Pursuing a lease agreement on a piece of land in Nigeria might be the next business move you are thinking of after making enquiries. But why do you feel that way?
Who does a land lease?
In Nigeria, there are a few scenarios why a land lease is offered. One major example is when a landowner wants to retain ownership of the parcel of land but not develop it. The land owner might decide to rent out the land to someone for a few years while the individual develops it or use for farming while he/she is still the owner of the land. A land lease isn’t standard real estate purchase so while there are cons to it like everything else, it has its advantages. But before you lease a piece of land in Nigeria, be sure to ask the following questions.
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1. Why do you want to lease this land?
Before you make the decision you need to consider if leasing land is the right decision for you instead of buying it outrightly. In Lagos Nigeria for example, the location might be an issue. You might probably be interested in the real estate because the location is right for your business, but the land is on the lease. Be clear that this decision is right for your business and not an emotional decision.
2. Are there any restrictions or easements that have been placed on the property that will affect its use?
Asking this question can save you a lot of time, energy and money. If there are any conservation easements that restrict development or other legal restrictions placed on the property, you need to know to know your limits on the piece of land.
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3. What is your business financial condition?
You need to consider your financial situation before leasing a piece of land in Nigeria. Consider your current financial situation, what kind of investment is needed, what it’ll cost over time. Decide if your business is financially healthy enough to handle the increased debt load and if it’s the best use of your cash.
4. Have you created a cash flow statement?
Creating a cash flow statement helps you see if a lease currently fits into your business plan. You need to decide if the potential return meets your goals and objectives if your business can handle the additional debt and what the risk is on your current equity.
5. How will the cash rental rate over the term of the lease be determined?
If you plan to use the leased land for farming you and the landlord need to come up with a reasonable and agreeable rental rate, that is if the rent value has not been outrightly stated. You need to make sure whatever you are paying will still allow you have a reasonable chance of making a profitable return.
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6. What about capital improvements?
Over the period of your land lease, it is highly likely that you will need to add infrastructure to the property to grow the operation, so you need to figure out, What kind of improvements will need to be made? Will they be removable or permanent? Who will pay for them? You need to realise that under common law in Nigeria, any improvements attached to a property after the termination of a lease are considered forfeited by the tenant unless the lease agreement has specified who owns the improvements and how the farmer can sell them within a reasonable time.
7. How long will the lease go for?
You should decide how long you plan to rent the real estate and if you plan to pay the full price outrightly. Make sure your financial plan matches the time you plan to lease the land and also ensure you have sufficient credit.