BENCHMARK FOR EVALUATING RELOCATION COSTS AGAINST RECOVERY COSTS IN TENANCY DISPUTES

BACKGROUND

Our scope in this article is limited to tenancy related disputes in Lagos State as we benchmark relocating costs against recovery costs in tenancy disputes pursuant to or during mediation. Especially where landlord unduly terminated the agreement.

According to Mr. Michael Oyagha, “mediation by its process is a parties-led process, in which case it is the parties that have the opportunity to speak to each other”, guided by a neutral 3rd party known as the mediator.

Relocation costs arising from an early termination of tenancy by the landlord are tangible and intangible costs that include search for apartments; agency fee; legal fees; logistics and transportation; household items whether repairs or new acquisition; packing and unpacking; change of schooling for children; loss of friendship; and changes in rent.

Recovery costs for landlord include solicitors’ fees; repairs or renovation; litigation; time and where applicable waiver of rent, and time value of rent (money).

– Lagos State tenancy law, 2011 (the “Lagos tenancy law”), that is rigged in favour of tenants appear underutilized by lawyers and magistrates. Given that its section 25 requires landlord to prove grounds of repossession.

The balance categorizes the following as part of costs of relocation, boxes and packing materials, moving van rental if you plan to move yourself, hiring professional movers, remaining utility balances at your old home, professional cleaning services if you’re moving out of a rental, driving expenses, and security deposit for your new apartment. The balance claims that costs of living after relocation may include rent payment for your new home, monthly utility bills, transportation (to workplace), new furniture and home decoration.

MEDIATION IN TENANCY IN LAGOS STATE

Lagos tenancy law (section 32) enjoins courts to promote reconciliation, mediation and amicable settlement between landlord and tenants, in any dispute before it.

A Court may refer tenancy proceedings or any part of it to mediation at a Citizen Mediation Centre or to Lagos Multi-Door Court House (“Lagos MDCH”) and, parties’ consents are not required.

The Citizen Mediation Centre (“CMC) is established to democratize access to justice. A 2017 report disclose that CMC successfully resolved over 12,747 disputes within 6 months, and collected over NGN652 million in form of settlement. CMC has 14 offices and 4 sub-offices within Lagos State.

Mediation is a form of alternate dispute resolution (ADR). Mediation in tenancy related dispute is aggressively promoted within Lagos State as a way to decongest the courts and ease access to justice.

Any agreement entered into between a landlord and tenant before the CMC is made pursuant to the Lagos State Multi-Door Courthouse Law and, upon any breach, either party – usually the landlord – may request a judge of Lagos State High Court to endorse it as a judgement of court. The required form is an originating summons or motion.

GUIDE TO PREPARING FOR MEDIATION

Lawyers generally recommend mediation, although attempt at amicable resolution is a pre-condition for commencing any action within Lagos State.

Lagos tenancy law requires court to refer any tenancy related dispute to CMC or Lagos MDCH.

There may be fewer instances where mediation may not be a valid option. A key concern of parties in mediation in tenancy dispute where landlord has terminated or seeks to terminate a tenancy agreement is recovery costs against relocation costs.

Oftentimes, relocation costs outweigh recovery costs. Lawyers who advise landlords or landlord’s agents often recommend waiver of rent as an incentive to tenant to give up possession on any agreed date.

This results from the generally snail-paced proceedings in Nigerian courts. “Unfortunately, in Nigeria, the judicial system is found wanting as far as prompt justice delivery is concerned, a sad development that prompted the Chief Justice of the Federation, (CJN), Justice Ibrahim Muhammad, to call out members of his constituency for unwillingness to take commercial disputes resolution seriously”.

Where recovery of possession arises from purchase or sale of property occupied by tenants, incentives to relocate may be a combination of waiver of rent and pay-off. In nearly all situations, tenants are required to waive statutory notices.

Landlord’s solicitors may insert a clause that will enable landlord to recover arrears of rent and solicitors’ fees in the event the tenant defaults. In any case, any such incentivization and conditions are made subject to mediation at CMC.

In negotiating waiver of rent, landlords and tenants should consider recovery costs against relocation costs that we highlighted above. Landlord or landlord’s Solicitors should weigh recovery costs against relocation costs with view to concede, to tenant, a fair sum that will assuage its psychological and financial burdens.

Until it becomes a mainstream practice, in Lagos State, for tenants to require landlords in a tenancy agreement, to bear relocation costs if landlord terminates tenancy agreement, Solicitors advising tenants may have to tactfully guide tenants through mediation.

Primary objective will include obtaining fair sum whether in the form of waiver of rent or pay-off. Bearing in mind that relocation costs generally outweigh recovery costs.

Cost of living in Lagos appears very high, relative to other Sates in Nigeria. Undue termination of tenancy agreement by landlords is a needless socio-economic burden on tenants.

RELOCATION COSTS: A RECOVERABLE EXPENSES UNDER PITA

Relocation costs for personal income tax purposes are known as reasonable removal expenses. Reasonable removal expenses “constitutes any expense which an employee incurs to move to a new employment location and the payment made by the employer towards the expenses results in no net overall benefit to the employee. It is also any payments made to or on behalf of an employee taking up employment with a new employer such as relocation allowance. The reasonable amount should not be more than the amount incurred by the employee in relocating”.

Section 4(3)(c) of Personal Income Tax Act 2011 (PITA) exempts reasonable removal expenses (relocation costs) from taxes. This means its is a tax-deductible expense for the employers who has advanced or reimbursed an employee (tenant) of relocation costs.

For relocation costs to be tax deductible, it must be reasonable and, employer’s reimbursement or advance to tenant must be described as such as well as properly documented. An unnecessary relocation is not tax-deductible.

CONCLUSION

Mediation in tenancy related disputes is not essentially a legal question. It embodies socio-economic and psychological factors that Solicitors and parties have to more carefully manage in order to sidestep any technicalities that may lead to injustice.

Especially to the tenant who is considered the weaker party. We admit that some tenants who are grieved (wrongly or rightly) do intentionally vandalize the apartments they occurred upon their exit – an act more harmful to tenant than to the landlord.

Given that relocation costs are tax-deductible expenses for employed tenants, it is reasonable for landlords to ensure a proper KYC (know-your-customer) so that such tenants do not enjoy double compensation.

Tenancy agreement between a landlord and tenant who is gainfully employed may excluded relocation costs.

Recovery costs, generally are lesser than relocation costs except where a tenant manifestly failed to perform its obligations.

 

 

 

 

 

 

 

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