1) It is unlawful for a landlord or his agent to demand or receive from a sitting tenant rent in excess of six (6) months from a monthly tenant and one (1) year rent from a yearly tenant in respect of any premises without prejudice to the nature of tenancy held at the commencement of the tenancy.
(2) It is unlawful for a sitting tenant to offer or pay rent in excess of on (1) year for a yearly tenant and six (6) months for a monthly tenant in respect of the premises.”
Also, Section 13 (1) of the Tenancy Law provides that:
“Where there is no stipulation as to the notice to be given by either party to determine the tenancy, the following shall apply:
a. One weeks’ notice for a tenant at will;
b. One months’ notice for a monthly tenant;
c. Three months’ notice for a quarterly tenant;
d. Six months’ notice for a yearly tenant.” (emphasis ours)
In addition to the foregoing, the Supreme Court in the case of Odutola V. Papersack Nig. Ltd. (2006) 18 NWLR (Pt 1012) 470 SC, declared that a yearly tenant who fails to pay rent or quit possession of a rented property after the expiration of a tenancy becomes a “tenant-at-will” which means the tenant is bound to pay for every month he or she continues to hold over.
From the above, we can infer that although monthly tenancy is not widely practiced in Lagos (or Nigeria at large), it is not entirely strange to the Tenancy Law (or Nigerian law).
As already mentioned above, whilst monthly tenancy is not strange or illegal, mandatory monthly rental policy has not yet been legislated by the Lagos State House of Assembly and, therefore, cannot be made mandatory for all residents and property owners in Lagos.
Currently, the monthly rental policy is without any legislative support and, if it remains a mere policy, then, it may be better implemented as a voluntary contributory insurance scheme that is promoted by government.
Please note, and it is trite law, that the newly introduced policy of monthly rental collection policy by the Lagos State Government cannot override the provisions of the Tenancy Law unless there is a legislative amendment to the Tenancy Law.
3. HOW DOES THE MONTHLY RENTAL POLICY WORK IN LAGOS STATE?
According to the Lagos State Government, the monthly rental scheme is at its experimental stage and will only focus or apply to tenants in the formal sector in its start-up phase in order to minimize risk.
The Lagos State Government intends to set up a collection and remittance platform that will accept and process applications under the scheme. The platform, according to the Government, will accept applications from interested users, conduct a due diligence and background checks on applicants, analyze applicants’ financial statements or monthly earnings to determine their capabilities and fitness for the scheme.
All applicants who have been successfully registered on the scheme will make monthly contributions towards their rental obligations whilst the platform operators collect the contributions, invest the funds, remit the contributors’ rents as and when due and deal with the balances in accordance with the terms and conditions of the scheme, to which the users may have subscribed.
4. IS THE MONTHLY RENTAL POLICY AN ATTEMPT BY GOVERNMENT TO INTRODUCE RENT CONROL IN LAGOS STATE?
No. Pricing in tenancy arrangements is not yet regulated by law in Lagos. Rental value of properties is determined solely by the owners or landlords with little or no influence of the government.
This new scheme is not intended or designed to determine the amount to be paid as rent for privately owned properties. The Policy can only serve as an avenue for tenants to save up their rent (on a monthly basis) and ensure that same is equally remitted to their respective landlords in accordance with their rental obligations and terms of tenancy agreement.
5. WHAT ARE EXPECTED CHALLENGES FROM THE IMPLEMENTATION OF THIS MONTHLY RENTAL POLICY?
(a.) High rate of default due to loss of means. Loss of employment could affect a tenant’s ability to continue with monthly contributions.
(b.) There will be closer government monitoring and interventions of tenancy relationships of the contributors especially in dispute resolution and related matters.
(c.) There will be more whistleblower cases in respect of landlords’ demand of advance rent beyond six (6) months from a monthly tenant or one (1) year from a yearly tenant in contravention of Section 4(1) of the Tenancy Law.
(d.) Poor data collection at the early stage could also pose a problem as this is a scheme that will require specific data collection. Therefore, a high integrity of data collection and background checks should be maintained from inception to minimize errors in accepting applicants with high risk of default.
(f.) Inadequate information on how the policy will work could pose as a problem as some unscrupulous individuals could take advantage of the ignorance of some tenants and defraud them of their rent.
(g.) Potential disputes are bound to arise between sitting tenants and their respective landlords over any suggestion or imposition of mandatory monthly rent, thus, leading to potential litigations.
(h.) The policy cannot work for all tenants in Lagos, especially the entrepreneurs, whose earnings may not be monthly, which is yet another reason/argument against the logic of making the policy mandatory for all tenants in Lagos.
(j.) There is a potential problem of continuity and efficiency arising from political instability and bureaucracy of government unless the scheme is managed and operated by a privately owned concern.
Thanks for making these articles on topical issues available to public knowledge.
I read a previous article as well on incorporation of a company limited by shares. What exactly do you mean by the shares must be government issued.
Do you imply that based on required share capital listed at the point of registration, government issues the shares to the company at a calculated cost?
I want to be clear as to whether for example NGN 50,000 CAC charge per 10,000,000 share capital is for procuring the shares for the new incorporation.
Finally if I already registered a business name, for which the CAC certificate was issued less than 48 hours, by error can I appeal at no extra or reduced cost for an upgrade to a private limited company?
Any other helpful tip is welcome
Anticipating your timely response..
Compliments of the Season!