Unregistered Title Document – Is a JV still possible?

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Closing JV Deals for Property Development

 

Brokering joint venture real estate deals over the years has exposed us to various scenarios. Some deals are complex, and having the right knowledge or expertise will determine the success of a deal.

 

Most property developers like to deal only in properties that have perfected titles, but a property with an unregistered title could be a diamond in the rough. Knowing what to do when confronted with such a property could mean closing a great deal. Let’s dive into this a bit

 

Land Title and Title Registration

 

 

A land title is the evidence of a person’s right/claim to the ownership of land. It may also refer to the legal document that conveys the title to a particular property.

 

Land title may either be registered or unregistered. Registered titles are duly acknowledged and recorded by the government that has charge over the area where the land is located.

 

Unregistered titles have not been formally registered in the government records and therefore are not captured by a legitimized system that helps verify ownership of land.

 

This explains why property developers or anyone interested in acquiring a property would shy away from a property with an unregistered title. In more advanced countries were ownership records of real estate are well captured, this is not a problem.

 

In a place like Nigeria, you find that a lot of properties do not have well documented ownership deeds. The discerning property investor, who understands how the informal structure of property ownership works, could have an opportunity to acquire a property at below the market price.

 

Importance of Land Title Registration just to mention a few are:

Proof of Ownership:

The registration of a land holder’s title signifies that their interest in the said land is recognized by the state and her agencies.

 

Security Against Risk:

A registered land title secures the holders interests and rights to the property.

 

Ease of Transaction:

Once it can be ascertained through a title search at the lands registry that a party claiming ownership to a land is the registered owner, doubts are cleared and transactions involving the land become easier.

 

Increased Market value:

Registration of Land title rubs off positively on land value. This may be attributed to the fact that such property is presumed to be recognized by the state, thereby making it genuine and free of the risks associated with lands with unregistered title.

 

The Nexus between Registered Land Title and JV’s

 

 

A real estate joint venture partnership involves at least two parties ( the landowner(s) and the investor/financier/developer) who are both willing to form an alliance wherein the former’s land is utilized by the latter for the development of an agreed type/numbers of structures, with an agreement in place for the sharing of the structure(s).

 

For a joint venture transaction to be considered close-able, certain things have to be in place. The first is the willingness and capability of the parties to the transaction to initiate and oversee the transaction, next is a good location with a high market demand for real estate, and then comes a registered title document. This piece will focus on the latter.

 

How Does Title Document Influence JV Deals?

 

The title on the subject of a JV partnership is perhaps the most important element a developer takes into consideration after the property location.

 

The Latin maxim “Nemo Dat Quod Non Habet” translated as “you can’t give what you don’t have, or you can’t build something on nothing” highlights how it is a great risk to carry out a transaction on a property whose title is not duly registered. This is particularly true for the party parting with their money. Such a person may end up putting their money down the drain. The following are some of the effects of registered tile on JV transactions.

 

i.It helps to ascertain that the developer is dealing with the rightful and registered owner of the land.

 

ii.It helps to determine whether or not the land is encumbered or not.

 

iii.Being a prerequisite for the processing of building/planning permits and approvals, the process may be complicated where the land involved in a JV transaction is not duly registered.

 

iv.It puts potential buyers mind at rest since it is a lot easier to transfer/alienate the rights/interests in such property to another party.

 

This Really Happened

We got hold of a joint venture brief in a popular mainland location of Lagos. Great location and perfect for a mini-estate. It looked to be a great deal but there was an albatross on the deals neck – unregistered title. The property only had a Deed of Assignment and Survey Plan. It turned out during negotiations that the owner expected that the developer takes full responsibility for the title perfection process. Luckily, the potential developers did some background investigations, and discovered they could get the title registered. This changed the dynamics of the deal but the deal was saved from collapse.

 

 

No Registered Land Title, What’s the Way Out?

 

 

No doubt, there are risks that accompany any real estate transaction carried out on a property whose title is not duly registered, more so where it has not been ascertained that the property is not a subject of dispute, litigation or government acquisition. Does this however mean that any form of transaction, or a JV in particular be written off?

 

Not necessarily, as seen from our experience above, there are a number of options from which the next course of action can be chosen from.

 

An agreement may be reached where either of the parties take up the responsibility of perfecting the title document in exchange for a compromise or consideration on the others part.

 

For instance, where the landlord takes responsibility, this should be reflected in the value of the land and by extension his equity contribution.

 

If the developer foots the bill, this should also be factored into the developer’s equity contribution and be reflected in the sharing ratio. In this case, the developer could also request for an indemnity from the Landlord, if it turns out that perfecting the title is not possible due to an encumbrance on the land or a third party claim of ownership.

 

The developer would also be advised to carry out preliminary findings to investigate genuineness of the landowner’s documents and confirmation that their title can be perfected.

 

This would be the starting point, before the developer commits funds towards title perfection. If these preliminary finding can’t be confirmed, then the JV might not be able to proceed.

 

In essence, it can be deduced that even when a Property’s is not duly registered, it does not necessarily mean that a real estate joint venture transaction is off the table.

 

These are just a few of options that may be explored by the interested parties. Options are only limited by ability of both parties to reach a consensus on what course of action is to be take and the developer’s capacity and willingness to maneuver and extract the hidden value in a property of this nature.

Cheers!