The Office Block With Two Problems in the Deeds
You are instructed by a mortgage bank to value a purpose-built five-storey office building on Awolowo Road, Ikoyi, for a N700m facility. The building has 3,200 m² net lettable area on a statutory right of occupancy granted by a Certificate of Occupancy dated 1 January 1985 for 99 years. The whole building is let to a single tenant, Zenon Trust Bank, under a lease dated 1 January 2022 for seven years at a fixed rent of N96m per annum with no rent review. The tenant meets its own internal costs, but the landlord bears insurance and external repairs, budgeted at N12m per annum and not recoverable. Current market rent for comparable space is N180m per annum and the appropriate yield is 7%. The valuation date is 1 January 2026. The client's file contains an unregistered deed of assignment of the right of occupancy from the original allottee to the current owner dated 2016, with no record of the Governor's consent. The bank's credit team says: 'The rent covers the loan service, so we are comfortable.'
1. Advise on the appropriate basis and method of valuation and calculate the value of the property, showing your workings.
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Basis. Market value for secured lending, subject to the existing tenancy, because that is the interest the bank will take as security; valuing with vacant possession would overstate the bank's position.
Method. The passing rent (N96m) is well below market (N180m) and the lease has a fixed end date, so the investment method must be applied as a term and reversion, not a simple capitalisation of the passing rent.
Term: rent N96m less landlord's outgoings N12m = N84m net. Three years unexpired (1 January 2026 to 31 December 2028). Years' purchase for 3 years at 7% = (1 − 1.07⁻³)/0.07 = 2.6243. Term value = 84m × 2.6243 = N220.4m.
Reversion: market rent N180m less N12m = N168m net. YP in perpetuity at 7% = 14.2857, capitalised = N2,400m; deferred 3 years at 7% (PV factor 0.8163) = N1,959.1m.
Indicated value = 220.4 + 1,959.1 = N2,179.5m, say N2.18bn.
Checks. The 7% yield must be supported by comparable sales of prime Ikoyi office investments, adjusted for covenant strength and lease length; a stronger covenant would point to a lower yield. Ground rent under the Certificate of Occupancy is nominal and can be left out of the figure but should be mentioned. At N2.18bn, the N700m facility is about 32% loan-to-value, comfortable on any normal policy - but that is the bank's conclusion, not the valuer's. The remark that 'the rent covers the loan service' confuses debt service with value; it is not a valuation argument and should be answered by the figure itself.
2. Explain how the absence of the Governor's consent and the unregistered assignment affect your valuation and your report.
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The law. Section 22 of the Land Use Act 1978 requires the Governor's consent for the alienation of a right of occupancy by assignment, mortgage or transfer of possession. An assignment made without consent does not effectively transfer the legal interest, and an unregistered deed gives no priority and may be inadmissible to prove title. The current owner may therefore hold something less than a clean legal interest, and the bank cannot take a good legal mortgage over it.
Effect on the valuation. Do not purport to decide the point - you are not the bank's solicitor. Proceed on a special assumption that a good and marketable title can be established (consent obtained, stamp duty and consent fees paid, deed registered), and say so prominently in the report, with a statement that the figure must be reviewed if consent is refused. If the bank wants a 'subject to' figure, deduct the transaction costs of regularisation.
Reporting. Add a title and tenure section: tenure, unexpired term, ground rent, the 2016 assignment, and the missing consent. Include a clear 'matters for the lender' note that the security is defective until consent and registration are in place, and recommend a solicitor's title report before drawdown. Check the tenant's lease as well - a seven-year lease may itself require registration and consent, and the bank will need notice of it. Delivering a clean figure with no caveat would be the professional failure here, not the missing consent itself.