Introduction 

In the ever-changing landscape of the Nigerian real estate, the adage “buyer beware” echoes profoundly. A seemingly promising property investment can quickly transform into a costly legal predicament if not approached with meticulous care. This is where real estate due diligence becomes paramount. It is not merely a formality, but a critical process that safeguards investments and ensures a smooth and legally sound transaction.

In this article, we have highlighted essential legal considerations and steps necessary to mitigate risks and make informed decisions in real estate transactions.

What is the Importance of Due Diligence?

Due diligence goes beyond the basics of a property inspection. It includes, among other things, reviewing title documents, environmental conditions, local zoning laws, land use rules as well as survey authenticity. While due diligence in real estate transactions may not be mandatory, it is always best to conduct thorough due diligence. 

The Court of Appeal in the case of Kumo v. Bappari & Ors[1] stated succinctly,

“…It is not just enough to make casual search but one must be diligent in search, overturning everything about any possibility of any encumbrance on the land. It is like using a touch light to check for a lost pin. The whole search must be complete and approved by any reasonable person that shows that indeed nothing else need to be done. The principle implies therefore that the law requires that proper investigation be done over the property. 

Due diligence involves a thorough investigative process by the buyer to verify the accuracy of the information the seller provides. This includes a series of checks and verifications to ensure that the property is as described and free from legal issues. In Nigeria, due diligence is particularly crucial due to the complexities and potential pitfalls in the real estate market.

Key Consideration in Due Diligence

Engagement of a Real Estate Lawyer: The first step towards conducting an effective due diligence exercise on a property is the engagement of a lawyer.  It is also inadequate to engage a lawyer, one must engage a lawyer who is knowledgeable and experienced in real estate transactions.

Upon engagement and commencement of negotiations with respect to the acquisition of the property, your lawyer will demand from the seller certain documents relating to the title of the property for proper scrutiny. These documents may include the Certificate of Occupancy (C of O), Deed of Assignment, Deed of Sublease, and Deed of Assignment with Governor’s Consent, and judgement of the court among others. Lawyers understand legal documents and can spot irregularities that might escape the untrained eye. Furthermore, lawyers are knowledgeable about the different types of titles that arise within our jurisdiction and can provide guidance on any supplementary documents and information that may be necessary depending on the title associated with the land intended for purchase. They therefore anticipate potential issues and address them before they become challenges in the future.

Verifying the Property’s Title and Conducting a General Search of its Status: Part of your lawyer’s duties in the acquisition process will be to conduct an investigation to verify the property’s ownership and status. This will include a search at the applicable land registry which will reveal existing charges or mortgages on the property, if any.

It is important to note that information on a property’s status following a land registry search is available only if the property’s title has been registered. If the search yields no results, it is likely that the seller either lacks legal ownership or has not registered the title, preventing a valid transfer.

Depending on the transaction, your lawyer may also consider it necessary to conduct a physical search at the property’s address to confirm the actual condition of the property and identify who has been exercising possessory and ownership rights over the property. Additional searches may also be conducted at other registries including the probate registry, where the property is part of a deceased’s estate or the seller claims the property was inherited through a will, or at the Corporate Affairs Commission (CAC), where the property is owned by a company etc.

i) Confirmation of Authenticity of the Survey Plan: Another important step is to obtain and verify the authenticity of the survey plan with the Office of the Surveyor General. This process, known as charting, ensures that the land does not fall under any government acquisition and confirms its exact location and size.

ii) Confirmation of Building Approvals and other Relevant Documentation: For properties with constructed buildings, it is essential to verify the building approval issued by the government. This confirmation is done by conducting a search at the applicable physical planning permit authority or the Ministry of Physical Planning and Urban Development to ensure the owner of the property obtained the necessary building plan approval to construct the building on the land.

iii) Confirm Applicable Zoning Laws: Zoning laws are used by local authorities to determine/control how an area is developed. Where you intend to develop the property, it is important to confirm the applicable zoning laws to ensure that your intended use of the property aligns with the authorities’ plans and local regulations. This will protect your investment and value of property, and prevent certain issues like fines, injunctions, and demolition of structures.

Conclusion

An Igbo saying advises one to seek a black goat in daylight before night falls. In a similar vein, conducting due diligence in real estate transactions in Nigeria is not simply a procedural formality; it is an essential safeguard. The challenges posed by the evolving legal landscape and the potential for fraudulent real estate activities necessitate a comprehensive and diligent approach to prevent financial losses. Ultimately, successful real estate transactions in Nigeria hinge on a commitment to thorough due diligence, enabling investors to make well-informed decisions and build a stable and prosperous future in the dynamic Nigerian property market.

[1] (2022) LPELR – 57761 (CA) Per Ebiowei Tobi, JCA