Legal Alert for February & March 2010:

HOUSING LAWS IN NIGERIA

…sustaining an enlightened community

 www.proshareng.com

Legal Alert for February & March 2010:

HOUSING LAWS IN NIGERIA

INTRODUCTION

The rapid growth in global population has not been matched by a reasonable
availability of safe and affordable houses. The situation in Nigeria is made more
excruciating by a cumbersome land tenure system, with an unbalanced short-term and
expensive credit/mortgage structure meant to fund long-term housing requirements of
the Nigerian populace.

The housing insufficiency in Nigeria is not only due to defects in the existing housing
structures – i.e. land tenure and financing as mentioned above - but also exacerbated
by the non-dissemination of information on the existing structures, with the
applicability of such existing structure to the citizenry by all the stakeholders in the
housing industry.

This Legal Alert and a few others following it will provide you with some information on
the existing housing laws in Nigeria, how they affect you and what benefits you could
derive from taking some action concerning them.

PART 1
– THE FEDERAL MORTGAGE BANK OF NIGERIA ACT

The Federal Mortgage Bank of Nigeria Act, 1993 established the Federal Mortgage Bank
of Nigeria (“FMBN”) to among other things provide long-term credit facilities to
Mortgage Institutions in Nigeria. The FMBN is also established to encourage and
promote the development of Mortgage Institutions in rural, local, State and Federal
government levels in Nigeria.

Subject to the provisions of the Land Use Act, the FMBN is also authorised to acquire,
hold or dispose of property, whether such property is movable or immovable. For the
purpose of achieving its other objectives, the FMBN is also authorised to undertake the
following activities:-

OBJECTIVES OF THE FMBN

1. Provide long-term credit facilities to other Mortgage Institutions in Nigeria at such

rates and on such terms as may be determined by the Board of the FMBN in
accordance with the policy directives of the Federal Government of Nigeria. The
rates and terms for the long-term credit facilities are by statute required to be
designed to enable Secondary Mortgage Institutions grant comparable mortgage
facilities to Nigerians desiring to acquire houses of their own - See Section 5(a)
FMBN Act.

2. Licence and encourage the emergency of viable Mortgage Institutions to service

the housing delivery needs of Nigerians.

3. Encourage and promote the development of Mortgage Institutions in rural, Local,

State, Federal levels in Nigeria.

4. Regulate the activities of all Mortgage Institutions in Nigeria.

Oserogho & Associates [contactus@oseroghoassociates.com] 2

 www.proshareng.com

5. Collect, manage and administer all contributions made under the National
Housing Fund (“NHF”) in compliance with the National Housing Fund Act.

FUNDS AND REGULATORY AUTHORITY OF THE FMBN

The FMBN is empowered to accept deposits and savings from Mortgage Institutions
and other Financial Institutions. The FMBN is also empowered to issue its own
securities under the Federal Government guarantees, with promissory notes and other
bills of exchange for the purpose of raising Funds from other Financial Institutions.

To ensure that securities issued by FMBN are redeemed, the FMBN is required to
establish a sinking Fund for the redemption of its securities. FMBN provides the
contributions to this sinking Fund.

The FMBN is further statutorily required to organise and operate, in collaboration with
reputable Insurance companies, a Mortgage protection system designed to guarantee
liquidity to Mortgage Institutions in Nigeria, in addition to affording these mortgage
institutions the opportunity of having long-term credit on liberal premium terms.

The above liabilities of the FMBN are re-discountable with the Central Bank of Nigeria.
See section 6 of FMBN Act on the above powers.

CAPITAL REQUIREMENTS FOR THE FMBN AND TAXATION

The principal sources of capital to the FMBN are its authorised paid-up Share Capital, a
general reserve Fund into which its net profits for each Financial year are paid, with
loans from the Federal Government of Nigeria and other approved bodies or sources.

The FMBN is exempted from the payment of any form of tax on its income. The
provisions of the Banks & Other Financial Institutions Act (“BOIF”) are not applicable to
the FMBN.

CONCLUSION

Whether the Federal Mortgage Bank of Nigeria is providing the minimum retail,
supervisory and regulatory support to the housing needs of Nigerians is a matter of
minimal debate. Allegations of bureaucratic practices and the inability to ensure the
regular collection of monthly contributions from National Housing Fund contributors
continue to plague the Federal Mortgage Bank of Nigeria.

The Federal Mortgage Bank of Nigeria has not been able to adopt a proactive strategy
of providing affordable long-term loans to a double digit interest rate short-term
lending economy. Statutory authority provided under the National Housing Fund Act to
compel banks and insurance companies to make mandatory contributions appear to be
unimplemented by the Federal Mortgage Bank of Nigeria.

The unsuccessfulness of the National Housing Fund as operated by the Federal

Mortgage Bank of Nigeria also has the effect of jeopardising the various rent control
legislations in Nigeria as most of these rent control legislation cannot be implemented
in an environment where the housing demands outstrips the supply of available houses
for rent.

The Federal Government of Nigeria must therefore restructure and modernise the
Federal Mortgage Bank of Nigeria to meet the challenges of the twenty-first century.
Should this be impossible, the Federal Mortgage Bank of Nigeria should be privatised to
operate like other mortgage institutions while greater tax and investment incentives
should be provided to mortgage institutions that provide minimum long-term loans
with a tenure of not less than ten (10) years.

Oserogho & Associates [contactus@oseroghoassociates.com] 3

 www.proshareng.com

PART 2
– THE NATIONAL HOUSING FUND ACT

The Federal Mortgage Bank of Nigeria’s website, www.fmbnigeria.org, reiterates the

legal position that the principal funding vehicle for the Federal Mortgage Bank of
Nigeria wholesale mortgage lending activities in Nigeria is the National Housing Trust
Fund which said Fund is established by the National Housing Fund Act, 1992.

The National Housing Fund (“NHF”) was established to, among other things:-

a. Facilitate the mobilisation of long-term housing funds for the provision of affordable
houses to Nigerians.

b. Facilitate the constant supply of long-term credit facilities to Nigerians for the
purposes of building, purchasing and improving residential houses in Nigeria.

c. Provide incentives to the capital market to invest in the property market in Nigeria.

d. Encourage the development of programmes that will ensure the effective financing
of housing development in Nigeria.

e. Provide proper policy control for the housing sector.

f. Provide long term loans to Mortgage Institutions for lending to contributors to the
Fund. See Section 2 of the National Housing Fund Act (“NHF Act”).

CAPITAL CONTRIBUTIONS TO NATIONAL HOUSING FUND

The resources of the fund are derived primarily from:-

a. Contributions of Nigerians, in both the private and public sectors, to NHF.

b. Investments in the Fund by Banks and Insurance companies licensed to carry on

these kinds of businesses in Nigeria.

c. Financial contributions by the Federal Government of Nigeria for long-term housing

loans.

MANDATORY CONTRIBUTIONS TO NHF

The NHF Act requires that every Nigerian employee in the public and in the private
sector, earning more than N3,000.00 per annum, must contribute 2.5 per cent of his
basic monthly salary to the National Housing Fund (“NHF”). An interest rate of 4% is
required by this Act to be paid on all contributions made to this Fund.

All commercial banks in Nigeria are required to invest 10% (ten per cent) of their loans
and advances in the NHF at an interest rate of 1% per cent above the interest rate
payable on current accounts by commercial banks to their customers.

The Central Bank of Nigeria (“CBN”) is authorised to collect from Nigerian licensed
Banks, at the end of every financial year and not later than a month thereafter, this
statutory housing contribution to NHF. The CBN shall in turn ensure that within two
months of making the collection from the Banks, such collections are remitted to the
FBMN for investment in National Housing Fund. See Section 11 NHF Act.

Oserogho & Associates [contactus@oseroghoassociates.com] 4

 www.proshareng.com

Every Insurance company is required to invest 20 per cent of its non-life funds, and 40
per cent of its life funds in real property development of which not less than 50 per
cent shall be paid into NHF through the FMBN at an interest rate not exceeding 4 per
cent per annum. FMBN is authorised to issue on insurance companies such demand
notices for such amounts that it deems as their contribution to the fund after
examining their audited accounts. The failure of any insurance company to comply with
these provisions is a ground for the cancellation of the business licence of such an
insurance company. See Section 12(3) of the NHF Act.

The Federal Government of Nigeria (“FGN”) is required to make adequate financial

contributions to the NHF for the purpose of granting long term loans and advances for
housing development in Nigeria.

ADMINISTRATION OF NHF

Contributions to the National Housing Fund are statutorily required to be managed and
administered by the Federal Mortgage Bank of Nigeria.

REMITTANCE OF CONTRIBUTIONS

Employers are required by law to deduct the housing contribution from their
employees’ monthly wages and ensure that such deductions are remitted to the NHF
via the FMBN within one month of making such deduction.

Self-employed individuals are also authorised to make 2.5 percent of their monthly
salary as their housing contributions to the Fund provided that such contributions are
remitted on a monthly basis.

BENEFICIARIES OF THE FUND

Section 14 of the NHF Act provides that licensed mortgage institutions are the
secondary beneficiaries of the Fund as they qualify for loans from the Fund, on such
terms and conditions as may be published in the Federal Government of Nigeria in its
official Gazette from time to time.

The primary beneficiaries of the Fund are the contributors to the Fund who take loans
from the FMBN through the licensed mortgage institutions to build, purchase or
renovate their houses in Nigeria. The repayment of these contributors’ loans are also
statutorily regulated by the Government’s published Gazette specifying the mode and
manner, with the terms and conditions for the repayment of any loan obtained under
the NHF ACT.

SECURITY OF NHF CREDIT FACILITIES

All loans obtained from a mortgage institutions must be secured by a first mortgage
while all loans granted by the FMBN to a mortgage institution must be secured by a
charge on a block of existing mortgages of the mortgage institution, under the cover of
a Sales and Administration Agreement executed between FMBN and the Mortgage
Institution. The later Agreement must be registered at the Land Registry along with
the Deed of Assignment of the block mortgages to which the said agreement relates.

INTEREST CHARGED ON NHF LOANS

The rate of interest to be charged by the FMBN on loans it grants to primary Mortgage
Institutions shall be slightly lower than the prevailing commercial interest rates in
Nigeria. Such an interest rate shall be fixed for the duration of the long-term loan with
no room for adjustments to suit the variances in the money market.

Oserogho & Associates [contactus@oseroghoassociates.com] 5

 www.proshareng.com

Mortgage Institutions are statutorily allowed a minimum spread of four percentage

points above the rate charged by the FMBN while FBMN is only statutorily allowed not
more than one percentage point above its own borrowing rate on loans it grants to
Mortgage Institutions in Nigeria.

REFUND OF CONTRIBUTIONS

On the attainment of the age of 60 years old or upon been retired from employment,
any contributor to the NHF that becomes incapable of continuing to make contributions
to the Fund, shall be eligible to a refund of his contributions within 3 months of his
application to the Minister of Housing provided that such a contributor has not obtained
a housing loan under the Fund which loan remains unliquidated.

RENDERING OF ACCOUNTS

FMBN is statutorily required to render periodic accounts on the Fund to the CBN. In the
like manner, FMBN is also statutorily required to render annual returns to all
contributors showing among other things, the total amount contributed, the accrued
interests and the balance in the contributor’s account as of the date of the making
such return.

Mortgage Institutions who have obtained loans from the FMBN must also render
statutory quarterly returns to the FMBN in such manner and form as the Minister of
Housing may from time to time specify.

OFFENCES AND PENALTIES UNDER NHF

Any employer who fails to make a deduction from the basic salary of his employees as
required by this Law, or who deducts any sum from the basic salaries of his employees
for the purpose of the Fund and fail to remit the sums so deducted to the FMBN is
guilty of an offence which on conviction for corporate bodies attracts a fine of N50,000
and for individuals the fine is N20,000 or imprisonment for a term of five years or to
both the fine and the term of imprisonment.

A self-employed person who fails to make the necessary deduction is also guilty of an
offence which on conviction carries a fine of N5000 or a term of imprisonment of one
year or to both the fine and the term of imprisonment.

Any individual who prevents or obstructs the deduction or remittance of the housing
contribution is also liable to the fine and or to the term of imprisonment as those
attributable to a self-employed person. The institution of criminal proceedings or the
imposition of the appropriate penalty does not relieve any employer or self-employed
person from the subsisting liability to pay to the FMBN the sum deducted for the
purpose of the FMBN.

False statements, misrepresentation, production of false documents or failure to

produce requested documents during inspection attract fines and terms of
imprisonment on conviction.

The Federal High Court has the exclusive jurisdiction to try all offences under the
National Housing Fund Act.

EXEMPTION FROM INCOME TAX REGIME

Contributions under the NHF and refunds of any such contributions under the NHF Act
are exempted from the payment of any form of income tax, on such contribution or
refund.

Oserogho & Associates [contactus@oseroghoassociates.com] 6

 www.proshareng.com

TERMS AND CONDITIONS FOR OBTAINING LOANS FROM NHF BY MORTGAGE

INSTITUTIONS AND INDIVIDUAL CONTRIBUTORS

A licensed Mortgage Institution must submit all its application(s) for a loan to the
FMBN. Such application must enumerate the applications received for loans from
individual contributors against which the loan(s) request shall be disbursed under the
NHF scheme.

It is mandatory that no mortgage Institution shall in any given financial year be

granted a loan in an amount that is more than 50 per cent of the Mortgage
Institution’s shareholders’ Fund.

SECURITY FOR HOUSING LOAN

These terms and conditions repeats the provisions of substantive law to the effect that
a housing loan granted by FMBN to a Mortgage Institution shall be secured by the
existing registered Mortgages previously granted by such a Mortgage Institution
whether the financing for such previous Mortgages were obtained from FMBN or not .

A Sales and Administration Agreement with a Deed of Assignment in such form as may
be prescribed by the FMBN, from time to time, and duly stamped and registered in the
Lands Registry is required. The cost of stamping and registering such an Agreement at
the Lands Registry shall be borne by the mortgage institution save where waivers on
these costs are granted by the approving authority at the Land Registry. FMBN is also
authorised in some instances to require a Mortgage Institution to execute a floating
charge over its assets.

DISBURSEMENT CONDITIONS

According to the NHF Regulations, to safeguard the resources of the Fund, and prevent
the misallocation or diversion of the mortgage loans given under the Fund, the FMBN
shall only make loan disbursements to a mortgage institution on the presentation of
the acceptable securities as stated in the above sub-section where a misapplication or
diversion is shown or envisaged.

FMBN is authorised to demand the immediate repayment of all loans with interest
thereon, inclusive of a 200 per cent penalty on the interest differential between the
market rate and the Fund rate from a mortgage institution which misallocates or
diverts its loans. In addition to the penalties, FMBN is authorised to suspend any erring
Mortgage Institution from further borrowing from the NHF for a period of six months
and cause such Institution to remain suspended until it complies with the above
provisions.

All disbursement from the Fund shall be by cheque or by any other acceptable
instrument of settlement. The FMBN is not allowed statutorily to disburse loans in cash
or to charge more than 0.25 per cent of the value of a loan as legal, survey and
administrative charge fees. But this excludes stamping, registration and other
statutory fees.

CONCLUSION

Developed economies encourage their citizens, from adolescence, to join the housing
mortgage market. From these young first-time mortgage buyers, a large stock of long
term investors is built. The requirement of the NHF and the FMBN for applicants to
provide a first charge or collateral before a housing loan will be granted will inhibit the
ability of Nigeria to build its mortgage market.

Oserogho & Associates [contactus@oseroghoassociates.com] 7

 www.proshareng.com

The requirement for the various NHF loan Agreements to be stamped and registered at
the Lands Registry attracts very exorbitant statutory fees which will discourage the
long term benefits of the NHF and the FMBN.

The rate of return on mandatory housing contributions from licensed Banks and
Insurance companies will only encourage these financial institutions to refuse to make
their statutory contributory obligations for the larger returns in the money market
particularly when the penalties are negligible and the judicial system is expensive and
time consuming.

The Nigerian employee is already burdened with many direct and indirect taxes,
pension, national health and housing contributions that the latter will be gladly
compromised when evidence do not abound of beneficiaries of housing loans actually
residing in their own homes.

DISCLAIMER NOTICE: This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This
Alert, by itself, does not create a Client/Attorney relationship. Recipients are therefore advised to seek professional legal counselling to
their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always
welcomed. This Legal Alert is protected by Intellectual Property Law and Regulations and is reproduced by Proshare Nigeria Limited
under permission for the Proshare online investment community. Oserogho & Associates [contactus@oseroghoassociates.com]
-------------------------------------------------------------
Oserogho & Associates
Business Solicitors & Notary Public
1 Engineering Close 2nd Floor Suite 206
Off Idowu Taylor Street Victoria Island
P.O.Box 56261 Falomo Ikoyi Lagos Nigeria
Cell: + 234 803 326 4753; 234 1 765 5635
Fax/Tel: + 234 1 621 3014
Tel: + 234 1 481 1014; + 234 1 621 3014
Web site: www.oseroghoassociates.com

Oserogho & Associates [contactus@oseroghoassociates.com] 8