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The Blacks’ Law Dictionary defines term ‘foreigner’ to mean “a person who is not a citizen or subject of the state or country of which mention is made, or any one owing allegiance to a foreign state or sovereign” while an alien is “a person who is not a citizen of the country in which they live or work.”[i] From these definitions, it is obvious that while every alien is a foreigner, not all foreigners are aliens. Although there is a technical difference between the terms, they are often used interchangeably to refer to both foreign nationals on a visit with no intention of residing or working in Nigeria and foreigners who work and live in Nigeria. In the context of this article, we will use both terms interchangeably with reference to persons seeking foreign direct investment opportunities in the real estate sector in Nigeria.
APPLICABLE LAWS AND JUDICIAL PRECEDENTS
Prior to the enactment of the Land Use Act in 1978, there were regional ordinances and laws that restricted the acquisition of land in Nigeria by foreigners. Among such laws were the Land Tenure Law of Northern Nigeria, the Acquisition of Lands by Alien Laws of various States, and the native land tenure system applicable to land in rural areas of Southern Nigeria. These laws were designed to limit the interest a foreigner could acquire in land in Nigeria. The Land Use Act vests the ownership and control of all land in Nigeria in the Governors of the federating States for the benefit of all Nigerians[ii]. The Acquisition of Lands by Aliens Law of Lagos State, 1971, expressly prohibits aliens from acquiring and transferring land or interests in land except in some circumstances.[iii] The Law also defines an alien to include persons who are not natives of Nigeria and corporate bodies majorly controlled by non-natives.[iv]
The restrictive nature of the Nigerian land tenure system and its implication on the capacity of foreigners to acquire, own and transfer interests in land has been settled by the Apex Court in the locus classicus case of Huebner v. A.I.E. & P.M. Co. Ltd, where the Court held, among other things, that “a brief historical evolution of the land tenure systems in Nigeria from the colonial period up to the promulgation of the Land Use Act shows that the intendment of the Act is for the benefit of Nigerians and not just anybody.”[v] The Court, dismissing the appeal for lack of merit, held further that section 1 of the Land Use Act, 1978, specifically limits its benefits to Nigerians. As such, a foreigner cannot apply for a statutory or customary right of occupancy. Thus, the ownership of land is limited to Nigerians and does not include aliens.[vi] The appellant in the instant case was a German living in Kaduna State, in the Northern Region of Nigeria. In addressing other issues before it, the Supreme Court reiterated that the Land Use Act did not repeal any law restricting or limiting the rights of non-Nigerians to own land in Nigeria. What this means is that the Acquisition of Land by Aliens Laws are still very much in force and subsisting despite the promulgation of the Land Use Act. It reaffirmed an earlier judgment of the apex court, where it had previously held that a non-Nigerian cannot apply for or be granted a statutory or customary right of occupancy.[vii]
IMPLICATION OF LEGAL RESTRICTIONS ON THE CAPACITY OF ALIENS TO ACQUIRE INTERESTS IN LAND
The legal position discussed above leads us to the crux of this article – how can foreigners acquire and manage real estate assets in Nigeria? The stance of the Supreme Court in the above cases tilts towards a rigid approach in concluding that foreigners cannot legally acquire any interest in land in Nigeria. However, this is not always the case, as some state laws do not totally prohibit foreigners from acquiring or dealing with land. For the purpose of this article, we will discuss the opportunities for investment in real estate that are available to foreigners under the Acquisition of Land by Aliens Law of Lagos State, 1971, the Companies Allied Matters Act, LFN 2004, and the Land Use Act, 1978.
A. The Lagos Acquisition of Land by Aliens Law, for example, only limits the capacity and interest in land to be acquired by foreigners to leaseholds subject to the prior written consent of the Governor.[viii] This ‘prior written consent of the Governor’ is not to be confused with the consent requirement of section 22 of the Land Use Act. The Lagos law in sections 1-3 sets out the circumstances under which foreigners can lawfully acquire an interest in land. These circumstances are enumerated below:
· Foreigners can acquire an interest or right in or over land from a citizen of Nigeria where the transaction under which the interest or right is acquired has been previously approved in writing by the Governor.
· An alien can lawfully enter into a lease for a term less than three (3) years, including the renewal period, without a need to obtain prior Governor’s approval or fulfil any other requirement of the ALAL law.
· In a case where an interest or right in land has been lawfully acquired by an alien, and the alien is looking to transfer, alienate, demise or otherwise dispose of such interest or right to any other alien or be sold to any other alien under any process of law, it is mandatory to obtain the prior approval in writing by the Governor.
· However, where interests or rights in land lawfully owned by an alien are liable to be conveyed or sold in the course of a legal process, the State Government has the right of first refusal in such circumstances. But if it declines to acquire such interest, then it can be sold to a Nigerian native. The Law omits the requirement for approval in this case, so it is safe to assume that prior approval of the Governor will not be necessary in transactions of this nature.
· Where an alien purports to acquire any interest or right in or over any land and which forms part of or gives effect to a transaction that has not been duly approved in accordance with the provisions of the law, such agreement or instrument, whether in writing or under seal, will be void and of no effect.
B. Companies incorporated under the extant Companies and Allied Matters Act in Nigeria are recognized as legal persons. A legal person, in this case, is a non-human legal entity that is treated as a person for legal purposes. A legal person is capable of engaging in all usual legal businesses that a real person can participate in, such as suing, being sued, owning property, and entering into contracts.[ix] Exploring this option, foreigners can derive an indirect benefit under the Land Use Act using the instrument of a company incorporated under CAMA. The company qualifies as a Nigerian by virtue of registration and can apply for a grant of the right of occupancy. The company would ordinarily have the power to acquire or transfer an interest in land and carry out other objects as long as these are expressly stated in the Memorandum of Association of that company.[x]
C. The provisions of section 46 (1) (a) of the Land Use Act empowers the National Council of States to make regulations for the purpose of carrying the Act into effect and particularly with regard to, among other matters, “the transfer by assignment or otherwise howsoever of any rights of occupancy, whether statutory or customary, including the conditions applicable to the transfer of such rights to persons who are not Nigerians”. The effect of this section means that, although the Land Use Act was made for the benefit of Nigerians, the drafters of the Act still contemplated the interests of foreigners. It is apposite to however note that the position of the law remains the same until the Council passes regulations in this regard.
PROCEDURE FOR APPLICATION BY ALIENS TO ACQUIRE INTERESTS IN LAND IN LAGOS
Section 6 (1a) of the ALAL law and The Acquisition of Land by Aliens Regulations[xi]
i. Manner of Application: A foreigner/alien seeking to acquire an interest or right over land in Lagos must, prior to entering into any agreement in respect of the proposed transaction:
a. Submit an application for Governor’s approval to the appropriate State Commissioner in charge of land matters in the prescribed form set out in the First Schedule to the Regulations;
b. Pay the prescribed fees set out in the Second Schedule, obtain a Revenue Receipt and attach the same to the application;
c. The applicant must supply any further information in respect of the application, as the Commissioner may require.
ii. Conditions of Approval of Transactions: An application for approval is likely to be successful where the conditions set out in Paragraph 2 of the Regulations are duly adhered to. An applicant must:
a. Make an application in the prescribed Form as in the First Schedule to the Regulations;
b. Ensure that the proposed transaction does not exceed the term limit set in Regulation 4 (Limitations on Acquisitions) explained below;
c. Pay the prescribed fees as in Regulation 1 already enumerated above;
d. Take steps to register the transaction instrument at the Lands Registry upon notice of approval.
iii. The Regulations also set out terms and conditions to be contained in the instrument of lease, including a covenant to pay rent, a rent review clause, and arbitration.
iv. Limitations on Acquisitions: The interest to be acquired by a foreigner in land-related transactions shall not exceed a term of twenty-five (25) years, including an option to renew, and the term shall commence within a month of obtaining the Governor’s approval for the transaction.
v. Form of Approval: Upon a successful application, the Governor’s approval for the proposed transaction shall be as in the Third Schedule to the Regulation, subject to the conditions of approval attached. The letter of approval must be submitted along with the land instrument at the Lands for post-completion registration.
vi. Governor’s power to waive requirements or modify conditions or limitations: The Regulations provide for cases where the Governor may waive compliance with any of the requirements of the Law or modify any condition or limitations. Thus, foreigners can apply for a waiver if the circumstance of the case allows.
AML/CFT REGULATIONS AND CAPITAL CONTROL POLICIES
The Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) policy framework applicable in Nigeria provides for strict foreign exchange and capital controls. These restrictions can impact the importation of capital for investments in the real estate sector and the repatriation of funds from property transactions. The AML/CFT policies are regulatory directives aimed at actively preventing any transaction that facilitates criminal enterprises and to protect the stability and integrity of the financial markets. The Special Control Unit Against Money Laundering (SCUML) is a major regulator of the real estate sector. Real Estate companies and practitioners are required by the law to not only register their businesses with SCUML, but they are also required to report suspicious transactions, cash-based transactions, and other transactions above the prescribed limit.
Additionally, the Central Bank of Nigeria (CBN), from time to time, makes regulations and publishes circulars of monetary policies regarding foreign exchange transactions, and these policies can change frequently. Foreign investors are advised to keep abreast of these policy changes as they affect capital control and foreign exchange restrictions.
CONCLUSION
Foreigners looking to take advantage of the booming real estate sector in Lagos and Nigeria as a whole must be mindful of the limitations that exist under the Land Use Act, the Acquisition of Land by Aliens laws, and the applicable Registration of Titles laws of the different states. Special attention should also be given to the provisions of the Companies and Allied Matters Act, AML/CFT regulations, and CBN policies.
Most importantly, foreigners must note that any interest or right in land acquired by an alien without strict compliance with the provisions of the laws discussed above is void and of no effect. This applies to all transactions relating to landed property, whether for private or commercial use, acquired by an alien or to be transferred to another alien. Therefore, even though the laws do not strictly prohibit an alien from lawfully owning rights and interests over land or any landed property in Nigeria, such ownership is subject to certain restrictions, and the acquisition must be within the confines of law.
From the above discussions, it is clear that the Nigerian real estate sector operates under multiple laws and regulations, largely due to the federal system of government in place, and the application of these laws varies from state to state. Hence, aliens are advised to work with experienced legal professionals who are knowledgeable about the specific laws and regulations applicable in the state where they plan to invest and keep abreast of changes in capital control policies and foreign exchange regulations, which can significantly impact their ability to import capital for investments or repatriate funds earned from property transactions.
[i] Oxford Learner’s Dictionary, accessed via: https://www.oxfordlearnersdictionaries.com/definition/english/alien_1 on 31/7/2024
[ii] Section 1 Land Use Act, 1978 expressly provides that “subject to the provision of this Act, all land comprised in the territory of each State in the Federation is 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 provision of this Act.”
[iii] Acquisition of Lands by Aliens Law of Lagos State, 1971 sets out in its objectives to ‘regulate and control the acquisition of land by aliens from citizens of Nigeria.’
[iv] Section 8 ALAL Law, Lagos State.
[v] (2017) 14 NWLR (pt. 1586) 397 per KUMAI BAYANG AKA’AHS, J.S.C
[vi] Supra per Paul Adamu Galinje, J.S.C. at page 422 (delivering the lead judgment)
[vii] Ogunola & Ors V. Eiyekole & Ors (1990) 4 NWLR (Pt. 146) 632
[viii] Section 3, Acquisition of Lands by Aliens Law of Lagos State; Regulation 4 (a) & (b), Acquisition of Lands by Aliens Regulations. The Regulations were made pursuant to the powers granted to the Governor under section 6(1) of the Lagos Law.
[ix] Definition culled from Legal Information Institute, Cornell Law School, accessed via: https://www.law.cornell.edu/wex/legal_person#:~:text=A%20legal%20person%20is%20a,property%2C%20and%20entering%20into%20contracts on 31/7/2024
[x] See Article by Deborah Onafadeji, The Trusted Advisors, accessed via: https://www.mondaq.com/nigeria/corporate-and-company-law/1261996/acquisition-of-real-estate-by-aliens-in-nigeria on 31/7/2024.
[xi] Regulations 1-6 and the corresponding Schedules.
Written by Olusola Oluwafemi for The Trusted Advisors
Email us: info@cms.trustedadvisorslaw.com