Pre-Incorporation Lease and Promoter Liability
In January 2024, Ngozi and Tunde, intending to incorporate Kestrel Logistics Ltd, signed a two-year warehouse lease with Harbour Estates Ltd in the name 'Kestrel Logistics Ltd (in formation)'. Ngozi signed personally; Tunde signed as 'promoter'. The lease has no clause excluding personal liability; arrears are ₦8.4 million. Kestrel was incorporated in March 2024 with both as directors and shareholders. The company moved into the warehouse, paid two months' rent from its account, and installed racking, but the board never passed a resolution adopting the lease. In June, a rent review dispute arose. Harbour Estates sues Ngozi and Tunde for arrears and, alternatively, Kestrel. Ngozi says incorporation and part payment adopted the lease; Tunde says he signed only as agent.
1. Who is liable on the lease as at June 2024? Address incorporation, part payment and the missing board resolution.
Read the worked answer
At the date of the lease, Kestrel did not exist. A company cannot bind itself before incorporation. The general rule is that a person who purports to contract on behalf of a non-existent principal is personally liable, unless the contract clearly provides otherwise. Tunde's label 'promoter' does not make him a disclosed agent with a capable principal; Ngozi signed personally. Both are therefore exposed. CAMA 2020 allows a company to ratify or adopt a pre-incorporation contract after formation, but adoption is not automatic. The company's occupation, payment of two months' rent and installation of racking are evidence from which adoption may be inferred, but they are not conclusive; a board resolution is the best evidence of corporate adoption, and the absence of one weakens Kestrel's position. If the lease was validly adopted, Kestrel becomes bound, but adoption does not automatically release the promoters; release requires novation or the landlord's agreement. If adoption is not established, Harbour Estates can enforce against the promoters.
2. What should Kestrel's board do now, and what residual risks should it manage?
Read the worked answer
The board should convene a properly noticed meeting and pass a resolution either adopting the lease expressly or authorising a fresh lease on negotiated terms; it should then notify Harbour Estates in writing. It should avoid conduct inconsistent with non-adoption, because further rent payments or continued occupation may be treated as ratification. It should negotiate a novation releasing Ngozi and Tunde, or obtain an indemnity from them if the landlord will not release. It should check whether the lease requires assignment or underletting consent and whether the rent review clause was triggered. If the company adopts, it should record the decision and update its register of contracts. Residual risks: the landlord may still sue the promoters for pre-adoption arrears; the company may be liable for use and occupation; and directors who paid rent without authority may face internal accountability issues.