The Lagos State Land Use Charge Law, 2018 (LUCL) is a law enacted to consolidate all property and land based charges levied in Lagos State. Pursuant to this, section 35 of the LUCL repealed the Land Use Charge Law Ch. L79, Land Rates Law Ch. L76, and Neighbourhood Improvement Charge Law Ch. N3 2015. The LUCL introduced a new formula of calculating land use charge which has led to a geometric increase in land use charges payable by residents of Lagos State.
Below, we have examined key provisions of the LUCL 2018 and the legal issues arising therefrom.
The charge imposed by the LUCL is called Land Use Charge (LUC) and it is calculated based on the following formula:
(Land Value + Building Developments) x Relief Rate x Charge Rate
Land Value and Building Developments of properties under the LUCL 2018 are to be determined based on the average market value of land and property within a given neighbourhood. This is a departure from the LUCL 2001 which did not specify the basis for determining such value.
The LUCL grants a general relief rate of 40% to all properties liable to the LUC. Additional reliefs are also granted to different classes of properties as follows:
- properties owned and occupied by persons with disability, properties owned and occupied by Aged Persons (70 years an above), and properties above 25 years all enjoy 10% relief;
- Properties occupied by owners for 12 years or more will enjoy 5% relief; and
- Properties owned by Federal Government, other State Governments and Non-Profit Organisations will enjoy 20% relief.
The following properties are exempt from LUC
- properties owned and occupied by pensioners (60 years and above) are fully (100%) exempt from LUC. The definition of “Pensioners” appears to be limited only to pensioners who retired in Lagos State. It is unclear whether it covers both retirees in the public and private sector;
- Properties owned and occupied by religious bodies and used exclusively as a place of worship or religious education;
- Public cemeteries and burial grounds. This is a departure from the LUCL 2001 which did not make any distinction between publicly and privately owned cemeteries and burial grounds;
- Properties used as registered educational institutions and certified by the Commissioner for Finance as non-profit;
- Any property exempted by the Governor published in the State Official Gazette; andAll palaces of recognised Obas and Chiefs in Lagos State provided they are not leased out to private entities for revenue generation.
In a departure from the LUCL 2001, depreciation shall now be accounted for in determining the value of building developments under the LUCL 2018. The LUCL provides a depreciation schedule.
Persons who pay their LUC within 2 weeks of service of the demand notice shall receive a 15% discount upon application to the Commissioner for Finance.
The minimum LUC payable on any property shall be N5, 000.
Who Should Pay LUC
Under Section 9 LUCL, the following persons are under obligation to pay LUC:
- the owner of a property or occupier of a lease of less than ten years, and
- an occupier holding a lease of 10 years and above
- the distinction between holders of leases above or below 10 years seems unnecessary since it appears that both are still liable to pay LUC.
Notices and Procedure for Challenging Assessments
LUC must be paid within 30 days of service of the demand notice. Any person aggrieved by a demand notice must file an appeal at the Assessment Appeal Tribunal (the Tribunal) within 30 days after receipt of the demand notice. Disputes at the Tribunal are first referred to a confidential mediation session and if that fails the dispute is formally resolved by the Tribunal.
A person challenging an assessment must first pay 25% of the assessed LUC and attach proof of payment to his appeal. Effectively, this can be construed as a condition precedent for the validity of an appeal. An order to distrain for failure to pay LUC cannot be enforced unless 3 separate notices are pasted at the property, each notice at least 45 days apart. Thus, a cumulative notice period of at least 90 days is required.
Issues Arising from the LUCL 2018
- Inadequate orientation and notice:
The LUCL 2018 was enacted and signed into law on 8th February 2018 and is expected to take effect immediately. In fact, LUC demand notices based on the LUCL 2018 are already being served on property owners. Most residents only became aware of LUCL 2018 on being served with the demand notices with assessments 200% to 500% higher than their LUC assessments in prior years;
- Constitutionality of LUCL:
The Fourth Schedule to the 1999 Constitution vests the Local Government Council with the power to assess privately owned houses or tenements for the purpose of levying rates. In Knight Frank & Rutley & Anor. 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 to the appellant for the purpose of valuing houses in order to levy property taxes was an infringement of the constitutional powers of the local government council, thus the contract was voided. The Supreme Court held that the Commissioner could not usurp the constitutional duties and powers of the local government.However, it appears that the drafters of the LUCL 2018 were careful to avoid this landmine. Nevertheless, it is our opinion that the LUCL 2018 can still be validly challenged on grounds that the Constitution does not authorise the local government councils to delegate to the Commissioner for Finance their powers under the Fourth Schedule to the Constitution. 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 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 LUCL 2018, while acknowledging that the Local Government Council is the “Collecting Authority” still purports to delegate to the Commissioner for Finance, the duties of the local government to assess and collect property taxes. This flouts the principle of delegation which states that statutory powers can only be delegated when the vesting statute authorises the delegation of such powers. In the present case, the Constitution does not authorise the local government to delegate its powers under the Fourth Schedule to the Constitution;
The right to be heard is a constitutional right and should not be restricted by any onerous conditions imposed by any other law. The requirement that aggrieved persons should pay 25% of the LUC before he can challenge same is an extra-constitutional limitation to the right to fair hearing guaranteed by the Constitution.
- Absence of refund mechanism:
Under the LUCL 2018, the condition precedent for the filing of an appeal against LUC is the payment of 25% of the charge imposed. However, the LUCL does not provide for a refund mechanism where a Tribunal finds that the LUC was wrongly levied;
- New rates are extremely highThe extremely high:
Property taxes imposed by the LUCL 2018 may encourage property owners to evade payment of the charges which may in the long run defeat the goal of the Lagos State Government to generate revenue.;In view of the negative public reaction to the increment in amounts payable under LUCL 2018, we expect that the Lagos State Government will take a second look at the law. It is also very certain that stakeholders will take steps to challenge LUCL 2018 if nothing is done soon.
For more information contact: Maxwell Ukpebor, Samuel Esuga, Olumayowa Oluwole.
This Legal Alert contains information on tax /legal issues. It does not constitute legal or professional advice on such issues. Where specific legal advice is needed, the services of a solicitor/tax adviser should be sought.