Protecting Landowners in Property Development Joint Ventures

Introduction

In Nigerian property development, joint ventures between landowners and developers have become one of the most common ways to unlock the value of land. The structure is appealing on its face: the landowner contributes the land, the developer brings capital and construction expertise, and both parties share in the returns. No cash changes hands upfront, no bank financing is needed, and the landowner retains an interest in whatever is building.

But the appeal of the structure conceals a serious imbalance. In practice, landowners are routinely the most exposed party in a property development joint venture and the least protected. Developers draft the agreements; control the construction process; manage the accounts and when things go wrong, it is almost always the landowner who bears the greatest loss.

This article maps the risks, explains the protections, and makes the case for why the terms you agree to before the project starts will determine everything that follows.

Why Landowners end up exposed

The vulnerability of landowners in property JVs is not accidental. It follows from a structural imbalance that is baked into most of these transactions from the outset. Developers come to the table with information that landowners typically lack. They understand construction costs, sales margins, market absorption rates, and financing structures. Landowners, by contrast, often know only that their land has value and that a developer has expressed interest in it. As such, this information asymmetry shapes the negotiation before it even begins.

The imbalance is compounded by the fact that developers usually control the drafting of the joint venture agreement. An experienced developer's standard form agreement will be written to protect the developer. It will define project costs broadly, giving the developer room to deduct expenses before profit is calculated. It will also vest project management authority entirely in the developer and include indemnity clauses that run in the developer's favour. Overall, it will be presented to the landowner as standard as if the terms are not negotiable. Whereas, they are negotiable — but only if the landowner knows what to ask for.

The Structure problem

Before addressing contractual protections, it is worth noting that the choice of JV structure itself is one of the most consequential decisions a landowner will make because different structures carry different risk profiles.

Under a title-retention model, the landowner holds on to the title to the land throughout the development and only transfers it (or portions of it) to buyers upon completion. This gives the landowner significant leverage and protection: the developer cannot deal with the land without the landowner's cooperation. The risk, however, is that without a carefully drafted agreement, the developer may argue that the landowner is obstructing the project by withholding title.

Under an SPV equity model, a special purpose vehicle is incorporated under Companies and Allied Matters Act (CAMA) 2020 to hold the project, with the landowner and developer holding shares in proportion to their contributions. This structure offers corporate governance protections through board representation, shareholder rights, and dividend rules, but it also means the landowner's interest is now in shares, not in land. As such, if the SPV is wound up, the landowner's recovery depends on what assets remain after creditors are paid.

Under a lease-and-develop model, the landowner leases the land to the developer for the duration of the project. This is the structure most favourable to the developer and most dangerous for the landowner, because the developer gains possession and control of the land from day one. A landowner who enters this structure without robust protections is essentially handing the developer the keys and hoping for the best.

Understanding these distinctions matters because no contractual clause will fully compensate for a poorly chosen structure. The protections discussed below must be read against whichever structure applies.

Risks Involved

1. Title loss or Encumbrance: A developer with access to land, whether through an executed JV agreement or a lease, may attempt to use that land as collateral for financing without the landowner’s knowledge or consent. Under the Land Use Act (LUA) 1978, any mortgage or charge over land held under a statutory right of occupancy requires the Governor’s Consent. But in practice, the consent process is not always rigorously observed, and a landowner may find their land encumbered before they realise what has happened.

2. Developer Insolvency: If the developer becomes insolvent mid-project, the consequences for the landowner depend entirely on how the JV is structured. In an SPV model, the landowner’s interest in the land will now be caught up in the insolvency of the SPV. In a lease model, the landowner may regain possession but be left with a half-built structure and no clear path to completion.

3. Profit manipulation: Because developers typically control project accounts, there is significant scope for costs to be inflated and revenues to be understated before profit is calculated and shared. A landowner who has no right to audit the project accounts has no way to verify whether the figures they are presented with are accurate.

4. Exclusion from decision-making: Many JV agreements vest all operational and commercial decisions in the developer, on the theory that the developer is the party with construction expertise. In practice, this means the developer can make decisions about design changes, sales prices, and phasing that materially affect the landowner’s returns, without the landowner’s input or approval.

5. Project abandonment: A developer may abandon a project if market conditions change, if financing falls through, or simply if the project is no longer commercially attractive to them. Without specific contractual protections, a landowner in this situation may be left with an incomplete development, ongoing liabilities, and no clear remedy.

Contractual protections that actually work

1. Title retention and deferred consent: The most fundamental protection for a landowner is the retention of title until agreed conditions are met. The JV agreement should make clear that no transfer of title and no application for Governor’s Consent on behalf of a third-party buyer will occur without the landowner’s express written approval. Where an SPV structure is used, the agreement should specify that any alienation of the SPV’s interest in the land requires landowner consent at the shareholder level.

2. Step-in rights: A step-in clause gives the landowner the right to take over the project or appoint a substitute developer if the developer defaults, becomes insolvent, or fails to meet agreed milestones. This is one of the most important clauses in any JV agreement and one of the most frequently omitted. The clause should specify what constitutes a trigger event, what notice is required, and how the transition of control will be managed. Similar step-in mechanisms are used in infrastructure and energy project agreements, where lenders commonly insist on the right to step in and complete a project if the developer fails.

3. Open-book accounting and audit rights: The JV agreement should require the developer to maintain separate project accounts and to provide the landowner with regular, detailed financial reports. Crucially, the landowner should have the right to appoint an independent auditor to review the project accounts at any time. Without this, profit figures are unverifiable.

4. Independent valuation: Where the JV involves the sale of completed units, the agreement should require that sales prices be validated against an independent valuation. This prevents a developer from selling units below market value to related parties, thereby reducing the profit pool that is shared with the landowner.

5. Governance and veto rights: For decisions that materially affect the landowner’s interest including changes to the development plan, sales strategy, and financing arrangements, the landowner should have a contractual right to be consulted and, for specified categories of decision, a right of veto. In SPV structures, these rights can be built into the shareholders' agreement and the SPV’s articles of association.

6. Completion guarantees and performance bonds: A completion guarantee is a commitment from the developer or a third-party guarantor that the project will be completed to an agreed specification and within an agreed timeframe. A performance bond provides the landowner with a financial remedy if the developer defaults. These instruments are standard in construction contracts and should be required in any property JV of material size.

The Regulatory layer

Nigerian land law adds a layer of complexity that landowners must understand. Under the LUA, all land in each state is vested in the Governor of that state. Individuals and companies hold land under rights of occupancy (statutory or customary) rather than in outright ownership. Any dealing in land (assignment, mortgage, sublease exceeding three years), therefore, requires the Governor's Consent to be valid.

The consent requirement is both a protection and a vulnerability for landowners. It is a protection because it means a developer cannot transfer land or encumber it without going through a formal process that gives the landowner an opportunity to intervene. It is a vulnerability because the consent process is slow, expensive, and opaque. Nigerian courts have held that a transaction completed without Governor's Consent is not void but inchoate. That is, it subsists but remains unenforceable until consent is obtained.

The practical implication is that landowners should insist that any consent applications are made jointly, that neither party can submit a consent application unilaterally, and that evidence of consent is provided before any title dealing takes effect.

For SPV structures, the CAMA 2020 is also relevant. The agreement should address what happens to the landowner's shares if the developer-shareholder becomes insolvent, whether shares can be transferred to third parties without landowner approval, and how deadlock between shareholders will be resolved.

Actionable Remedies

Where a developer breaches a JV agreement, Nigerian courts offer several remedies. An injunction can restrain a developer from dealing with the land or continuing an unauthorised act. An order for specific performance can compel a developer to complete the project or fulfil a specific obligation. Damages on the other hand can compensate a landowner for financial loss caused by the developer's breach.

The challenge, as in most commercial litigation, is time and cost. Court proceedings in Nigeria can take years to resolve, and an injunction, while available in principle, requires the landowner to satisfy the court that there is a serious issue to be tried and that the balance of convenience favours restraining the developer.

This is why arbitration clauses have become increasingly common in property JV agreements, and why the Arbitration and Mediation Act (AMA) 2023 is a relevant piece of legislation for any landowner entering a JV today. A well-drafted arbitration clause can provide a faster, confidential, and more commercially sophisticated route to dispute resolution than litigation but it must be agreed upfront.

Conclusion

A landowner who enters a property development JV without adequate legal protection is not a partner in the project but a financier without security, a shareholder without governance rights, and a creditor without priority. The land is their contribution, their leverage, and ultimately their only source of recovery if things go wrong. It should, as such, be treated accordingly.

The protections outlined in this article are not exotic or unreasonable demands but are the basic terms that any well-advised landowner should insist on before signing. A developer who refuses to agree to them is telling the landowner something important about how they intend to run the project.

Disclaimer: The content on this website consists of original publications by Daniel Ishola and is provided solely for general informational purposes. It does not constitute legal advice, legal opinion, or professional guidance of any kind and should not be relied upon as such.

Accessing or using this website does not create a solicitor–client relationship. No liability is accepted for any reliance placed on the content.

For advice tailored to your specific circumstances or to engage professional legal services, please contact me at danielishola@3elegal.net or lawyers@3elegal.net.