15 Sep Perfection of Mortgages

The most common types of security used in banking transactions in Nigeria are mortgages, charges (fixed and floating), assignments, pledges, and liens.

The standard security package depends on the type of financing. The security package favoured by banks in Nigeria would include an All Asset Debenture or a Composite Security Deed which typically contains a fixed charge over certain fixtures and tangibles of the Borrower and a floating charge over all the assets of the borrower not otherwise secured by a fixed charge. It may also include mortgages, pledges, charges on bank accounts, mortgages on real estate, as well as security assignments of rights under key contracts and insurance policies.

Where the assets for which the lender seeks to take security includes landed property, the lender can include the landed property as part of the assets to be charged under the fixed charge. A lender can also choose to take a mortgage over landed property.

The procedure involved in perfecting a mortgage deed is as follows:

1. Consent of the Governor

In a situation where the mortgage is over a landed property, an application is made for the Governor’s consent and it is registered in the land registry office of the State where the property is located.

Under Section 22 of the Land Use Act, the consent of the Governor of a state is required in order for the holder of a statutory right of occupancy to alienate his right of occupancy by assignment, mortgage, transfer of possession, sublease or otherwise. There are two types of Governor’s consent, approval to transfer part or all of a seller’s interest in the landed property to a third party and the other is the consent to mortgage.

There is no timeline to obtaining Governor’s consent as such consent is required to be obtained prior to granting of the security. Typically, the timeline for obtaining Governor’s consent is about three (3) to four (4) months.

2. Stamping

The statutory obligation to stamp documents that transfer or create a proprietary interest in assets i.e. legal mortgages, debentures or charges, is provided for under the provisions of the Stamp Duties Act 2010 (the “Act”) with specific emphasis on Sections 3, 23 (1) and (4) of the Act.

Pursuant to Section 23 (1) of the Act, any instrument that is executed in Nigeria or relating to Nigeria (regardless of its place of execution) or to any property situate or any matter or thing done or to be done in Nigeria is required to be stamped. Where the instrument is executed in Nigeria, it must be stamped within 40 days of the execution of the document. However, where the instrument is executed outside Nigeria, Section 23 (4) of the Act provides that the instrument may be executed within 30 days after it has been first received in Nigeria.

It is important to note that failure to stamp an instrument that requires stamping does not render the instrument or the security interest created thereunder void or invalid. Section 22 (4) of the Act provides that any instrument executed in Nigeria, or relating, wheresoever executed, to any property situate or any manner or thing done or to be done in Nigeria, shall not be admissible in evidence or available for any purpose whatsoever, unless it is duly stamped in accordance with the law in force in Nigeria at the time when the instrument was first executed. Thus an implication of not stamping a document is that the document becomes inadmissible in evidence.

Consequently all instruments that are required to be registered must be stamped prior to registration.

3. Registration

The mortgage deed must be registered at the Land Registry office of the State in which the property is situate. The law prescribes that registration must occur within two (2) months from the date of creation of the relevant security document. Registration is deemed to occur when the relevant documents are delivered to the Land Registry.

In the event that the Mortgagor is a corporate entity, registration must take place not only at the respective Lands Registry office but also at   the Corporate Affairs Commission (CAC). The following documents will be required for registration at the CAC:

• Evidence of payment of stamp duties
• Evidence of payment of the CAC registration fee
• A duly completed and executed Form CAC 8 (particulars of mortgage or charge created)
• Four (4) copies of the duly stamped and executed Deed

Once the above mentioned documents have been presented at the CAC, and after verification of same, the Deeds will be certified as registered and returned while a copy will be retained by the CAC and kept in the Borrowers files.

4. Cost of Perfection

Different States have different costs for perfection. We have provided below tables showing perfection costs for mortgages over land in Abuja and Lagos.

ABUJA

LAGOS

Timeline

The perfection process typically takes 6-9 months to complete and can be somewhat of a protracted procedure however the procedure can be expedited by constant interfacing with the relevant government agencies which our Firm can offer with a view to reducing the perfection time period to 5-6 months.

The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact info@berkeleylegal.com.ng