Nine months after announcing takeoff plans, the Lagos State Government is yet to commence its proposed monthly rental scheme that was touted to reduce the burden of rent payment for Lagos residents.
Findings showed that despite committing the sum of N5bn to help the project commence, the scheme has failed to kick off in any part of the state.
At the second Lagos Real Estate Market Place Conference and Exhibitions which was held in December 2021, the Special Adviser to the Lagos State Governor on Housing, Mrs. Toke Benson-Awoyinka, had said that the initiative of a monthly rent payment scheme would commence soon in the state ‘soon’.
She said the new initiative was going to greatly ease the burden of yearly payment on residents. Benson-Awoyinka also assured landlords in the state that they would get their annual payment of house rent upfront, while tenants would no longer have the burden of yearly payment of a huge amount of money.
She said, “Tenants can therefore use the yearly payment for other forms of investments or for payment of school fees as the burden of payment of yearly rent is taken away from them completely. So it is a win-win social investment scheme, it is a good one and it is applaudable.”
Speaking exclusively in an earlier interview, the Lagos Commissioner for Information and Strategy, Mr. Gbenga Omotoso, had said that all the necessary arrangements had been perfected to ensure the success of the scheme.
He, however, noted that although the scheme would not be available for all classes of Lagosians, those who fell within the threshold of the requirements to enroll in the scheme would no longer have to face the daunting task of having to pay a yearly rent.
Omotoso said, “The Office of the SA on Housing, Mrs. Toke Benson, is handling it and the process is very simple. It is for tenants and landlords to have a harmonious relationship, so that if you are coming into Lagos to get accommodation, you don’t have to pay through your nose by looking for a year’s rent and all that.
“So what the government is going to do is to put down a lump sum of money. From this money, anybody who enrolls in the programme can get his landlord paid yearly while he himself can continue to pay monthly.
“Some people have a regular source of income. It’s going to be like a revolving fund. So it’s very simple and the idea is to make everything easy for people.”
He added, “If you get a house that is bigger than what you can pay for because you know that the government is going to pay the yearly rent, it won’t work. It has to be the kind of accommodation that can match your income.”
A bill regulating the payment of rent was introduced in the Senate. The bill was sponsored by Senator Smart Adeyemi, who is representing Kogi West and had passed one of the five required readings. The bill came amidst complaints about the high cost of rent in Abuja.
The bill made it an offense for a landlord to demand the payment of rent in advance and replaced yearly rent with a monthly plan where the first three months would be paid for, followed by subsequent monthly payments.
Traditionally, rents in virtually every part of the country are paid on a yearly basis. In some cases, the landlords even demand two-year rents upfront. This status quo has made it difficult for many Nigerians to garner the needed bulk funds to rent apartments.
The bill does not mean lower rent costs, only that the mode of payment will be different. It would, however, help most people relocating to new cities to easily pay for their accommodation needs as against having to resort to less than ideal options like hotels or squeezing-in with relatives.
Surprisingly, a social media poll conducted by Dataphyte showed that only 38.1 per cent of respondents preferred a monthly rent payment. A significant portion, 61.9 per cent, still preferred remitting their rents annually.
Sometimes tenants need a place to stay but do not want a long-term commitment. For these tenants, finding a landlord who is willing to sign a month-to-month rental agreement is ideal.
Realistically, residential tenants can seldom afford to put forth an entire year’s rent up-front. People with that amount of cash are far more likely to use it as a down payment on an owned home. Paying rent every month is much more palatable to the vast majority of tenants.
On the flipside, experts have argued that short-term leases are unstable. The flexibility that renting month-to-month gives the tenant also applies to the landlord. Neither of you are locked into a long-term contract, so there’s nothing preventing your landlord from raising your rent or terminating your lease while you are living in the apartment.
According to Nigeria Real EstateHub, landlords generally prefer longer apartment leases because it ensures they would not have to spend money or time turning the unit for the next year.
Each time a tenant moves out, the property owner has to advertise the unit and get it ready for the next tenant, which can include cleaning, painting and fixing any wear and tear.
Similarly, a real estate research company, Estate Intel, believes that when rents are paid monthly, there is a greater chance of tenant churn. This means periods in which the rental units are unoccupied may rise. Since the current dynamic makes the rental space a landlord’s market, they have the ability to put the security of their income first. The annual upfront payment reduces the administrative cost that may otherwise be expended in managing or following up with rental payments.
There is also the potential loss of monthly revenue if the landlord cannot fill the unit quickly. Ultimately, short-term leases are not as cost-effective and are riskier for property managers to offer, which is why you do not see them as often.
As the market evolves, some landlords are willing to make their properties available to monthly renters. A big concern for them, however, is avoiding defaults or at least understanding and verifying a prospective renter’s financial capacity.
Report also notes that within Nigeria, the credit system is only just developing, and central credit agencies that can provide quick ratings for renters or validate their ability to pay consistently are yet to go mainstream.
Conversely, in western economies, these credit ratings and systems form the basis of welcoming a new tenant and it makes it easy to extend that trust. Although there are new technologies trying to solve this problem such as Mono and a few other agencies, some landlords still see it as a leap of blind faith.
Speaking on some of the bottlenecks that could hamper the successful takeoff of the scheme, a property lawyer, Promise Umoh, said certain legal intricacies would have to be ironed out before kicking off the social investment programme.
According to her, the government would have to iron out these vagaries with stakeholders to douse obvious misgivings that would surround default in rent payment, among other issues.
She said, “I just know that the government has to first of all meet with the stakeholders; and who are the stakeholders? The landlords, property developers, people that understand how these things work because if you just stay calm you’ll notice the government is trying to do a good thing for the residents and trying to look for a way to help alleviate the hardship of having to pay an annual rent.”
Umoh further stated that without proper framework, the social investment scheme might end up creating several litigation between landlords and defaulting tenants.
She added, “What guarantee do you have that if you make it monthly, tenants will be open to it? Have you thought about it from the angle of the landlords as well? What remedy do you have for the landlord when a tenant does not pay? Will the law allow the landlord to employ self-help?”
Another property lawyer, Segun Ajayi, in an interview with our correspondent said that a monthly system of rent payment might hold some benefits, both for the tenant and landlord alike, such as the flexibility, the requirement of short notices to vacate premises which would put an end to the cumbersome process of recovery of premises.
He, however, stated that these benefits must be weighed against the potential downsides that would come with the initiative.
According to him, when laws were made, the peculiarity of a country must be put into consideration, stressing that the fact that the system worked in other countries did not guarantee a seamless operation here.
He said, “I think the best approach in relation to the issue of monthly rent is the approach adopted by Lagos State. It has come up with a voluntary monthly rental policy, understanding how difficult the enforcement of such legislation will be. Moreover, Nigerian laws on tenancy already recognize monthly tenancy.
“For instance, section 13 (1) to (6) of the Tenancy Law of Lagos, 2011 makes reference to yearly tenancy, half-yearly tenancy, quarterly tenancy and monthly tenancy. I think making a law to enforce a particular type of tenancy is unnecessary. The laws should remain flexible to enable people to decide for themselves the best options.”
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