The term Land Use Charge simply means the tax paid for the use of land. It is known as tenement rate in other jurisdictions in Nigeria. It is a consolidation of Ground rent, tenement rate and neighborhood improvement levy in Lagos state. The extant law that regulates Land Use Charge in Lagos state is Land Use Charge Law 2018. The new Law repealed the Land Use Charge Law 2001, land rates law and the Neighborhood Improvement Charge Laws. The Land Use Charge Law was repealed and re-enacted to address some identified challenges which includes lack of clarity on the land use charge format, obsolete rates which has not been reviewed in over a decade, to improve Land Use Charge administration efficiency.
It is pertinent to note that the land use charge is designed to help the government of the state to generate additional revenue needed to develop the state through the provision of infrastructure and basic amenities but commentators have always insisted that tenement rate which is renamed land use charge in Lagos state is a law designed by the 1999 constitution of Nigeria as amended as a local government law, not state. It is trite law that the constitution is the most supreme law of the Country. This simply means that the constitution is the highest law in the country. To this end, where the provisions of a law or statute are inconsistent with the provisions of the constitution, such law is null and void to the extent of its inconsistency.
- The fourth schedule of the 1999 Constitution (as amended) vests the local government council with the power to access privately owned houses or tenements for the purpose of levying rates. In Knight Frank & Rutley v A.G Kano State (1998) 7 NWLR (556)1), the Supreme Court held that a contract granted by the commissioner of Finance, Kano State for the purpose of valuing houses in order to levy property taxes was an infringement of the constitutional powers of the local government council.
- Furthermore 7 of the 1999 constitution as amended, empowers the local government council to participate in economic planning and development of the area. To this end, the local government is vested with the power to charge tenement, hence any act inconsistent with the provisions of the constitution is illegal. The administration of the land use charge by Lagos state government is null and void as it usurps the powers of the local government. It is irrelevant that the local government was appointed as the collecting authority, this is because the constitution does not authorize the local government council to delegate its power to the state government or the commissioner of Finance. In F.U.T Yola V. A.S.U.U ((2013) 1 NWLR (1335) 249 at page 279)
,the court of appeal held as follows:
The law is that it is the law or statute which in the first place donated to or invested to a person with power to perform a certain function or duty by himself which will mandate that person, to the effect that he may, delegate his functions or power to another person and the other person is usually named specifically in the enabling statute or Act.
The land use charge law clearly flouts the principle of delegation which states that statutory powers can only be delegated when the vesting statute authorizes the vesting of such powers. To this end, the law is null and void.
We at Property Advisory Network advise that stake holders in Lagos state should challenge the Land Use Charge Law of Lagos State in Court as the administration of the law is the duty of the Local Government Authorities.
APPLICATION OF LAND USE CHARGE
Properties that are exempted from the operation of the law are government-owned properties, properties used for public, religious and charitable activities and properties occupied by chiefs and traditional rulers which were exempted under the repealed law. However, this exemption will only be granted where an application for exemption is made to the State Commissioner for Finance. However, where any exempted property is leased out to private entities for the purpose of generating revenue, the relevant property shall forfeit its exemption status and thus become liable to pay the Land Use Charge.
According to S. 9 of the Land Use Charge Law 2018, the owner of a property or occupier of a lease less than 10 years is liable to pay land use charge in respect of a taxable property. To this end, aside from landowners who have the responsibility to pay these charges, tenants are also by this new law, obligated to pay the land use charge in situations where the landowner is not resident in the premises. The law also empowers tenants to offset the monies expended for the payment of land use charge from the money that may be due to the owner of the property.
ASSESSMENT OF THE LAND USE CHARGE
The Law makes provisions for owners of chargeable properties to voluntarily access the amount payable for the Land Use Charge and remit same to the relevant agency. The Land Use Charge is calculated by multiplying the Market Value of the property by the valid Relief Rate and the Annual Charge Rate.
For purposes of arriving at the Annual Charge Rate of chargeable properties, the Land Use Charge Law classifies property assessment into three broad categories which are Commercial, Residential and Industrial usages. Commercial properties generally attract a rate of 0.76 per cent of the assessed value. Industrial properties are accessed at a rate of 0.256 percent of the assessed value. A residential property occupied by the owner attracts 0.076 per cent while a residential property occupied by owner and third parties attracts 0.76 per cent. A residential property without the owner in residence attracts 0.76 per cent. Vacant properties and open land spaces empty land attracts 0.076 per cent.
With respect to Relief Rate, the law provides various forms of relief that are available to payers of land use charge. Relief Rate implies the percentage of the assessed Land Use Charge that will be deducted in favour of the payer after assessment. The relief includes general reliefs of 40%(of the assessed Land Use Charge) applicable to all properties liable to pay Land Use Charge and certain specific reliefs.
For instance, property owned and occupied by a pensioner (being a person of 60 years and above who retires from a pensionable office in Lagos State) is entitled to 100 per cent Relief Rate, meaning the pensioner is not obligated to pay Land Use Charge on the property s/he owns and occupies. A property owned and occupied by a person with disability or an aged person (70 years and above) is entitled to 10 per cent Relief Rate. Aged properties (25 years and above) enjoy 10 per cent Relief Rate. This list is not exhaustive.
However, to enjoy the available reliefs, payers will need to apply to the Minister for Finance with relevant supporting documents.
REACTIONS OF LAGOSIANS TO THE INCREASE IN LAND USE CHARGE
There have been controversies over the amendment of the law which, according to some stakeholders, increased charges with as much as 400 per cent. Lagosians are demanding reversal of the increase in the land use charge slammed on land /building owners. At the vanguard of the opposition to the new rate are opposition political parties, residents of highbrow estates in Lagos state, business and professional associations.
Furthermore, the Nigerian Bar Association expressed displeasure at the new charges which it argued will lead to further impoverishment of over 17,000,000 Lagosians. The Nigerian Bar Association (NBA) maintains that the poor economy of the country is already negatively affecting people while urging the governor to be sensitive in implementing policies that would gravely affect the residents of the state.
EFFECT OF THE INCREASED LAND USE CHARGE ON REAL ESTATE DEVELOPMENT
It is pertinent to state out at this juncture that the cost of real estate in Lagos state is on the high side. This is because Lagos state is a well-developed state and is said to have a population of over 20 million people. The state is considered as one of the commercial hubs in the country, hence the issue of accommodation is a big problem. The increased Land Use Charge will only cause more hardship to the residents of the State as the cost of real estate would be increased.
This means that landlords are likely to increase the rent of their tenants so as to ensure compliance. It is a known fact that when the cost of rent and leases increases, it reduces the ability of people who need these houses to be able to pay and this impacts negatively on real estate development. If one goes to most of the high-brow areas of Lagos State like Lekki , Omole Estate, Apapa, Ikoyi and other areas, one will see thousands of houses that are empty and there are millions of people who are looking for where to stay.
The cost of renting these houses has risen so high. Most of the developers of these estates and houses are not smiling to the banks and this is a very big problem in real estate development in Lagos State. One might be tempted to argue that the tax of land use Charge is not supposed to be a problem but wait a minute until you put down all other taxes and levies by the Lagos State Government on property owners in Lagos State thereby making investment in real estate business unattractive.
It used to be the case in Lagos that before one finishes building a house ,tenants are already waiting to pay and move in but investigation by Property Advisory Network reveals that thousands of houses in Lagos have been vacant for years meanwhile some of the investors in these properties are having unbearable financial problems. What would be your reaction to a man who has built three houses in Lagos state yet he cannot pay his children’s school fees.
Furthermore, tenants would be forced to leave their accommodation if they can’t meet up with the increased rent. Land owners on the other hand might not find it easy to alienate their interest in land. This is because whoever purchases a land is obligated to pay the Land Use Charge and other taxes and where the rates are high, compliance might not be attainable.
There cannot be development in real estate where people are not interested in investing in it; investors may not be willing to invest in ventures that yield more expenses than income. This is what the Land Use Charge Law seeks to achieve.
It is our humble opinion in PAN that the land Use Charge Law 2018 be reviewed and the amount payable as Land Use Charge be reduced. Furthermore, the local government council should be recognized as the body with the authority to access, collect and administer this tax in Lagos State. The primary duty of Government is to protect life and property of the people, not to make them vulnerable by imposing taxes like the Land Use Charge on them and increasing them regularly.