A Critique Of The Land Use Charge Law Of Lagos State 2018

Changes and New Developments

• Chargeable Property

  The definition of chargeable property has been extended to include (1) a building; (2) any improvement on land; (3) a parcel of land, whether or not reclaimed, waterlogged or otherwise; (4) a parcel of land and any building or improvement, a wharf or pier; and (5) a leasehold of up to ten years²³.

• Computation of Land Use Charge Payable on Properties

  LUC is now calculated based on the commercial or market value of a property²⁴. Valuation is also now to be assessed by professional estate valuers appointed by the Commissioner for Finance²⁵ which shall be subject to review at least once every five (5) years²⁶.

• Persons Liable to Pay Land Use Charge

  Under the new Land Use Charge Law, the obligation to pay LUC no longer rests solely on the owner of a taxable property as was the case under the repealed 2001 Law. The responsibility to pay LUC has now been placed on either the owner or occupier of a property on a lease arrangement of less than ten (10) years²⁷. Besides, for leases spanning ten (10) years or above, liability to pay the relevant LUC resides solely on the occupier²⁸. The definition of an occupier has now also been reviewed to include persons unlawfully in actual occupation of a property²⁹. In our opinion, whilst the obligation to pay LUC now extended to an occupier holding a lease of ten (10) years and above is understandable, the provision imposing payment obligation on either the owner or occupier of a property on a lease arrangement of less than ten years is a cause for concern. This provision will likely work against tenants under short-term lease arrangements, as it is highly probable that landlords will shift the responsibility of paying LUC to tenants/occupiers of their properties, particularly in view of the exorbitant rates of LUC.

• Chargeable Rates

  The rate to be applied in computing LUC payable on a property has increased significantly under the new Land Use Charge Law³⁰. For an owner-solely-occupied residential property, the rate is now fixed at 0.076% of the chargeable value of the property as against 0.0394% applicable under the repealed 2001 Law. For a residential property without the owner in residence or a commercial property, the rate is now fixed at 0.76% of the chargeable property as against 0.394% previously applicable. Also for an industrial property, the new rate is 0.256% of the chargeable value of the property as against 0.132% previously applicable.

  Given the current economic realities, we are of the considered view that the new Land Use Charge Law should have focused on addressing the issue of LUC avoidance with a view to capturing properties which otherwise were not assessed to LUC, rather than increase the rates of LUC. This is particularly because based on the information credited to officials of the Lagos State Government, LUC was reportedly paid on only about three hundred thousand (300,000) properties out of an estimated two million (2,000,000) eligible properties in Lagos State as at December 2017³¹. Thus, the expected revenue drive would have been achieved if the old rates were maintained and all eligible properties duly assessed.

• Scope of Exempted Properties

  There is now restriction on the scope of exempted properties, such that properties used as private cemeteries and burial grounds are no longer exempt from LUC³². We believe that this will impact the costs incurred by the private owners of these properties (and relevant infrastructures), which may result in significant increases in their service charges.

• Self-Assessment

  The new Land Use Charge Law also makes provisions for owners of chargeable properties to voluntarily assess LUC payable and remit same to the relevant agency³³. Owners can also utilize electronic platforms approved under the Laws of Lagos State, in making payments³⁴. However, we note that the provision for self-assessment may not be effective until a framework (such as the regulation provided for in section 10(5)) is put in place to take care of issues that are likely to arise from the self-assessment regime such as claiming discount.

23 See “Interpretation”, section 1, ibid

24 Section 10(1), supra

25 Section 5(2), ibid

26 Section 10(2), ibid

27 Section 9(1), ibid

28 Section 9(2), ibid

29 See “Interpretation”, section 1, ibid

30 See “Land Use Charge Annual Rate” in the Schedule to the Land Use Charge Law 2018

31 See Scott Obagbemi: “Lagos: Land Use Charge and economic development”, supra.

32 See section 12(1), ibid

33 Section 10(5), ibid

34 Ibid, any framework issued to enable this must be subject to the Regulations Approval Law of Lagos State