In Nigeria’s challenging housing market, prospective tenants often face financial strain due to outrageous agency fees charged by landlords and their agents.
These agents typically demand more than the standard 10% agency fee, adding significant costs for people seeking rental accommodations.
An agency fee for rent is the fee tenants pay to real estate agents for their help in renting a property.
In Nigeria, this fee usually ranges from 5% to 10% of the annual rent.
Tenants pay this fee for services like finding a place to rent, preparing rental contracts, and managing the rental process. The agency fee helps cover the costs of these services for both landlords and tenants.
Services Included in Agency Fee
Here are the key services included in the agency fee:
- Property Search: Agents assist clients in finding suitable properties based on their preferences and budget.
- Price Negotiation: They negotiate rental or sale prices on behalf of clients to secure favorable terms.
- Market Insight: They inform clients about market trends and property values, aiding informed decision-making.
- Conflict Resolution: Agents help mediate disputes that may arise between landlords and tenants or buyers and sellers.
Legal Framework
In Nigeria, state governments create laws addressing housing rents and agency fee collection. Each state has the right to establish regulations based on their unique housing situations.
The 1999 Constitution of the Federal Republic of Nigeria empowers state governments to make laws for the peace, order, and good governance of their respective states. Specifically, Sections 4(7)(a)(b) and (c) and Section 5(2)(a) and (b) grant states the authority to legislate on matters not included in the exclusive legislative list.
State Houses of Assembly actively regulate matters related to industrial, commercial, or agricultural development within their territories. Item 18 of Part II of the Concurrent Legislative List enables them to enact laws addressing property and tenancy issues.
Lagos State Regulation
Lagos State has set the pace by creating the Lagos State Estate Agency Regulatory Authority (LASRERA), which became law on February 7, 2022. This law aims to regulate real estate practices and ensure transparency within the industry.
Key provisions of the law include:
- Agency Fee Limit: LASRERA Law states that agents cannot charge more than 10% of the total annual rent as an agency fee. For example, if a property has an annual rent of ₦1,000,000, the maximum agency fee would be ₦100,000.
For the sales of residential property, the fee is usually 5-10% of the total price paid for the property. So if you are buying a ₦10 million home, you will need to pay ₦500,000 to your agent for his work.
When the buyer is purchasing a commercial property, the fee is normally as low as 1%. So for example, if you are buying an ₦80 million hotel, your agent will receive ₦4 million in fees.
- Multiple Agents: the law addresses situations where multiple agents are involved. It states that if two or more agents work on a transaction, the total fee charged should not exceed 15% of the total proceeds from that rental agreement.
- Registration and Licensing: The law requires all real estate practitioners to register and obtain a license from LASRERA to operate legally. This requirement helps ensure that only qualified individuals provide real estate services in Lagos State.
Enugu State’s Recent Initiative
More recently, on February 25, 2024, the Enugu State House of Assembly introduced a bill to curb excessive agency and legal fees. Titled “The Bill for a Law to Amend the Landlord and Tenant Law, CAP. 101, Laws of Enugu State, 2024,” Hon. Okey Mbah from Nkanu East State Constituency sponsored this legislation.
The bill seeks to;
- Cap agency and legal fees at 10% of the rent.
- Abolish caution fees that landlords rarely refund.
- Limit legal fees for preparing rental agreements to 10% of the rent.
- Impose a ₦500,000 fine, six-month prison term, or both for violations.
- Protect tenants from forced, irregular, and fraudulent evictions.
- Require proper certification for land agents and property managers.
Penalties for an Agent that exceeds 10% Agency fee
Estate agents who exceed the 10% agency fee limit in Nigeria face several penalties under the Lagos State Estate Agency Regulatory Authority (LASRERA) Law.
- Fines: An individual agent may incur a fine of ₦10,000 for exceeding the fee limit. If the violation continues, the agent can face an additional fine of ₦10,000 for each day the offense persists. For corporate bodies, the fine is ₦50,000 for initial infringement and ₦25,000 for each day the offence continues to be committed.
- Imprisonment: In addition to fines, individual agents may also face imprisonment for up to three months if found guilty of violating the fee regulations.
- License Suspension or Revocation: LASRERA can suspend or revoke the licenses of agents who repeatedly violate the fee limits. This action prevents them from legally operating in Lagos State.
Exceptions to Standard Agency fees
Despite the standard 10% agency fee, both state regulations include exceptions:
Under LASRERA (Lagos):
- Negotiable Fees: While the standard fee is set at 10%, agents often negotiate fees based on the specifics of the transaction. For example, agents may charge less than 10% for properties with higher values or for long-term rentals.
- Lower Fees for High-Value Transactions: In practice, agents may accept lower percentages for high-value transactions. For instance, a property worth ₦1 billion may lead to negotiations where the agent agrees to a fee below 10%, as paying ₦100 million in fees would be unreasonable.
- Multiple Agents: When multiple agents are involved in a transaction, the total fee can be up to 15% of the total proceeds, which allows for flexibility depending on how many agents participate.
Under Enugu State Bill:
- Legal Fee Limitation: The bill limits legal fees to 10% of the rent when tenants pay qualified legal practitioners to prepare landlord and tenant agreements. Section 3(4) of the bill states: “No tenant shall be required to pay any further premium in acquiring accommodation except for a legal fee payable to a qualified legal practitioner for the preparation of the landlord and tenant agreement, which shall not exceed 10 per cent of the rent.”
- Government Ministry Exceptions: The bill empowers a designated government ministry or agency to issue further regulations on housing and tenancy matters, potentially creating exceptions to the standard fee structure as needed.
- Professional Certification Exceptions: The bill creates a system where only properly certified individuals can operate as land agents or property managers, potentially allowing these certified professionals different fee considerations.
Nigeria Agency Fee Comparison with Other Countries
Estate agents’ fees in Nigeria generally stand at 10% of the annual rent, which is higher compared to many other countries.
In the United States, agents typically charge between 5% and 6% of the transaction value, while in the United Kingdom, fees range from 0.75% to 3% plus VAT. This makes Nigeria’s standard fee relatively high.
Countries like China and India have lower average fees, around 1.75% and 1.7%, respectively. In contrast, South Africa has higher fees, averaging about 7.5%.
