SALE OF HOUSES BY REALTORS USING DEED OF SUB-LEASE: The Validity Of Transfer Of Title Using Deed Of Sub-Lease Over Properties Covered By A Single Certificate Of Occupancy

By Nakudu Law Partners.

Imagine living in big cities in Nigeria as a tenant? The landlord’s rent trauma can be unbearable; always counting down the time till the next rent. Most times, it appears that people work for the landlord and to keep the roof over their heads no matter how uncomfortable the roof may be. Of course, such persons may have no other option than to keep saving monies to pay their rent.

At some point in your life as a starter in a big city, you’ve either been served with a notice to quit, court summons or at the least, a reminder to pay rent. For lawyers who practice in Magistrate courts within those jurisdictions, the courts are almost like rent tribunals. Those who are familiar with the court proceedings will be sure to tell you that landlord/tenant disputes dominate the court’s cause lists.

The struggle sometimes appears to be over when one acquires a house, especially from realtors and in the form of estate houses. However, little attention is often paid to the documents transferring title from the said realtors to the individual housing estate subscribers and in some cases, these transactions only elevate their status to age-long tenants in their own houses, temporarily granting peaceful possession over a long time while the realtors retain the reversionary interest in the housing estate, unknown to the subscriber.

At the moment, it is estimated that Nigeria’s housing deficit is put at over 22Million.[1] With many Nigerians homeless, owning a house will invariably deflate the statistics of the housing deficit in Nigeria. Beyond solving the issue of shelter, owning a home provides a security to the home owner and with the asset, he can obtain facility to start a business or invest in an income-yielding venture.

In practice, what is often experienced is that some groups of persons or companies who are registered to carry on the business of real estate; acquire landed property or enter into some sort of arrangement with owners of land to build estates and ask interested persons to subscribe. Usually, it starts with the interested persons going to the realtor’s office to pick up an expression of interest form, and a subsequent letter of offer/allocation of a particular plot or houses to them. In most cases, they are required to pay the purchase price of the property and in return, they are handed over a ‘Deed of Sub-Lease’ to execute as the title document transferring some number of years to the lessee. The question that now arises therefore is the propriety of such transfers using a Deed of Sub-Lease.

Who owns the land?

Land ownership in Nigeria is undoubtedly vested in the Governor of each state who is to administer the land for the benefit of the people. Land in this context includes both developed and undeveloped land. Usually, the governor grants rights to occupy a land to Nigerians or corporate bodies registered in Nigeria for a particular period of time, normally 99years upon fulfillment of some conditions.

The Land Use Act equally provides that the holder of a Certificate of Occupancy can transfer or assign his interest in the Certificate of Occupancy to a third party subject to the governor’s consent[2], whether or not such transfer is a total or partial transfer of interest, or legal or equitable transfer.  An agreement transferring interest in land must be written. This is why lawyers prepare transfer documents such as a Deed of Assignment, Deed of Partition or Deed of Sub-lease, Deed of Lease, Deed of Mortgage and so on, all transferring various interests in land. Those captions are not as important as the wordings of the transfer.

Can A Deed Of Lease/Sub Lease Transfer Title In Land?

A lease is said to exist when one party gives or lets out his property to another for use for a period, usually in consideration of payment of rent. It is a contract for the exclusive possession and profit of land for a definite period. ^[3] It is important to note that in lease relationships, title to the land is not conveyed; only the use and occupation of the property is conveyed by the lessor. This is so because, in leasehold, possession reverts to the lessor after the expiration of the term given.

More often, leases are either made orally or in writing or under seal. In practise, lease above three years are required to be by Deed, that is to say, it must be signed, sealed and delivered by both parties so as to satisfy the legal requirement under the Land Use Act, as well as to create legal interest over the property when the governor’s consent is obtained and the Deed registered.

One of the major characteristics of a lease agreement is that the property owner (Lessor) has the right to sell his property whenever he chooses to do so. Where a property is subject of a lease, the right of the lessee upon sale of the property depends on the agreed terms of the lease.^[4] In other words, the subsequent purchaser purchases the said property subject to the leasehold.

Possessory interest in Lease as against Proprietary interest in assignment:

The central focus in lease relationships is that the Lessor conveys exclusive possession of the demised property and not the proprietary interest. Put simply, what the lessor has transferred in the property to the lessee is only the right to occupy the premises exclusively. It means that the legal ownership of the property still remains and belongs to the lessor. The exclusivity of possession by the lessee can be terminated and extinguished once another enters the land lawfully^[5].

Possessory rights exist or arise by virtue of the protection the law accords to an actual physical occupant of land, even if it is wrongful or adverse. The primary right which such physical occupation confers is the right to exclude others. So, a possessor can therefore exclude all those interfering with his possession except the person with a better right to immediate possession^[6]

On the other hand, the term “proprietary interest” is defined as the interest held by a property owner together with all appurtenant rights^[7] which explains why a tenant or lessee cannot question the proprietary right of his landlord^[8]. That is to say, a lessee cannot challenge ownership of the lessor.

Also, a right of possession can be exercised or enforced by the party in actual possession against the whole world except the true owner.^[9]

Status of a Sublease:

Generally speaking, a sublease is a minor lease proceeding from a major lease, in which the lessor of land grants part of the terms which he holds to another. Where the lessor grants the entire remainder, it will amount to assignment of the interest in the property, in other words, it will technically amount to sale of the property subject to legal requirements.

In essence, the right of the lessee is limited to the peaceful and quiet possession of the land/property during the term of the lease agreement. A landlord reserves the right to alienate or do with his land whatever he desires regardless of a pending lease agreement, except where such action interferes with the lessee’s interest in the land.^[10]

Arguably, under the Land Use Act, Right of Occupancy has often been viewed as a sui generic (class of its own) interest in land, more appropriately called a statutory lease. This view appears to have been supported by Nigerian courts as the Court of Appeal in L.S.D.P.C vs. Foreign Finance Corporation[11]. In Osho vs. Foreign Finance Corporation[12] the court held that: “The right of occupancy is in nature a hybrid between a licence and a lease… on terms and conditions which upon breach by a right holder is subject to revocation by the governor”

Therefore, though the Right of Occupancy under the Land Use Act does not meet the common law requirement for a lease (that is certainty of time, object, execution, etc.), it can be described as a form of statutorily created lease peculiar to lands covered by the Land Use Act. This is because, the framers of the Act, (as can be deduced) clearly intended that the right contained in the Right of Occupancy should be in the nature of a lease out of which lesser interests could be created. However, in practise, given the peculiarity of leasehold, a Deed of Lease has never been an acceptable way of conveying the entire proprietary interest in land regardless of the inference that the nature of grant in Right of Occupancy by the governor appears to be leasehold. Interestingly, the Nigerian courts have always interpreted a lease agreement to only grant possessory interest of the property as against proprietary right, which means that the lessor reserves the right to convey his proprietary right to another buyer who can buy off the proprietary right of the lessor leaving the lessee with only the right of possession that will be extinguished at the expiration of the years granted.

Is using Deed of Sublease by realtors to transfer ownership of interest in estate houses a good practice?

As has been amply demonstrated above, assignment of entire interest in land cannot be achieved using a Deed of sublease. This is because the reversionary interest[13] in the land lies with the lessor once granted less one day. This is equally the case in a sublease that has been described as a lease under an existing lease.

Put simply, when the Deed of sublease (as currently used by real estate companies) is used as a title document transferring an interest in the land, at the expiration of the term granted in the sub-lease or even while the leasehold is existing, the sub lessor can validly assign or convey the remaining year or days in the head-lease to another person subject to the leasehold already granted to the lessee.

The above point can be demonstrated using two scenarios. Scenario A; if Mr. A has a right of occupancy of 99years over a plot of land in Bompai Kano State, and he sub-lets 90years to Mrs. B, Mr. A reserves the proprietary right over the property while Mrs. B retains the possessory right. At the expiration of the 90years granted to Mrs. B, the reversionary right of the 9years reverses to Mr. A and he can assign or covey the remaining 9years to another person subject to statutory compliance. Scenario B, using the same property and parties, while Mr. A has sub-let 90years to Mrs. B, Mr. A can proceed in the same year to assign the remaining 9years to Mr C subject to the 90years sub-lease granted to Mrs. B. What it then means is that Mr. C will have to wait for the expiration of the 90years already granted to Mrs. B before he can take possession of the property.

The point being made is that; where the transfer of interest in land is done by way of a lease or a sublease as the case may be; the lessor or sub lessor will usually retain the reversionary interest in the property. In other words, whatever interest that has been transferred reverts to the lessor upon expiration of the lease.

It must be pointed out here that the case may be different where the lessor or sub-lessor sublets the entire remaining years, also referred to as unexpired residue, to the lessee or sub-lessee, in which case his reversionary right has been extinguished once the governor consents to such transfer. What it then means is that the governor can deal directly with the sub-lessee over the Right of Occupancy granted to the lessor over such property. However, the difficulty with this kind of practise usually lies with the uncertainty of the remaining years. If the years granted to the lessee is less, then the reversionary right is retained by the lessor, where it is more, we would argue that such grant over the remaining years in the certificate of occupancy is voidable on the doctrine of “Nemo dat quot non-habet” meaning granting what the lessor never had

What is then the proper practice of conveying interest in estate covered by a certificate of occupancy?

Understandably, realtors face the difficulty in determining the appropriate mode of conveying interest of houses or apartments purchased by individuals in real estate houses given that the land upon which the estate houses are built is often covered by a single certificate of occupancy. Ordinarily, preference would be given to both parties executing a Deed of assignment, but where an estate is built, using a single certificate of occupancy may present some technical legal challenges. However, the creative way to ensure that the interests of all the subscribers to the estate houses are protected is to do either of the following:

• Prepare a separate Deed of assignment for each building/purchaser together with As-Built Survey Plan (ABSP) and then obtain the consent of the governor and register the deed alongside with the ABSP at the Lands Registry. Alternatively, prepare a separate Deed of partition for each building together with As-Built Survey Plan (ABSP), obtain the consent of the governor and register the deed alongside with the ABSP at the Lands Registry. The documents should be accompanied with:

1. A letter of authorization to register either the Deed of assignment and/or Deed of partition signed by the holder(s) of the certificate of occupancy.

1. A valid means of identification (either national ID card, international passport, voter’s card, driver’s licence) of the holder of the certificate of occupancy.

• In the case of a company, the means of identification of the directors, certified true copy of CAC form7, certificate of incorporation, and company’s resolution authorizing the assignment and registration of the property.

Both Deeds (either assignment or partition) are acceptable for registration showing that interest over that particular portion purchased by the purchaser has been transferred. The certificate of occupancy will be provided for sighting in the course of the registration.

Conclusion

To succeed in a land dispute, a person in possession of title documents executed in his name will more often than not get judgement in his favour. We will rest our argument on decided cases where the courts have over and again emphasized that one of the modes of proving ownership of land in Nigeria, is the production of properly executed title documents to the land which is now the most authentic mode of proving title to land[14], as against a deed of lease/sublease, a deed of assignment is a more reliable means to prove title in land.

We understand the position of the Land Use Act, particularly section 22 which makes the Governor/FCT minister a head-lessor over lands within their territory, however, the Conveyancing Act as applicable in Federal Capital Territory recognises and allows an assignment by way of Deed of Assignment.

EDITORIAL TEAM

1. Anthony Madukwe

(Senior Partner)

anthony.madukwe@nakudulawpartners.com

2. Emmanuel Omole

(Senior Associate)

emmanuel.omole@nakudulawpartners.com

3. Isimeme Andrew

(Associate)

Isimeme.andrew@nakudulawpartners.com

OUR OFFICES

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www.nakudulawpartners.com

DISCLAIMER: This article is carefully drafted with the sole intention of providing general information on the subject matter. It does not in any way create a client/attorney relationship between readers and our Firm. We are always readily available to provide top-notch legal services.

[1] https://thenationonlineng.net/housing-deficit-now-22-million-says-fmbn/

[2] Section 34(2) of the Land Use Act 1978.

[3] Prudential Assurance Co Ltd v London Residuary Body (1992) 2 AC 286

[4] Registered Trustees of Master’s Vessel Ministries (Nig) Incorporated v. Emenike & Ors (2017) LPELR-42836(CA)

[5] Olukoya v Ashiru (2006) ALL FWLR part 322, p.1479 at 1514

[6] ANENE & ORS v. OKOYE (2013) LPELR-21877(CA)

[7] ENUN v. EKPO(2012) LPELR-19703(CA)

[8]AJIE & ORS v. AHUNANYA & ORS (2000) LPELR-10062(CA)

[9] Farajoye v. Hassan (2006) 16 NWLR (Pt. 1006) Pp. 499 para. G

[10]REGISTERED TRUSTEES OF MASTER’S VESSEL MINISTRIES (NIG) INCORPORATED v. EMENIKE & ORS (2017) LPELR-42836(CA)

[11] (1987) 1.N.W.L.R. (pt50) 413 at 444.

[12] (1991) 4. N.W.L.R. (pt184) 157 at197

[13] Reversionary interest is the interest that a person has in a property when a preceding estate ceases to exist Reversionary interest in the context of real property or wills and estates means a reservation created in a real property conveyance that the property will revert back to the original owner upon the happening of a certain event.

[14] BAZAMFARE & ANOR v. ADAMU & ANOR (2017) LPELR-CA/J/245/2016, IBETO v. NWANOSIKE & ORS

(2013) LPELR-CA/PH/128/99