PROPERTY LAW PRACTICE: GUIDELINES TO DRAFTING COVENANTS IN A LEASE TRANSACTION

N.B COVENANTS IN LEASES WILL BE IN THE MISCELLANEOUS PART OF THE LEASE AGREEMENT.

N.B: PLEASE READ OUR BLOG POST ON COVENANTS IN LEASES THROUGH CASES AND PRINCIPLES

N.B: YOU MUST LEARN HOW TO DRAFT THESE COVENANTS FOR THE PURPOSE OF BAR PART 2 AND YOU CANT DRAFT WHAT YOU DON’T KNOW……..MRS JAMES

We have three types of Covenants;

1.      Express Covenants

2.      Implied Covenants

3.      Usual Covenants.

For the purpose of our write up we will be discussing EXPRESS COVENANTS.

1.      COVENANT TO PAY RATES AND OUTGOINGS

GENERAL RULE: it can either be paid by the Landlord or the Tenant, depending on the drafting of the covenant

DRAFT 1:

            ‘’The Tenant covenants to pay all existing rates, taxes, and outgoings in respect of the demised property/ premise’’

IMPLICATION: In this draft the Tenant is to pay only rates and outgoings that was in existence of the lease not new rates and outgoings coming into existence after the lease agreement.

EXCEPTION 1: In SMITH V SMITH:  The court held that where the new rate is of the same specie of the former rate, the tenant would pay. E.G NEPA BILL now PHCN BILL

EXCEPTION 2: Where the new law provides that it is the occupier that will pay for it, the Tenant would pay.

DRAFT 2:

             ‘’The Tenant covenants to pay all taxes and outgoings, payable now or as they subsequently arise in respect of the demised premises’’

IMPLICATION: This is still not the ideal draft, in that the Landlord is still responsible to pay owners rates.

DRAFT 3:

            ‘’The Tenant covenants to pay all taxes, rates and outgoings, payable now or as they subsequently arise in respect of the demised property/premises whether payable by the owner or the occupier’’

IMPLICATION: Perfect draft for the Landlord.

TAKE NOTE: IN LAGOS STATE, if this covenants is silent;

By Virtue of SECTION 7(2) LAGOS STATE TENANCY LAW 2011 provides that;

            ‘’the tenant shall pay all existing and future rates and charges not payable by the Landlord by law’’ (OCCUPIER RATES).

By Virtue of SECTION 8(2) LAGOS STATE TENANCY LAW 2011 provides that;

            ‘’the Landlord shall pay all rates and charges as stipulated by law’’ (OWNERS RATES)

2.      USER COVENANTS (COVENANT TO USE)

GENERAL RULE: When the covenant is silent, the tenant can make use of the demised property for any lawful purposes even if it is for a use different from the purpose originally contemplated. DAWODU V ODULAJA

DRAFTING:  it must be clear and unambiguous. For example;

            ‘’the lessee covenants to make use of the premises and to permit the premises to be used for the purpose of [residence/ commerce/ agriculture] only.

3.      COVENANTS TO REPAIR

 GENERAL RULE: Unless otherwise stated in the covenants both the lessor and lessee are responsible for repair

SUB G.R 1: The Lessor is responsible for the repair of STRUCTURAL PARTS[ roofs, drains, etc] and COMMON PARTS [Staircase, Lift etc]

SUB G.R 2: The Lessee is responsible for the repair of the INTERIOR PARTS [Windows, doors, keys]

FURTHERMORE, when the covenants is not included in the Lease Agreement, by implied covenants the Lessee is under the obligation to use the premises in a TENANT-LIKE manner, to make fair tenantable repairs and not to waste on the premises

In other words the Lessee is required to keep the premises in substantially the same condition as they were at the time of letting out the premises.

IN DRAFTING the covenant it must contain;

1.      Who to undertake the repair

2.      What is to be repaired

And must consider also;

1.      Age of the property

2.      Locality

TAKE NOTE:  IN LAGOS IF THE COVENANT IS SILENCE;

By virtue of SECTION 7(3) LAGOS STATE TENANCY LAW 2011;

            ‘’The Tenant shall keep the premises in good and tenantable repair, reasonable were and tear excepted’’

N.B: The word ‘’reasonable wear and tear excepted’’ simply means that the lessee is relieved from liability for any state of disrepair so long as the disrepairs results from a reasonable use of premises and the effects of the natural elements.

By virtue of SECTION 8(6) LAGOS STATE TENANCY LAW;

            ‘’ The Landlord shall effects repairs and maintain the external and common parts of the premises’’

4. COVENANTS AGAINST ASSIGNMENT AND SUB-LETTING

GENERAL RULE: When the covenants is silent, a tenant has the unrestricted right to assign his tenancy or to create sub-lease of such tenancy. INUWADA V BRYNE, KEEVES V DEAN

N.B PLS NOTE THAT THIS IS NOT APPLICABLE IN LAGOS, BY VIRTUE OF SECTION 7(6) Lagos State Tenancy Law;

            ‘The Tenant shall not assign or sublet any part of the premises without the written consent of the landlord’’

N.B: The draft shows how the covenants can be construed, it can either be Absolute, Qualified or Balanced;

ABSOLUTE DRAFT

‘’The Lessee covenants not to assign, sublet or otherwise part with possession of the demised premises or any part of it’’

IMPLICATION: The lessee cannot sublet the premises in such a case. Where he applies to the lessor for permission to sublet, the lessor can refuse without stating any reasons for the refusal.

But please note that, where the Tenant permits another person to use the premises e.g a Licensee to use the premises, this does not amount to breach of the covenant not to assign or sublet. This was affirmed in the case ISHOLA WILLIAMS V HAMMOND PROJECTS.

                        QUALIFIED/CONDITIONAL DRAFT

‘’The Lessee covenants not to assign, sublet, charge or part with the possession of the premises or any part without the consent of the Landlord’’

IMPLICATION: The draft makes the consent to be subjective, it still not the perfect draft.

                               BALANCED/IDEAL DRAFT

‘’The Lessee covenants not to assign, sublet, or otherwise part with the possession of the demised premises without the written consent of the Landlord, such consent not to be unreasonably withheld in the case of a responsible and respectable person’’

However, the grounds for refusal are;

1.      Personality of the proposed Sub-tenant or Under-lessee

2.      The use or purpose for which the Under-lessee requires the premises.

5 .RENT REVIEW CLAUSE

FUNCTION: It is inserted in a lease to enable the landlord take advantage of prevailing market rates in property value. It is a hedge against ravages of inflation on the value of money.

ABSENCE OF THE CLAUSE WHAT HAPPENS?

In the absence of such clause, and subsequent disagreement, the court may imply fair market or reasonable rent and this would always be a matter of evidence. UNILIFE DEVELOPMENT CORP. V.ADESHIGBIN

THE DRAFT

Firstly we must note the content of the Clause which includes;

1. Method of initiating the review (notice/time frame of notice)
2. Period of the review (when it is renewable and date when it is payable).
3. Valuation formula-The method of calculating the new rent .g.  by expert valuation.
4. Conflict resolution provision-OLANIYAN V. SHOKUNBI

THE DRAFTING OF THE CLAUSE

METHOD-The lessor and the lessee covenant that by a notice in writing to the lessor three months before the expiration of the current lease.

PERIOD-The rent reserved shall be subject to review every five years for a term equivalent to the term granted under this lease payable immediately after the new rent has been agreed.

VALUATION-FORMULA- Subject to the agreement of the parties, the rent may be determined by an independent estate valuer in line with the prevalent market rate of the property.

CONFLICT RESOLUTION-PROVIDED THAT any further conflict shall be resolved by a single arbitrator to be appointed by the parties in accordance with the Arbitration and Conciliation Act Cap A18 Laws of the Federation of Nigeria 2004

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PROPERTY LAW PRACTICE: PRACTICAL GUIDELINES IN DRAFTING A DEED

Throwback to week 3 we identified various Property Transactions in Nigeria, the Parties involve and the Final document to be drafted and whose responsibility to draft the documents. (Kindly Refer to our Post on ‘’Salient Points from Property Law Practice week 3’’)

REFRESHING MEMORY

REMEMBER, that there are certain transactions that require to be by Deed which includes;

a)      Gift of land

b)      Transfer of legal interest in land

c)      Power of attorney vesting power in an attorney to execute a deed ABINA V. FAHART

d)      Lease for a term exceeding three years. SECTION79 (1) and (2) PCL

e)      Vesting declaration where new trustees are appointed.

f)       Voluntary surrender (A surrender where a lesser estate is given up to merge with the greater estate in land.)

g)      rectification of deed e.g- deed supplemental

h)      creation of legal mortgage in CA and PCL

i)        Discharge of mortgage in CA(SUB DEMISE/ASSIGNMENT

THE DRAFT

To be able to draft the draft you need to understand the draft and for you to understand the draft you need to know the parts of the drafts.

The DEED is divided into 4 PARTS

PART 1: INTRODUCTORY PART: It contains certain clauses that make up the Part which are;

a)      Commencement

b)      Date

c)      Parties

d)      Recital

POINTS TO NOTE ON INTRODUCTORY PART

1.      Commencement helps to identify the transaction and describe the nature of the transaction.

N.B: If you don’t identify the right transaction your will have a wrong draft. I believe this is the major part of your draft.

2.      You must not date it please

REASON: A deed takes effect from the date of its delivery and not on the date on which it is therein stated to have been made or executed. Section 157 EA, 2011; ANUKU v STANDARD BANK.(kindly read our post on ‘’Undated v Dated Deed’’)

3.     

 We will be tested with the parties;

a)      An Individual; Just write his address and assignor or assignee as the case may be of the one part

b)      A Company; You write the name of the company with additional details that it incorporated under Part A of  Companies and Allied Matters Act Cap C20 LFN 2004 and it registered address

c)      Business Name; For instance you have Derin who owns Blackstone Ventures; if she enters  a transaction with her Firm’s name while drafting you write; Derin (trading under the name and style of Blackstone Ventures)Assignee or Assignor as the case may be of the one part or the other part

d)      Incorporated Trustee, associations incorporated under Part C, Example National Association of Nigerian Students, So in your draft, you have Incorporated Trustees of National Association of Nigerian Students (do not abbreviate) incorporated under Part C of Companies and Allied Matters Act Cap C20 LFN 2004 and it registered address at…… assignee or assignor of the one part or the other part as the case may be.

e)      If you have a wife and Husband or Family Members. never lump their name together, you write it like this;

i.                    (i)Mr Fola Musa and (ii) Mrs Bisi Musa (AssigneeS or AssignorS of the one part or the other part as the case may be  OR

ii.                  (i)Mr.Kufre Ono (Principal Member) (ii)Mrs Kofo Ono(Principal Member) (iii)Mrs Boye Oga(Nee Ono)(Principal Member) and (iv) Mr.Ade Ono(Principal Member) AssigneeS or AsssignorS

REASON:

a)      Only persons that are known to Law can validly be involved in property Transaction. In other words, the party to a deed must be legal person’s i.e Natural persons and entities with corporate personality.

b)      The names and address of all the parties must be included to identify them because a stranger cannot sue on the terms of a deed, only parties to a deed or persons deriving benefit under it can sue to enforce the terms of the deed – Adebanjo v. Olowosoga (1988) 2 NSCC 203; Nnubia v. A. G (Ricers State) (1999) 3 NWLR (Pt. 593) 82

4.      On Recital, these are statements of the material facts that constitute the background to the transaction. To include it in your draft, you must include the word; IS in your commencement. We have two types of Recital in the order of drafting;

a)      Narrative: Stating the  history and background of how the vendor came to own the property

b)      Introductory: Stating the vendor’s intention to transfer the property to the purchaser and the purchaser’s intention to acquire the property from the vendor.

So while drafting, you start with the word; WHEREAS and itemize your points

POSER: WHY SHOULD I ADD A RECITAL CLAUSE?

1.      It clears ambiguity in the Operative part of the deed

2.      Statements of facts in a recital may give rise to estoppel against the person making them. See section 169 EA

3.      Useful means of knowing the history and background of how the vendor came to be vested with the property in question.

4.      Evidence of fact contained in a Recital in a document which is 20 years old is deemed to be correct (Ancient document Rule)SECTION 126

SAMPLE DRAFT: THE FIRST PART OR INTRODUCTORY PART

THIS DEED OF (LEASE, ASSIGNMENT, and MORTGAGE) is made this ____ day of _____ 20_____ BETWEEN Mr Fola Musa of No 1 Law School street, Victoria Island. Lagos (ASSIGNOR) of the one part AND First Bank a company incorporated under Part A of Companies and Allied Matters Act Cap C20 LFN 2004 with registered address at No 2 Ikoyi Road, Lagos State (ASSIGNEE) of the other Part  

WHEREAS;

1.      …

2.      ...

PART 2: OPERATIVE PART: This is like the main body of the draft, the clauses in it includes;

1.      Testatum

2.      Consideration clause

3.      Receipt Clause

4.      Capacity

5.      Word of Grant

6.      Parcel Clause

7.      Habendum

POINTS TO NOTE ON OPERATIVE PART

1.      On TESTATUM: This merely signifies the beginning of the covenant entered into by the Parties.

Draft: NOW THIS DEED WITNESS AS FOLLOWS:

2.     

 CONSIDERATION CLAUSE: This shows that the transaction is not a gift and it also serve as the basis of assessment of stamp duty ad valorem

Draft: IN CONSIDERATION OF THE SUM OF____ ONLY PAID BY THE ASSIGNEE TO THE ASSIGNOR

3.     

 RECEIPT CLAUSE: This discloses the fact that the vendor has collected the money for the property. You draft this along with the consideration clause

Draft: THE RECEIPT OF WHICH THE ASSIGNOR ACKNOWLEDGES

Function:

a)      It serves as evidence of payment of consideration

b)      The inclusion of a receipt clause in a deed dispenses with the need to issue a formal receipt of payment. See SECTION  54 CA and section 92 PCL

4.      CAPACITY: This is very important, so you go back to the Scenario, to identify which capacity the vendor is conveying. The capacity of the vendor/assignor is stated immediately after the receipt clause and it can either be;

a)      Beneficial Owner

b)      Trustees

c)      Settler

d)      Mortgagee

e)      Personal Representative.

POSER: WHAT IS THE IMPLICATION OF CONVEYING AS BENEFICIAL OWNER IN AN ASSIGNMENT?

Where the vendor/assignor is expressed to have conveyed in his capacity as beneficial owner, there will be certain implied covenants to the title which are;

a)      Right to Convey

b)      Freedom from Encumbrances

c)      Quiet Enjoyment

d)      Further Assurance

If the transaction is a Lease Transaction then you will add 2 others to the above;

e)      There is a valid and subsisting Lease

f)       That the rent has been paid and all the covenants contained in the lease to be observed and performed have been observed and performed up till date.

Section 7(a) & (b) of CA and section 100(1)(a) & (b) of PCL

5.      WORDS OF GRANTS: This depends on the Nature of the Transaction.

a)      Assignment: Assigns

b)      Mortgage: Mortgage

c)      Lease: Lease

6.      PARCEL CLAUSE: The rule is that the property involved must be sufficiently described, so this clause is used to give detailed description of the property which is the subject matter of the deed.

Draft: “ALL THAT parcel of land(or the building involve) at ___________ covered by Certificate of Occupancy numbered _______ dated _______ and registered  as ______ in the Lands Registry office, Lagos State

7.     

 Habendum: This describes the describes the estate which the grantee or purchaser takes; it defines the extent of ownership in the thing granted to be held and enjoyed by the grantee – Stephen Idugboe v. Anenih (2003) FWLR (Pt. 149) 1418.

Draft: “TO HOLD the same UNTO the assignee/purchaser as holder of a Statutory right of Occupancy for the term unexpired on the Certificate of Occupancy and subject to the provisions of the Land Use Act Cap L1, LFN, 2004.”

SAMPLE DRAFT OF AN OPERATIVE PART

NOW THIS DEED WITNESS AS FOLOWS:

In Consideration of the sum of #2,000,000(two Million Naira) only now paid by the Assignee to the Assignor (Receipt of which the Assignor hereby acknowledges), the Assignor as a BENEFICIAL OWNER  ASSIGNS ALL THAT with four blocks of flat situate at No. 2, Law School road, Victoria Island Lagos State covered by a Certificate of Occupancy No. 59/59/2010A in the Land Registry Office and more rightly described in the Survey plan to be prepared by a licensed Surveyor attached to the Schedule with all rights easements and appurtenances TO HOLD unto the Assignee as holder of a Statutory right of Occupancy for the term unexpired on the Certificate of Occupancy and subject to the Provision of the Land Use Act Cap L1 LFN, 2004

PART 3: Miscellaneous Part: The clauses will include;

a)      Safe Custody and Acknowledgement Clause

b)      Indemnity

c)      Insurance and

d)      Other Covenants

PART 4: The Final Part which is also called the CONCLUDING PART, the clauses are;

1.      Testimonium

2.      Schedule

3.      Execution

4.      Attestation

5.      Franking

POINTS TO NOTE ON THE CONCLUDING PART

1.      On Testimonium: It commences the concluding part of the deed.

Draft: IN WITNESS OF WHICH the parties have executed the deed in the manner below the day and year first above written.

2.     

      Remember that in our introductory part while discussing parties we said that when it relates to Husband and wife or Family members you do not lump them together. Also at the point of execution you will list them in the order of the listing in the introductory part.

3.      Special Execution and Attestation  that we need to cast our mind to is when it involves;

a)      Blind person

b)      Illiterate

c)      Company or an Association

DRAFT: Assuming the Assignor is a blind person or illiterate and the Assignee is a company. So we will have;

SIGNED, SEALED AND DELIVERED

By the Assignor

____________

(NAME)

            The content of this deed having being first read and Interpreted (Aloud if blind) from English Language to Yoruba Language by Me (Name and Address of the Interpreter) when she appeared to have perfectly understood the content she affixed her thumb print/ Signature

                                               

Before me

__________________

Magistrate OR Judge OR Notary Public

THE COMMON SEAL OF ZENITH BANK (Assignee) IS HEREBY AFFIXED TO THIS DEED, ON THIS_ DAY OF __ 20___ AND WAS DULY DELIVERED IN THE PRESENCE OF

______                                                                                                                                    _______

DIRECTOR                                                                                                                 SECRETARY

4.       

    On Franking; this is merely stating the name and address of the solicitor that prepared the deed. The absence of franking does not invalidate the deed

FUNCTION;

a)      A duly franked document is not invalidated by the absence of Illiterate Jurat

b)       The preparation of instruments is the exclusive right of legal practitioners. See section 22(1)(d) & (2) LPA and sections 4 & 5 of Land Instrument Preparation Law.

ON A FINAL NOTE WE WILL HAVE ENDORSEMENT OF THE GOVERNOR’S CONSENT

“I CONSENT TO THE ABOVE TRANSACTION

THIS …… DAY OF ……………….… 20 ….”

________________________________

EXECUTIVE GOVERNOR, LAGOS STATE

N.B: Our Focus was more on Deed of Assignment, TAKE NOTE, that while drafting Lease or Mortgage we may have a slight change in the content of the draft.

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