Buying From a Developer in Lagos: What Due Diligence Should Establish

A developer's previous projects and market reputation can provide useful information when a buyer is assessing a property, although those factors do not by themselves establish the legal, planning or commercial position of the particular development being offered.

The due diligence should therefore begin with the specific transaction because the buyer is committing capital to a defined property, under a defined contractual arrangement, and the evidence supporting that acquisition may differ from the evidence available for another project completed by the same developer.

Establish who is selling and how the parties are connected

The buyer should identify the individual or corporate entity receiving the consideration and establish the relationship between that entity, the developer, the landowner and any other party whose authority is relevant to the transaction.

Where the developer owns the land directly, the structure may be relatively straightforward, although the title and corporate information still require review. Where the land belongs to another party and the developer is acting under a joint venture, development agreement or another arrangement, the buyer should understand the basis on which units are being marketed and the authority supporting the proposed sale.

Developer registration and regulatory information can provide an additional layer of evidence, while the particular project still requires its own investigation.

The land and planning position require separate evidence

A visible construction site can demonstrate that physical work is taking place, although it does not establish every question relating to title, planning permission or the product being marketed.

The buyer should therefore consider the land documents, survey information and planning position relevant to the development and, where appropriate, establish whether the unit type, configuration and development being sold are consistent with the information available for review.

This becomes more important where substantial payment is being requested before completion because the buyer may be relying heavily on documents and representations about a property that cannot yet be assessed in its final physical form.

The contract determines what the developer is required to deliver

Marketing materials can describe finishes, facilities, completion dates and other features, while the transaction documents determine the legal obligations that attach to the sale.

The agreement should therefore be reviewed for the property being acquired, the consideration, payment structure, delivery obligations and the consequences that apply where a material obligation is not performed.

The buyer should also understand which elements remain subject to future performance because completion of another development in the past does not remove the execution risk attached to the current project.

Reputation should support the evidence, rather than replace it

Previous delivery can provide useful evidence of capability, while each development can have a different land structure, contractor, funding arrangement, approval position and construction programme.

The stronger approach is therefore to consider the developer's track record alongside the evidence for the particular transaction, so that the buyer understands both the party behind the project and the legal, physical and commercial position of the property for which capital is being committed.

Payment structure changes the buyer's exposure

The timing of payments also matters because two buyers acquiring similar units from the same developer can carry different exposure where one is paying substantially ahead of construction and the other is paying closer to completion. A larger early commitment increases the amount of capital dependent on future delivery, while a payment structure linked to identifiable construction stages can give the buyer additional points at which progress and outstanding conditions can be reviewed before the next commitment is made.

That does not mean a stage-payment structure is inherently safe, because the legal effect of the payment terms still depends on the contract and the actual project position, although it does mean that the commercial consequences of delay, incomplete work or a change in specification should be considered alongside the amount already paid and the amount still outstanding. Where the development includes shared infrastructure, the buyer should also establish what will be completed at handover and what remains dependent on later phases, since an apartment can be physically complete while lifts, external works, access roads or other common facilities remain unfinished.

This article is general information and is not advice on any specific property or transaction. The scope and legal effect of any engagement depend on the facts, documents and agreed terms applicable to that matter. For property due diligence, inspection, risk intelligence or valuation enquiries, contact HIDD Advisory.