Problems of Mortgages under the Land Use Act

The following are the problems of mortgages under the Land Use Act Cap L. 5

Laws of the Federation of Nigeria 2004.

1)              Uncertainty of Title to Land:

A Certificate of Occupancy is one of the means of proving title to land. It is a document issued by the Governor as evidence of a person‟s customary or statutory right of occupancy. Section 9(1)(c) of the Land Use Act provides thus: “it shall be lawful for the Governor when any person is entitled to a statutory right of occupancy to issue a certificate under his hand as evidence of such right of occupancy.

Thus, a certificate of occupancy does not create a right in land in favour of the person to whom it is issued; it merely evidences such right. This implies that a certificate of occupancy is not conclusive as to a person‟s right to the land; it is not a proof of a right but merely raises a rebuttable presumptive right. In other words, a certificate of occupancy is a mere evidence; and therefore can be rebutted by stronger evidence.

In Ogunleye v. Oni (1990) 2 NWLR (Pt. 135) 745; it was held that a certificate of occupancy is a mere piece of paper. Accordingly, the certificate of occupancy can be set aside if it turns out that the holder had no right to the land. It can also be set aside in favour of a conveyance which pre-dates the land Use Act or in favour of a person who had held the land before the Land Use Act came into force and so is now a deemed grantee of a right of occupancy under section 34 of the Act.

Besides, in Abioye v. Yakubu (1991) 5 NWLR (Pt. 190) 130, it was held inter alia, that the Land Use Act has not abolished the Customary Land Tenure System. Thus, an alienation of communal or family land without the consent of the Chief or family head together with the principal members may be set-aside; notwithstanding a grant of a certificate of occupancy.

In the case of Alhaji Saudi v. Alhaji Abdullahi (1989) 4 NWLR (Pt. 116) 387, an actual grant was made and a certificate of occupancy issued to “A” in respect of Plots numbered 9 and 10 in March and July 1979 respectively. “A” later commenced development of Plot 9 in respect of which “B” was in November 1980 issued with a certificate of occupancy also. When “B” was to commence development of the plot, he discovered that “A” had been in possession of it and had commenced development of the plot. When the issue was brought to the notice of the Ministry of Lands and Survey, “A” was asked to stop the development of the Land in dispute; and his right of occupancy was subsequently revoked by the Governor in respect of Plot 9; pursuant to section 34(2) of the Land Tenure Law.

“A” sued. One of the issues for determination before the Supreme Court was whether the effect of grant of statutory right of occupancy on existing right is to extinguish the earlier right that had been existing on that land. In other words, whether the issuance of a statutory right of occupancy by the Governor on existing right extinguishes the earlier right that had been existing on that land. The court held that a later statutory right of occupancy granted by the Governor extinguishes all the rights created by an earlier grant and that before the earlier grant can be saved the latter right of occupancy must be expressly set aside.

The effect of the Supreme Court‟s decision was to validate „B‟s certificate of occupancy issued in November, 1980 in respect of Plot No. 9 and to postpone the respondent‟s certificate to it in respect of the same plot even though it was earlier in time. However, the Governor may save the earlier in time. The Governor may save the earlier grant properly in accordance with the general principles of priority by setting aside the latter certificate of occupancy.

In arriving at this decision, the Supreme Court was influenced by section 5(2) of the Land Use Act, which provides that upon the grant of a statutory right of occupancy under the provisions of subsection (1) of this section, all existing rights to the use and occupation of the land which is the subject of the statutory right of occupancy shall be extinguished.

However, the question arises, whether the revocation implied in section 5(2) of the Act is in tandem with the provision of section 28 of the Act which provides for the power of Governor to revoke rights of occupancy.

2)          Mandatory, Costly and Time Consuming Consent of the Governor Under Section 22 of the Land Use Act

The said section 22 of the Act provides that it shall not be lawful for the holder of a statutory right of occupancy granted by the Governor to alienate his right occupancy or any part thereof by assignment, mortgage, transfer of possession, sublease or otherwise however, without the consent of the Governor first had and obtained. This provision is strengthen by section 26 of the Act which stipulates that any transaction or any instrument which purports to confer on or vest in any person any interest or right over land other than in accordance with the provisions of this Act shall be null and void.

3)              Dreadful Revocation of the Right of Occupancy:

This arises pursuant to the provisions of sections 28 and 5(2) of the Land Use Act, which has already be highlighted above. The problem of dreadful revocation is compounded by that of discriminatory compensation under section 29 of the Act. This is especially applicable to the equitable mortgage.

Compensation, after revocation of a right of occupancy is payable to a holder only. Section 51 of the Land Use Act, defines a holder in relation to a right of occupancy to mean a person entitled to a right of occupancy and includes any person to whom a right of occupancy has been validly assigned or has validly passed on the death of a holder but does not include any person to whom a right of occupancy has been sold or transferred without a valid assignment nor a mortgagee, sub-lessee or sub-under lessee. Thus, a mortgagee is excluded from the definition of a holder.

However, in the case of Manyara Estates Ltd. & Ors v. National Development Credit Agency (1970) EA 177, it was held that where compensation is paid to the mortgagor under such circumstance, the mortgagor holds the compensation, for the benefit or on trust for the mortgagee.

In that case, under the Land Ordinance Cap. 133 of Tanzania; compensations for improvements on land upon the revocation of the right of occupancy was only payable to the occupier and holder. The court held that the mortgagee who has given money was not in the position of occupier or holder and therefore was not entitled to receive any compensation and that, the charge created by the mortgage did not attach to the compensation into which the right of occupancy had been converted.

However, the minority judgment of Rufus J. was in support of the fact that the charge created by the mortgage indeed attached to the compensation by the principle of transmutation (which means a charge in the nature of something; especially in family law, the transformation of separate property into marital property, or of marital property into separate property).

It is humbly submitted that this is a most equitable approach otherwise the mortgagee‟s right to preserve the security and his security generally over a right of occupancy would be of little or no value and indeed, it is hoped that, when the question arises in any court, the Nigeria court will hold that the mortgagee has a right to the compensation money despite the restriction in the meaning of holder under the Act.

Indeed, an Australian judicial approach has been acknowledged. In the case of

SYME v. Common Wealth and Anor. (1942) 66 CLR 413 at 421, Latham J. said that “when the compensation is paid for a deprivation of interest which diminishes the mortgage‟s security, the compensation is regarded as representing the security protanto and it must be paid to the mortgagee or preserved to meet his claims under the mortgage, because, in such a case, something has been taken out of it.

Also the judgment of Kekewich J. in the case of Law Guarantee and Trust Society Ltd v. Mitchan Brewery Company Ltd. (1906) 2 Ch. 98 is instructive. According to Prof. Essien, the position in Australia should be adopted in Nigeria, because to him, it will be a welcome development, if the Land Use Act is amended to provide for payment of compensation to (the persons interested in order of priority). In this way the mortgagee will have a prior right to the compensation money.

In the absence of legislation as has been advocated by Prof. Essien to amend this position; it is advisable that the mortgagee should insist on the inclusion of a covenant in the mortgage deed that in the event of a right of occupancy being revoked, the mortgage debt shall be secured additionally on any compensation payment due to the mortgagor in respect of unexhausted improvements, or that the mortgagor shall hold such payments on trust for the mortgagee; to the extent of the mortgagor‟s claim on the secured debt, or that the debt is additionally secured on any alternative land right; which might be granted to the mortgagor in lien of compensation.

4)              The Problem of Resettlement Without Adequate Compensation

Section 33 of Land Use Act provides for option to accept resettlement in case of revocation of right of occupancy. Subsection (3) of that section provides that where a person accepts a resettlement pursuant to subsection (1) of this section, his right to compensation shall be deemed to have been duly satisfied and no further compensation shall be payable to such person. Further, the Act provides that resettlement is to be in other place or area by way of a reasonable alternative accommodation (if appropriate in the circumstances).

This raises the issue of value, attraction, goodwill and location; all which affect the benefit and commercial as well as collateral value of the property in the old area as opposed to the resettled area. If these issues are not accurately addressed, it may affect or reduce the land or property as security for a loan or collateral. In fact, the power given to the “appropriate officer of the Land Use and Allocation Committee”, under the Act to determine the value of any alternative accommodation makes the government a judge in its own case, thus offending against the principle of Nemo Judex in Causa Sua.

5)              Non-Transferability of Non-Urban Land

This problem is illustrated by the provisions of sections 36(5); 26 and 6 of the

Land Use Act. The first section under consideration provides that no land to which this section applies shall be sub-divided or laid out in plots and no such land shall be transferred to any person by the person in whom the land was vested as aforesaid. The

second section of the Act, which is section 21 thereof, provides 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 to be sold by or under the order of any court under the provisions of eth applicable sheriffs and Civil Process Law; or

b)    In other cases without the approval of the appropriate local government.

Lastly, section 6 of the Act summarily stipulates that granting of customary

rights of occupancy is made only for either agricultural, residential, grazing or such

other purposes ancillary to agricultural purposes. The implication of the foregoing is

that  land  in  non  urban areas  attracts  little  or  no  commercial/collateral  value,  thus

affecting its use as security for a mortgage.

6)              The Non-Act Problems of Mortgages:

These are mortgage problems not expressly created by the Land Use Act. They

are:

1.     The problem of accessibility of land;

2.     The problem of affordability of land; and

3.     The problem of availability of land.

These problems have the following implications; namely;

a)     Inefficient use of land resources;

b)    Inequitable distribution of wealth;

c)     Worsening housing conditions;

d)    Environmental degradation;

e)     Poverty accentuation; and,

f)     Imbalances in economic development among different states.