The mode of creation of a legal
mortgage depends on where the property is located, and Nigeria may be divided
into three jurisdictions namely – the C. A States, P & C. L States, and
land under Registration of Titles Law, Lagos.
1.
Conveyancing
Act (C. A) States – There is no statutory provision governing the mode of
creation of a legal mortgage in these States, therefore, the applicable law is
still the common law subject to modifications introduced by the Land Use Act,
1978. Since no freehold interest in land can be acquired in Nigeria, the
relevant law is that applicable to the creation of a legal mortgage of
leasehold interest.(click on the pictures on left or right hand sides for more insights)
At common law, a
legal mortgage of a leasehold interest may be created by the following ways:
(i)
Assignment
of the mortgagor’s interest in the land with a covenant for reassignment or
re-conveyance of the mortgage. Assignment is the transfer of the unexpired
residue of the term in the property to the mortgagee. The advantage of this
mode is that there is no reversionary interest in the mortgagor, hence in the
event of a default, the mortgagee can pass his entire interest to a purchaser
without problem. Although there is no privity of contract between the
Governor/Headlessor and the mortgagee, but there is privity of estate. This
makes the mortgagee liable for all the covenants and conditions in the
headlease. The mortgagee is bound to observe and perform the restrictive
covenant that runs with land in equity; this is no doubt a hardship on the
mortgagee being bound by onerous covenants he was not privy to – Tulk
v. Moxhay 41 E. R 1143.
(ii)
Sub-demise
at least one day shorter than the term of the original lease with a proviso for
re-conveyance on redemption of the mortgage. The major advantages of this mode
are that there is no privity of contract or estate between the mortgagee and
the headlessor; and there is no uniformity because it is also an applicable
mode under the PCL which makes it attractive to banks. The only disadvantage is
that it preserves the mortgagor’s right to reversion. Title in the mortgaged
property, is vested in the mortgagor. Which means that the mortgagee cannot
give a perfect title to the purchaser in the event of default by the mortgagor.
This interest can be avoided by drafting device – In the white Rose Cottage (1965)
CH. D 940. Either a Power of Attorney Clause or a Trust of declaration
or both may be inserted to vest the mortgagor’s reversionary title in the
mortgagee. In Power of Attorney Clause, it operates to vest irrevocably
authority over the mortgaged property on the mortgagee or his attorney
irrevocably until the loan is repaid. The implication is that in case of a
default, the mortgagee can sell – Labededi v. Odunlana & Anor. (1973) 4
CCHCJ; Chime v. Chime (2001) 3 NWLR (Pt. 527). In a trust declaration
clause on the other hand, it makes the mortgagor a trustee of the mortgaged
property in favour of the mortgagee. The mortgagee is also empowered to remove
the mortgagor as trustee and appoint new trustees in the management of the
mortgaged property – LCB Ltd. v. Goddard (1897) 1 CH. D. 642.
(iii)
Deed of
statutory mortgage is also another form by which mortgage in the C. A
States may be created. Section 26(1) of
the Conveyancing Act states in part that “a mortgage of freehold or
leasehold land may be made by a deed expressed to be made by way of statutory
mortgage, being in the form given in Part I of the Third Schedule to this Act…”
The form in the schedule may be modified as circumstances require. The major
advantage of this method is that it is simpler to create and may be discharged
by simple receipt; which turns out to be one of its disadvantage also since the
receipt is not registrable and the mortgage may continue to be reflected in the
register.
2.
Property
and Conveyancing Law States – These are States in the Old Western Region of
Nigeria namely – Oyo, Ogun, Osun, Ondo, Ekiti, Edo and Delta.
Section 108(1) of the PCL provides that
a mortgage of an estate in fee simple shall only be capable of being effected
at law either by a demise for a term of years absolute, subject to a provision
for cesser on redemption, or by a charge by deed expressed to be by way of
legal mortgage. Section 109 of the Law further
provides that a mortgage for a term of years absolute shall only be capable of
being effected at law either by a sub-lease for a term of years absolute less
by one day at least the term vested in the mortgagor and subject to a provision
for cesser on redemption, or by a charge by deed expressed to be by way of a
legal mortgage. Legal mortgage under the PCL States can be created in the
following ways:
(i)
Demise is
for a term of years absolute, subject to a provision of cesser upon redemption.
Any purported conveyance of an estate in fee simple by way of mortgage shall
operate as a demise of the land to the mortgagee for a term of years absolute,
without impeachment for waste but subject to cesser on redemption – section 108(2) PCL. However, the
creation of a legal mortgage even though sanctioned under the PCL is no longer
possible because of the Land Use Act which provides that the greatest interest
a person can have is a specified term of not more than ninety years (90 years).
As a result of this, sub-demise is used for the creation of legal mortgage in the
PCL States.
(ii)
Sub-demise
or sub-lease must be at least one day shorter than the term of the lease
which is being mortgaged otherwise it will operate as an assignment – section 109(1) PCL. The advantage of
the sub-demise is that it allows for second and subsequent mortgages to be
created on the lease. Further, where a mortgage is created by sub-demise under
the PCL, the two remedial devices, that is, Power of Attorney and Declaration
of Trust are not necessary because section 112 of the PCL grants the mortgagee
the right to sell the property with the reversionary interest of the mortgagor
where he defaults to pay the principal with interest.
(iii)
Legal
Charge is another means by which a legal mortgage can be created in the PCL
States – Section 108(1) of PCL. Section
110 of PCL provides that where a legal mortgage of land is created by a
charge by deed expressed to be by way of legal mortgage, the mortgagee shall
have the same protection, powers and remedies. The charge must be made by deed
and not by writing; otherwise it shall have no legal effect. It must also be
expressed to be by way of a legal mortgage. In law, the chargee has as much
rights as the mortgagee. The charge gives the chargee similar rights as a
mortgagee in the enforcement of payment of money loaned. The legal charge has
the following advantages –
a.
The form of a legal charge is simple and short.
b.
It does not amount to a breach of covenant in a
lease against the assignment and subletting, because the charge creates no
actual sub-lease in favour of the mortgagee, but only gives him rights as if he
had a sublease.
c.
It is discharged by a simple statutory receipt
and not by a deed of release.
d.
It is a convenient way of mortgaging freeholds
(where permitted) and leasehold together because the mortgage terms are not
stated, but the properties are listed in the schedule with a statement that
they are charged by way of a legal charge.
The disadvantage of the legal charge is that unlike
the deed which creates it and is required to be registered, the receipt by which
it is discharged is not registrable. The charge may then continue to appear
against the property in the register as an encumbrance. Also, it does not carry
any proviso for redemption since no interest is conveyed in the first place.
3.
Registration
of Titles Law – Section 18 of the Registration of Titles Law (RTL) provides
that the registered owner of land may in the prescribed manner charge the land
or lease with the payment of money to the like extent as if the land was not
registered land. The charge is completed by entry in the register of the
particulars of the mortgagee and the registration of the charge in the Form 5 of the Land Registry.
Thus, the only
way a legal mortgage can be created under this law is by a charge using Form 5.
The advantage is
that it is simpler, speeder, and cheaper. The chargee has similar rights as a
mortgagee under the C. A. States.
SEARCH REPORT
The search report depends on
whether the borrower is a natural person or a company.
The search report should contain
the following where the borrower is a natural person –
1.
Date of the search
2.
Name of the borrower
3.
Name of the person giving security, if different
from borrowers
4.
Description of the property
5.
Name of the property
6.
Encumbrances (if any), Registrations and other
adverse facts as may be observed from:
a)
Physical inspection of the land or building,
that is, whether the property really exists and if it is vacant or occupied;
b)
The register at the land registry, that is, to
obtain the details of the property in the lands registry of the State; and
c)
Government acquisition, that is, whether the
property is within an area compulsorily acquired by government or proposed to
be acquired.
The search report should contain
the following where the borrower is a company and intends to use the property
as security –
1.
Name of the company (borrower)
2.
Date of the search
3.
Date of incorporation
4.
Registration number
5.
Name and address of Shareholders of the company
6.
Particulars of company Directors
7.
Borrowing powers of the Company
8.
Any registered charge against the company’s
assets
9.
Annual returns filed
10. Encumbrances,
if any.
CONSENT OF THE GOVERNOR FOR CREATING MORTGAGES
The consent of a Governor of a
State where the land is situated must be sought and obtained – Section 22 of Land Use Act; Savannah Bank v. Ajilo (1989) 1 NWLR (Pt.
97) 305; Awojugbabe Light Industries Ltd. v. Chinukwe (1995) 4 SCNJ 162; (1995)
4 NWLR (Pt. 390) 379.
Where the land is subject to a
customary right of occupancy, the consent of the appropriate local government
is required so long as the transfer is not one subject to the Sheriff and Civil
Process Law. Under this, section 21 states
that “it shall not be lawful for any customary right of occupancy or any part
thereof to be alienated by assignment, mortgage, transfer of possession,
sublease or otherwise howsoever – (a) without the consent of the Governor in
cases where the property is sold by or under the order of any court under the
provisions of the applicable Sheriffs and Civil Process Law; or (b) in other
cases without the disapproval of the appropriate Local Government.”
Failure to obtain the consent of
the Governor before actual mortgage itself makes the transaction null and void
– section 26 of Land Use Act.
The consent is only required
where the legal interest is transferred and not for an agreement to transfer
the interest.
The consent of the Governor is
also not required for creation of debentures, since a deed of debenture is a
charge on the floating assets of a company and not a charge on the land which
requires the consent of the Governor – Nig. Ind. Dev. Bank Ltd. v. Olalomi Ind.
Ltd. (2002) FWLR (Pt. 98) 995.
The consent of the Governor is
required by law to be granted by him although he can delegate his authority for
granting consent to a State Commissioner. In U. B. N Plc v. Ayodare & Sons
Nig. Ltd. (2007) All FWLR (Pt. 383) 1 at 23, the Supreme Court, per
Oguntade JSC, stated that “… section 22 of the Act postulates that the
Governor, shall sign the letter granting consent …” In Union Bank Nig. Plc. Ishola
(2002) FWLR (Pt. 100) 1253, the court held that where the Governor’s
power to grant consent are properly delegated vide a legal notice to the State
Commissioner for Housing and Environment who was in charge of land matter, the
consent granted by the latter to the mortgage transaction was proper and valid.
It should be noted that where the
approval for consent is to be granted to a mortgagee, the Governor should try
and sign the letter. Where however the Governor grants the consent through his
delegate (a State Commissioner), the Commissioner must convey the approval
under his hand and not under the hand of another state official. In Federal
Mortgage bank Plc. v. Babatunde (2000) FWLR (Pt. 3) 385, the court held
that there is no evidence to show that
the Governor delegated his powers under the Act to any body, let alone to the
Permanent Secretary, Ministry of Works, Lands, Housing and Environment, Kwara
State on whose behalf the letter of approval was written.
It is the duty of the mortgagor
to apply for the grant of the consent of the Governor and not the mortgagee. A
common problem in mortgagees is where the mortgagor has collected the money,
deposited the title deeds and executed the mortgage documents with the
expectation that he will apply for the consent of the Governor, but only to
turn round and alleges that the consent was not obtained or even to frustrate
the grant of the consent – Ugochukwu v. C. C. B (2000) 1 NLLC 361 at
383; Union Bank of Nig. Plc v. Orharhuge (2000) 2 NWLR (Pt 645) 795. The
courts have held that such person would not be allowed to turn round and claim
that because the consent was not obtained, the transaction was null and void.
However in practice, it is the mortgagee that seeks for the consent since he is
the one that stands to lose if the mortgage is set aside for lack of consent.
The most important documents required to procure the consent of the
Governor are:
1.
Application for consent by way of written letter
or a duly completed consent form.
2.
Duly executed deed conveying the agreement
between the two parties.
3.
Tax clearance certificate of the parties.
4.
Receipts of payment of ground rent, consent fee,
inspection fee, tenement rate and other charges imposed on the property.
SAMPLE OF A SEARCH REPORT
From: …………………………………………………. (name of the person making the report).
To: …..………………………………………………. (name of the person who needs the report).
Location of the property: ……………………………….……………. (address of the
property).
Title No. of the property: ……………………………….... (Registered Title No.
or C of O No.)
Date of the search: …………………………………………………. (date)
Place of the search: ………………………………………… (land registry, probate
registry, etc)
Name of registered owner: …………………………………………. (name)
Nature of interest of registered owner: …………………………………. (nature of
interest)
Existing encumbrance(s) on the property (if any): ……………………………………….
Observations and comments by the Solicitor: ……………………………………………
Any other comment: ………………………………………………………………………
____________________
Barr, Ezekiel Victor has many years experience in providing legal representation and advising clients across an exceptionally broad range of contentious and non-contentious matters. His main goal is to help clients resolve any contentious or non-contentious legal problem they are having rapidly and cost effectively.
Email: victorezekielc@gmail.com
Tel: +2348034997413
