Who suffers due to lack of legal investigations in property transactions?

By Deborah Chukwuedo

Real estate transactions take place on a daily basis in Lagos. The demand for real estate in Lagos is quite high because the value of property in Lagos has been known to appreciate within the shortest time. Despite this demand, and the frequency of these transactions, it still remains a transaction that is fraught with fraudulent practices, whether it is selling non-existent property or selling property that does not belong to the seller, and it is the subject matter of many a court.  This article aims to summarily explore these preliminary investigations that are fundamental in any real estate transaction.

Under Section 1 of the Land Use Act, “all the land comprised in the territory of each State in the Federation are hereby 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 accordance with the provisions of this Act”. In effect therefore, the right the Government gives to each allotee of a parcel of land is a right of occupancy for a term of years after which the land reverts back to the government, subject to an application for a renewal. A person to whom a parcel of land has been allotted can therefore only sell the unexpired term of what he has, as in law no person can give what does not belong to him. This is known as the rule of nemo dat quod non habet.

Before entering into any land sale transactions, the first thing the buyer must do is to employ a Solicitor that is well versed with real estate transactions, this is because there a number of searches, investigations and documentations that are prerequisite to any sale transaction and these are the responsibility of a buyer. It is the duty of the buyer to investigate the ownership of property and verify that there are no overriding interests that will challenge the ownership of the property, and that the seller indeed has the power to sell the property. Where these searches are concluded and the buyer is still interested in purchasing the property, a contract of sale must then be concluded, executed and stamped and it is this document that will protect the buyer.

The first thing the buyer’s solicitor will do is to send a questionnaire to the seller through his Solicitor. The seller’s solicitor must ascertain that the seller has title and is legally able to sell the property which he intends to sell, advise him where there are any encumbrances on the land and how best to deal with them. He must disclose to the buyer’s solicitor every defect or overriding interest which the buyer’s solicitor will not be able to detect via inspection and investigation. Where the seller’s solicitor fails to disclose such information, the buyer may at any point later on, withdraw from this transaction when this knowledge comes to him.

The buyer must first inspect the original title document of the land, which is usually in the possession of the seller, on being satisfied with the document, he must obtain a copy of the document to assist him with his investigations at the Land Registry. The buyer must also carry out an inspection of the land itself. This will show any physical encumbrances on the land, whether there are physical structures on the land, it is physically inhabited by people; it is public property, free from government acquisition, a part of the highway or if it is unfit for human habitation.

The next port of call will be at the Land Registry, where all registered transactions on land sale are recorded. A proper investigation will reveal any encumbrances on the land, whether by way of a sale of a part or the entire land, or whether the land is fit for the purposes for which it is being purchased, whether residential or commercial.

Property may be owned by individuals or corporate organisations, and where the land is issue is owned by a corporate organisation, the buyer must also carry out a search of the company’s records at the Corporate Affairs Commission to verify the directors of the company, and whether there is any secured registered charge on the land.

The filings at the Land Registry and the Corporate Affairs Commission are public records, and the general public is presumed by law to have notice of the information therein, such that any subsequent transfer of property is deemed to be made subject to encumbrances and charges on the land. Where the buyer has carried out all necessary preliminary investigations however, and made all the usual, reasonable and proper enquiries, and found nothing to indicate an overriding interest, he could plead absence of notice. I have come to appreciate the importance of anonymously scouting around the locality of the property to determine any local information or “gist” regarding the occupants or ownership of the property, while this is not legally recognised as a prerequisite it has often revealed information that one cannot find in any registry, such as family squabbles over property which may derail any property transaction.

While all of these searches and investigations are on-going, the buyer’s solicitor would have exchanged carefully prepared contracts for the sale transaction with the seller’s solicitor. This contract will contain the terms and conditions of the transaction and usually covers timeframes for the conclusion of the transactions, deposit and installmental payments, any special terms and conditions, execution of deeds, undertakings and declaration of trust by the seller pending completion, and indemnities in favour of the buyer for any loss or liability resulting from defects in the title. Each contract of sale is therefore specific to every sale transactions but there are general or peripheral clauses that must be included in every contract of sale.

In the event of any breach of the terms of this contract, the party suffering from the effects of the breach will then be able to sue reliefs such as specific performance or damages, obtain an injunction from the court or rescind the contract.