Common traps real estate developers use on unsuspecting buyers
The growth of real estate in Nigeria shows no signs of slowing down. Nigerians remain optimistic about the development of this sector. The recent rebase of the economy indicates that real estate has become a dominant pillar of the Nigerian economy.
Unfortunately, the positive developments in this sector have not been universally experienced. Due to the rapid expansion of this sector, the regulatory laws meant to guide and protect investors are severely inadequate, leaving many investors burned, primarily by untrustworthy and outright fraudulent developers. There are numerous horror stories, far too many to mention here. The only remedy or source of protection is to ensure that the agreement you are signing provides adequate safeguards should issues arise.
All real estate agreements are drafted by developers' lawyers, so you can rest assured that these agreements offer little protection to you, the investor. Therefore, it is pertinent to watch out for certain clauses in these contracts that could come back to hurt you if problems arise.
Here are some of the clauses
1. "As-Is" Clause
What it means: The buyer agrees to purchase the property in its current condition.
Why it's tricky: It can absolve the seller of responsibility for hidden defects unless they are deliberately concealed.
This is common when purchasing a semi- or fully built property from a developer. If the property has fundamental defects, the buyer will bear all the costs of repair or renovation.
2. "Time is of the Essence" Clause
What it means: Deadlines are strictly enforced.
Why it's tricky: Missing a deadline (like for financing or inspections) could allow the other party to terminate the deal or claim a breach of contract.
This clause is very common when the buyer pays for the property in instalments. The developer can make the penalty for missing an instalment payment so big that it could lead to a loss of the property and administrative charges.
3. Liquidated Damages Clause
What it means: It specifies a set amount of damages if the contract is breached.
Why it is tricky: You might owe a large sum (like your initial deposit money) even if the breach was minor or unintended.
Watch out for this clause that punishes you severely for any minor breach when paying for the property.
4. Contingency Clauses
What it means: Conditions that must be met for the contract to go forward (e.g., financing, appraisal, inspection).
Why it's tricky: Sometimes these are written in a way that heavily favours one side (usually the seller), or they’re missing entirely, leaving the buyer exposed.
This is a common clause used to enforce public infrastructure payments (usually for estates). Sometimes, these clauses are written in such a way that the estate developer would absolve himself from the responsibility of providing infrastructure such as tarred roads, gutters, streetlights, etc.
5. Non-Refundable Deposit
What it means: A portion of your deposit won’t be returned under any circumstances.
Why it's tricky: If the deal falls through—even for reasons outside your control—you could lose a lot of money.
This is self-explanatory.
6. Use and Zoning Representations
What it means: Assumptions about how the property can be used.
Why it's tricky: If zoning restrictions limit your intended use (like turning a building into a rental), you may be stuck with a property you can’t use as planned.
7. Review of PRICE
What it means: The developer has the right to increase the purchase price of the property after the initial agreement and deposit have been made.
Why it's tricky: This means that after signing the agreement and making an initial deposit, the developer can review the price for whatever reason and increase the cost of the property. This has been common recently due to inflation and the rising costs of building materials. However, some developers have used this clause to increase profits by offering the same property to a party who is willing to pay more.