Joint venture property development agreements in Nigerian property transactions: What land owners should know, by Michael Odunlami

by · The Eagle Online

You have a valuable plot of land in Lekki, Lagos, but you do not have funds to develop it. A property developer approaches you with a fantastic proposition: “Give me your land, I’ll provide the funding to develop it” We’ll build ten flats and share them out.

You are thrilled. After all, your land has been idle for years. Suddenly, someone is offering you to make a multimillion-naira investment without you spending a dime on building.

But before you crack open the bubbly, ask yourself one important question. What happens if the developer bails halfway through? Here is where a well-drafted Joint Venture Property Development Agreement becomes very important.

A JV, or joint venture, is an agreement between a landowner and a property developer to develop land and share the completed property or proceeds on agreed terms.

This arrangement has been gaining popularity in Nigeria, more so in Lagos, Abuja and Ogun State.

Landowners provide land, developers provide finance for construction, technical expertise and project management.

For instance, a land owner may contribute land valued at ₦200 million and a developer agrees to build twelve apartments. The parties may agree on five apartments to the landowner and seven to the developer. Sounds simple enough, doesn’t it?

Unfortunately, many property disputes start out as seemingly simple agreements. The first important question is: Who owns the land? The developer must verify the title of the landowner before signing anything.

Care should be taken to examine a Certificate of Occupancy, Deed of Assignment or other title document properly.

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Searches should also determine whether the land is subject to government acquisition, litigation or mortgage.

Similarly, the landowner must research the developer. Does the company have enough financial capacity? Has it done similar projects in the past? Are there any outstanding disputes from previous developments?

A pretty architectural drawing is no proof that a developer can finance construction.

Another important question is how the completed property is divided. Saying that the parties will share the building 40:60 is not enough.

The agreement should clearly state the exact apartments owned by each party, including floors, sizes, parking spaces and other amenities.

Imagine finding out after completion that all your five apartments are on the ground floor while the developer gets the more valuable upper floor units!

An agreement properly drafted avoids such disagreements. The agreement should also specify when construction will commence and when it must be completed.

Developers sometimes promise eighteen months and then leave projects for five years. And then what?

The agreement should set out realistic milestones, monitoring arrangements, consequences of unjustified delays and circumstances in which either party may terminate the arrangement.

Another big concern is funding. Some developers borrow against the landowner’s property. Don’t ever assume that because a landowner is contributing land, the developer can’t mortgage it.

The agreement should clearly restrict unauthorised borrowings, mortgages and other dealings with the property otherwise, the land owner may wake up one morning to find the property in dispute with the bank.

And the permits from the government? The agreement should spell out who will obtain building approvals, pay statutory charges, engage professionals and ensure compliance with planning regulations.

It will also address liability for construction defects, insurance, professional supervision and accidents that occur during development.

Crucially, the parties should agree on what happens after completion. Who looks after the building? Who is responsible for shared facilities? Who collects the service charge? Can one party sell its part of the apartments separately? Such questions are often not asked until a conflict arises.

Landowners should also know that signing a JV agreement does not mean ownership is immediately transferred. The legal effect is a function of the documents executed and the rights granted.

Where the arrangement involves an assignment or other registrable interest, the relevant consent, stamping and registration requirements must be considered.

Finally, every JV agreement should contain clear dispute resolution provisions.

Disputes can be settled through negotiation, mediation or arbitration and may not have to go through lengthy litigation.

A joint venture can turn an empty lot into a profitable investment. However, it can also transform valuable family property into years of litigation if people do not protect themselves.

My advice is simple and straightforward: never give your land for a development project because the developer promises you flats.

Check out the developer, confirm the financing and insist on a professional agreement before giving up possession or development rights.

Remember that if the project fails, the developer may lose money, but the landowner stands to lose something much harder to replace: the land itself.

This article is for general information and does not constitute legal advice.

If you, a relative or a friend are considering a property joint venture, experiencing a development dispute or need an agreement reviewed, contact us for free initial legal advice.

Michael ‘Lekan Odunlami, Esq., is a Lagos-based legal practitioner with a particular interest in property law and real estate transactions.

He can be contacted via contact@claybrookattorneys.com or 0902 897 8494.

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