Land Clearing JV’s on the Lekki Axis – How they Work
3 years ago
Mention the term real estate joint venture (JV) and the first picture that is created in most people’s mind is that of a landowner and property developer partnership to build massive buildings or estates.
While this notion is not entirely wrong, there are other JV models which can be very lucrative for investors interested in the Lekki axis real estate market.
Let’s introduce you to land clearing joint ventures, which are quite popular but not formally documented.
A land clearing joint venture is a JV agreement in which one party, usually a landholding family (popularly known in Lagos as omo-onile), offers a large expanse of land to another party for clearing. The third party may either be a property developer, financier or investor, to clear the vegetative cover such as trees, shrubs, thickets, bushes, grasses etc, on the property in preparation for sale or development. The investor will be allotted a specified portion of the cleared land in return for work done.
Let me break this down. Family xyz (omo-onile) holds a large expanse of undeveloped land that has been allocated to them by the state government.
Members of this family don’t have the financial muscle required to develop the land, so they engage an agent with the mandate to source for developers/financiers/investors who may be interested in clearing their land in exchange for plots of lands as return on their investment.
This arrangement is best suited to an area with massive expanse of virgin land, which is commonplace in the Lekki axis of Lagos. Abijo, Bogije, Sangotedo and Ibeju Lekki and their environs are some of the hotspots.
Land clearing JVs can also include investors taking up the following:-
This usually precedes the actual land clearing. The investor gets a registered land surveyor to pick the co-ordinates of the agreed area of land. These co-ordinates are verified at the Lagos States surveyor general’s office. Upon being satisfied that the land is free from any form of encumbrance, a survey plan is produced and registered at the Surveyor general office. This major step opens the door to further title perfection of the land.
This involves the investor sponsoring/financing the perfection of the subject property’s title, with the Lagos State Government. This may either be in the form of the processing of excision, gazette, C of O, ratification/regularization etc.
Road mapping involves the marking-out and sand-filling of a proposed road network for the expanse of land. A surveyor partitions the land into zones and/or plots with access roads that run in tandem with approved existing roads in the neighbourhood. A master plan or estate layout is created and approval is secured from the Lagos state government.
The land usually involved in these deals run into tens of hectares and can be capital intensive to develop. Different aspects can therefore be contracted to different investors who may either run them at separate times or concurrently. Nonetheless, it is not unusual for a single investor with the financial wherewithal, to execute everything
Here are the major points that usually have to be fulfilled by parties to a typical land clearing JV
1. The omo-onile’s expect any investor brought forward by the agent to be financially capable of overseeing the project to completion.
2. Fees/Charges: Certain fees or charges are usually expected to be paid by the investor at various stages of the deal. These may differ depending on the family the investor is dealing with. The ‘owo-iwoko’ fee is the most popular and considered sacrosanct. It is a sum expected to be paid by the developer as a precursor to entry into the land to be cleared. This is a sort of premium paid by the investor to show his commitment to the deal.
1. The investor is responsible for carrying out due diligence on the subject property prior to entering into the deal.
2. Provision of funds/expertise: it is the investor’s responsibility to make available all the resources required for the smooth execution and completion of the project within the agreed time frame.
3. He is also to ensure that his legal interest in the deal is protected, by ensuring that his legal counsel scrutinizes and inputs clauses/terms that protect his interest.
4. Payment of Commission/Fee: The investor must pay agreed fees/commissions as at when due. An agent introducing the property to the investor will expect a commission.
1. The agent’s primary role is source for capable investors. This may either be done with the aid of an existing platform like JV Pulse, and/or enlisting the services of other agents in his professional network.
2. The agent acts as an intermediary between the landowners and the investor, being actively involved in the negotiation of terms until the deal is finally closed.
3. He also expects to receive agreed fees and commission for his role in the closing of the deal.
4. Apart from receiving monetary remuneration, the agent may also receive commission in proprietary terms by getting a pre-agreed portion of the plots allotted to the investor.
It is typically a win-win kind of deal where all parties come out smiling.
The landowners do have the advantage of selling at higher value than they could have gotten before the land was in its virgin state. Their land value further increases where the investor, himself a beneficiary from the deal, goes ahead to immediately commence work such as the development of a residential estate on his own portion.
The cost implication of acquiring the same size of land allotted to the investor/developer is usually huge compared to amount expended in the land clearing deal.
The agent also goes home smiling, having made a lump sum and received some plots of land from the facilitation of the deal.
There are always two sides to a coin, there have been cases of land clearing deals gone awry in the past:
We were involved in a land clearing JV, where the land owners initially wanted an investor who would handle both the survey sponsorship and land clearing. Through our network, we were able to get an investor for the deal.
After inspecting the property, and subsequently meeting to discuss contract terms on several occasions, the scope of the deal was later limited to only land clearing. Naturally, this stalled talks, but we finally proceeded to an advanced stage. A date of commencement and completion was proposed and verbally agreed on. A written agreement was prepared and was being reviewed by the principal members of the family, while the family was to make available the survey plan to the investor.
The family was not forthcoming with the survey, and later claimed to have received a better offer from other investors.
The investor, in a show of good faith offered to issue a post dated cheque being a percentage of the owo-iwoko with an understanding that the survey plan will be provided.
To cut the long story short, the client called off the deal because the required documents were not provided and the landowners appeared to be double dealing.
Luckily the investor was careful and did not make any financial commitment without proper documentation being provided
The reality is that these transactions can be tricky due to a lack of integrity by some parties. This is why thorough due diligence is important and the investors should have the funds readily available to start work immediately a contract is signed.
1. Verification of the actual representatives of the family authorised to negotiate
2. Review of land documents and verification of documents at Lagos State
3. Verification of Investors capacity to carry out the land improvements
4. Execution of a contract agreement with relevant terms and conditions to protect parties to the transaction
Investors that get it right have become owners very valuable land at minimal cost. The returns are staggering.