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Transactions involving commercial real estate can be complicated and necessitate careful attention to legal issues. Understanding the legal ramifications is essential to protecting your interests and ensuring a successful transaction whether you are buying, selling, leasing, or investing in commercial properties. The main legal consideration for commercial real estate transactions for both buyers and sellers will be covered in this article
LEGAL CONSIDERATION FOR BUYERS AND SELLERS IN REAL ESTATE TRANSACTIONS
1. Conducting Due Diligence: Thorough due diligence is necessary before entering into a commercial real estate transaction. This entails looking at several facets of the property, such as zoning laws, environmental issues, title problems, and leasing agreements
Both buyers and sellers should engage in due diligence and ensure that all necessary documentation is in order. This includes obtaining and reviewing property documents such as sale deeds, agreements, encumbrance certificates, building approvals, occupancy certificates, property tax receipts, and any relevant permit or license. Compliance with local building codes, zoning regulations, and other legal requirements should be carefully assessed. For example, a buyer who discovers a broken window on the property may be able to convince the seller to replace the window immediately and at their own expense.
2. Verification of Property Title and Ownership
One of the foremost legal considerations for buyers is to verify the property’s title and ownership. Conduct a thorough investigation to ensure that the seller has a clear and marketable title to the property. Engage a legal professional to conduct a title search, review relevant documents, and verify the chain of ownership to minimize the risk of purchasing disputed or encumbered property. This can be done through a search at the appropriate land registry office or by engaging a legal professional.
3. Clear understanding of payment terms: The payment structure should be clearly defined to prevent any misunderstanding. This includes the initial deposit, subsequent payments, and any associated fees. Be wary of any request for payment outside of the agreed terms.[i]
4. Understand Tax Implications: Property transactions in Nigeria may be subject to various taxes. Familiarize yourself with these taxes which include stamp duties and capital gains tax, to ensure compliance and avoid any potential legal issue.[ii]
3. Engage professionals: To identify any legal or financial risk posed by the commercial real estate transaction, it is important to engage professionals with the requisite experience. Some of these professionals include, but are not limited to:
4. Compliance with Regulatory Requirements: Various regulatory requirements are imposed on commercial real estate transactions at the municipal, state, and federal levels[iii]. This is because legal and financial repercussions may follow failure to adhere to these regulations. For example, under the Land Use Act, it shall be unlawful for the holder of a statutory right of occupancy granted by the Governor to alienate his right of occupancy or any part thereof by assignment, mortgage, transfer of possession, sublease, or otherwise without the consent of Governor first had and obtained[iv]. Any transaction or any instrument which purports to confer or vest in any person interest or right over land other than by the provisions of this Act shall be null and void[v]
5. Drafting and Reviewing Agreements: The drafting and review of agreements, such as sale deeds, sale agreements, and lease agreements, require careful attention to protect the interests of both parties. Engaging a legal professional to draft or review these agreements can help ensure clarity, enforceability, and inclusion of essential clauses to safeguard the rights of buyers and sellers.
6. Stamp Duty and Property Registration: Buyers and sellers must be familiar with the stamp duty rates applicable in their respective states for property transactions. Stamp duty is a legal obligation, and payment of the appropriate stamp duty is essential for the validity and enforceability of the transaction. Additionally, property registration with the appropriate authority is mandatory to establish legal ownership and ensure the protection of rights. In Nigeria, various states have their land registration law[vi]
7. Plan for Dispute Resolution: Despite best efforts, disputes may arise. Whether it’s a breach of contract, disagreements over lease terms, or property defects, it is essential to have skilled legal representation to protect your interests and resolve disputes effectively. This Includes a clause in the contract specifying the mode of dispute resolution, whether through litigation, arbitration, or mediation.
CONCLUSION
It is strongly advised that buyers and sellers consult with experienced legal professionals, who can provide comprehensive support and guidance throughout the transaction journey. By partnering with trusted professionals, buyers and sellers can navigate the legal complexities of real estate transactions with confidence and achieve successful outcomes.
[i] Olarewaju Yinusa, “Legal Tips: Safeguarding Buyers’ Interests in Property Transactions in Nigeria”, < https://www.linkedin.com/pulse/legal-tips-safeguarding-buyers-interests-property-nigeria-yinusa/>, accessed on November 11, 2023.
[ii] Ibid.
[iii] Alejandro Jordan, Esq., “Legal Considerations for Commercial Real Estate Transactions: What you should know”, https://www.floridarealestatelawyersblog.com/legal-considerations-for-commercial-real-estate-transactions-what-you-should-know/#:~:text=Conducting%20Due%20Diligence,title%20problems%2C%20and%20leasing%20agreements., accessed on November 11, 2023.
[iv] Section 22, Land Use Act
[v][v] Section 26, Land Use Act.
[vi] Land Registration Law of Lagos State, 2015
Written by Deborah Dada for The Trusted Advisors
Email us: info@cms.trustedadvisorslaw.com