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Legal Alert for May 2010 – Trade Names and Trade Marks Protection in Nigeria
 
In this Issue:
1. Legal Alert for May, 2010 – Trade Names and Trade Mark Protection in Nigeria
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
LEGAL ALERT—Trade Names and Trade Marks Protection in Nigeria
The name by which a business is known, described or associated is a very important aspect of carrying on a business because a business' name indicates what such a business does and what it represents. Some business people however do not pay much attention to the legal rules and regulations governing the use of their Trade Names in Nigeria. This has lead to loss of brand value and in some cases litigation by the registered owner(s) who will not want his/their Trade Name to be associated with another business entity to which he/they have no relationship or control.
Equally significant is the age long fraudulent business practice where non-owners of a registered Trade Mark copy and use such a trade mark without the consent and authority of the owner of the Trade Mark or its registered proprietor or licensor of the registered trade mark.
This Legal Alert is therefore intended to assist you to appreciate in a summary format the rules and regulations that govern and protect Trade Names and Trade Marks in Nigeria.
What is a Trade Name and a Trade Mark?
A Trade Name is the name by which a business distinguishes itself and its trading objects from all other businesses. The Companies and Allied Matters Act ("CAMA") requires that every individual, firm or corporation having a place of business in Nigeria and or carrying on business in Nigeria, whether such a business is carried on in the individual's name or in a corporate name, must be registered at the Corporate Affairs Commission ("CAC") within a period of twenty-eight (28) days of the commencement of such a business.
A Trade Mark on the other hand is any mark, word, phrase, logo or other graphic symbol by which a product or service is specifically identified. Greater legal protection is accorded to persons who register their Trade Mark while a cause of action in tort only lies for persons with unregistered Trade Marks under the legal head of passing off, actionable at the State High Courts.
Trade Name Protection
The underlying purpose of requiring that all Trade Names and or business names must be registered, within twenty-eight (28) days of their commencement of business is to ensure that no trade name is used that might deceive or cause confusion or even possibly mislead members of the public as to the distinctiveness between two separate trading entities. The registration requirement of a trade name is mandatory and not discretionary or optional.
Once a trade name is registered, no other entity can use such a trade name or attempt to register a separate and independent business using the same or a similar trade name. The simple reason for this rule is, barring repetition, this prevents confusion or deceit on innocent members of the public.
There are however restrictions on the use of some kinds of names in the Trade Name of a business in Nigeria. No enterprise in Nigeria can register its business, or brand it with words like "national", "regional", "state", "municipal", "government", "cooperative" (unless so registered under the appropriate law), "chambers of commerce" (unless it is a company limited by guarantee), "building society", "bank", "insurance", "finance" or any such similar word or words which import or suggest that such a business has government ownership or enjoys government patronage or has obtained a special regulatory licence when such a business has not. In the matter of Niger Chemist v. Nigeria Chemist [1961] 1 All NLR 171 the Nigerian Supreme Court held that where the names of two separate companies so nearly resemble each other, such similarity could cause confusion or deceit on members of the public.
The Registrar-General at the Corporate Affairs Commission is equally authorised not to register any name which is undesirable, offensive or otherwise contrary to public interest or public policy. Any trade name, whether registered or not, which violates an existing trade name or trade mark, whether such existing trade name or trade mark is registered or not, will be declared null and void unless in the case of a Trade Mark, the prior express consent of the Trade Mark owner or licensor has been obtained.
It is also instructive to mention that every registered Trade Name must end its name with certain words. For public limited liability companies, their names must end with the abbreviation "Plc". For private limited liability companies, the last word is "Ltd". For companies limited by guarantee, the abbreviation is "Ltd/Gte". For unlimited companies, the last word in its name is "Unlimited" or "Ultd".
Immediately a Trade Name is registered, the corporation with such a Trade Name must affix and keep affixed to its business premises in addition to its corporate seal, all stationary and or correspondence, its registered trade name and number. It is an offence, which on conviction attracts fines, for a company not to publish its trade name as required by law and as already stated herein.
Trade Mark Protection
To receive legal protection, a Trade Mark must be distinctive and affixed to a product (or services). It must also be registered in respect of a particular class or classes of good(s) at the Trade Marks Registry. Trademarks in Nigeria are generally registerable for an initial period of seven (7) years from the date the application for registration is submitted. Afterwards, a Trade Mark is renewable for fourteen (14) years at any one time.
The registration of a Trade Mark confers on the Owner or on its registered user the exclusive right, to the exclusion of all others, to the use of the Trade Mark in relation to the class or classes of goods against which the Trade Mark has been registered. Registration of a Trade Mark does not however interfere with any person's bona fide use of his own name or the name of his place of business which must be registered, or the name or names of any of his predecessors in such a business.
Another implication of registration is that the registration of a Trade Mark is prima facie proof of the validity of the original registration of a Trade Mark and of all subsequent assignment and transmission of any interest in the Trade Mark.
The legal implication of the non-registration of a Trade Mark is that the owner or proprietor of an unregistered Trade Mark cannot institute any legal proceedings at any of the Federal High Courts in Nigeria, under the provisions of the Trade Marks Act, to recover damages for the infringement of the unregistered Trade Mark and for loss of profit, delivery of the infringing product(s) carrying the Trade Mark or to prevent any or further infringement of the Trade Mark. The latter restriction does not however prevent the owner of such an unregistered Trade Mark from bringing a legal action under the equitable doctrine of passing off, in the appropriate State High Court, which should be where the infringing defendant resides or carries on business.
A registered Trade Mark is assignable and transmissible either in connection with the goodwill of the business or not.
Service Marks
Unlike in other jurisdictions, the Trade Marks Act does not include Service Marks in its definition of what constitutes a Trade Mark for registration purposes. See Section 67(1) of the Trademarks Act and the Nigerian Supreme Court decision in Ferodo v. Ibeto [2004] 2 SC (Part 1) 1.
Hitherto, Service Marks were alleged to be protected and registerable under Class 16. The Minister of Commerce in Nigeria has now, in the exercise of the powers vested in him by Sections 42 and 45 of the Trade Marks Act, and by Regulation 5 of the Trade Marks Regulations, incorporated Service Marks into the classification of goods for purposes of registration of service marks in Nigeria. Consequently, Applicants can now apply for registration of service marks in Nigeria in Classes 35 to 41. This extension continues to be opposed in intellectual discussions on the ground that only the National Assembly in Nigeria, as opposed to the Minister of Commerce, have the legal authority to include service marks into the definition of Trade Mark in Nigeria to allow for their registration validly under Nigerian law.
Conclusion
The none automation and the none availability online of the Trade Marks Registry, and the Companies Registry at the Corporate Affairs Commission continues to hamper the speedy, efficient and cost effective way of doing business in Nigeria. Also, the none advancement of further legislation in the form of amendments to the principal legislations on Trade Names and Trade Marks, to meet the twenty-first century requirements remains a matter for concern. Stakeholders will therefore do well to collectively bring about the necessary improvements and amendments to existing legislations.
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This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert for April 2010 – Distinction between Termination and Dismissal of Employment Contracts in Nigeria
 
In this Issue:
1. Legal Alert for April 2010 – Distinction Between Termination and Dismissal of Employment contracts in Nigeria
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3. Disclaimer Notice.
LEGAL ALERT—Dismissal or Termination? Distinction under Nigerian Employment Law
The global recession is contributing to the escalation of employment related litigation in Nigeria. An insufficient appreciation of the difference between a termination of an employment contract with a dismissal of an employee from his employment is also contributing to this escalation as this is deducible from the nature of claims filed and their chances of success at the end of most litigation.
This Alert is our contribution on what a contract of employment entails under Nigerian Labour Law, its general operating parts and the distinction between the termination of a contract of employment and the dismissal of an employee from such a contract of employment.
The Contract of Employment
The principal and most direct legislation on employment matters in Nigeria is the Labour Act which was enacted in 1971. A worker or an employee is described under this Act as a person who enters into a contract of employment with an employer, whether such a contract is a contract of service or a contract to personally execute any work or labour. The Act is however inapplicable to persons exercising administrative, executive, technical or professional functions as public servants, or to any person employed on a vessel or on an aircraft to which the laws regulating merchant shipping or civil aviation already apply, among other classes of persons.
The Labour Act requires that within three (3) months of the engagement of an employee, an employer must give to the employee a written contract of employment which contract must specify among other things, a description of the parties to the contract of employment, the nature of the service or services to be rendered under the contract of employment, the tenure of the contract including its probation period, the remuneration which must be paid in the legal tender of the country where the contract is entered into, the hours of work, mandatory holiday with paid leave, rules with regard to periods of incapacity to work due to sickness or injury, maternity leave, the appropriate period of notice to be served before the contract can be terminated, possible grounds for dismissal of the employee without notice, etc.
The Labour Act also stipulates that no contract of employment shall provide for the payment of wages at intervals exceeding one calendar month unless the written consent of the Governor of the State where the contract is being executed is previously obtained. Also, every employee must be medically examined by a registered medical practitioner as to the suitability of the employee to discharge his or her duties under the employment contract. The cost of the medical practitioner for this examination is borne by the employer.
Employers are vicariously liable for all work undertaken by their employees, on the employer's behalf, should such work cause injury or loss to a third party. For this reason, and to cover negligent conduct outside of the scope of the employee's contract, employers traditionally demand from their employees an acceptable Guarantor's indemnity or Fidelity Guarantee from the employee's Guarantor which indemnity or fidelity bond must cover such vicarious and unauthorised conduct of the employee while remaining bound by the contract of employment.
Every employee, who has served his or her employer for a continuous period of twelve (12) months, is entitled to such period of days or few weeks or month as may be agreed, as annual leave or vacation in addition to his full basic salary for the same period of the leave or vacation. While this annual leave or vacation may be deferred for good reason(s), such deferment must not be exceeded during a period of twenty-four (24) calendar months, more than once. The present practice in Nigeria of employers paying their employees not to go on vacation is therefore unlawful.
The freedom of an employee or employees to join a trade union must not be inhibited by an employer either in the contract of employment or in practice, neither must the employee be prejudiced in any way by reason of his association with a trade union or by his trade union membership.
The Labour Act statutorily allows pregnant women to proceed on maternity leave, six weeks before birth provided that a medical certificate is produced. Pregnant women are also entitled to a minimum of fifty per cent (50%) of their wages during the period of their maternity leave. After birth, a nursing mother is also entitled to another six weeks leave. On resumption for work, a nursing mother is entitled to half an hour recess twice in a day to nurse her infant. An employer is however not liable for the medical expenses of an employee incurred during or on account of the employee's pregnancy or confinement during such pregnancy and birth of a child.
Termination of Contracts
Like under the common law, either an employer or its employee may terminate a contract of employment, subject to the terms of the written contract, where the tenure of such a contract expires without a new contract of employment being entered into, either by conduct or in writing. Another instance where a contract of employment could be terminated constructively is where either party to the contract dies.
The most common method of terminating a contract of employment is by the delivery of a written notice of termination of the contract on the opposite party. Where a notice of termination is served, the contract automatically terminates at the expiration of the period of the notice of termination. Either party could equally elect to pay compensation in lieu of the employee working for the employer during the period of the notice of termination.
In all cases of the termination of a contract of employment, neither party is obligated to provide any reason for terminating the contract. Also, the motive of the party that terminates the employment contract is equally irrelevant provided that the provisions of the employment contract in relation to its termination are complied with by the terminating party. Where for example, the provisions of the contract of employment requires that notice must be served or monetary compensation paid in lieu of such notice of termination, a breach of this term will lead to an otherwise avoidable, protracted and expensive litigation.
Nigerian courts do not grant specific performance of contracts of employment in the private sector because the courts will not impose an employee on an unwilling employer, neither will it impose an employer on an unwillingly employee. The principle of freedom of contract is strictly adhered to in Nigeria.
Dismissal
An employer is entitled to opt for the dismissal of its employee's contract, instead of the termination of a contract of employment, where the conduct of its employee "...... is of some grave and weighty character that it undermines the relationship of confidence which must exist between a master and a servant".
Examples of conduct which could be considered to be of a grave and weighty nature will include cases of stealing, fraud, bribery, corruption, falsification of records, gross insubordination, dereliction of duty, sleeping at work, verbal or physical violence, fighting, assault and battery, working under the influence of illegal drugs, conflict of interest, competition with the employer's business, conversion of company's property for private use without the employer's permission or consent, assault and battery, etc. This is a departure from the old standard which prevented the employer from automatically dismissing his employee without notice where such employee has committed an offence that have a criminal element(s) which criminal offence requires the proof in a court of law, of proof beyond all reasonable doubt.
While the criminal prosecution or otherwise of an employee in a court of law is no longer a sine qua non, i.e. a prerequisite, for summary dismissal, many employers these days, depending on the circumstance and the facts, elect to serve a notice of termination or pay salary in lieu of notice in order not to provide any explanation or reasons for terminating the contract of employment. If the misconduct or series of misconducts are however grave, prior legal advice is recommended to be obtained before the letter of dismissal is issued and delivered to the employee. In some instances also, where the employee's misconduct is grave and weighty, a dismissal will be preferred to a termination as such will serve as a deterrent to other employees.
Fair Hearing
What determines the wrongfulness or otherwise of the termination or dismissal of any employment contract in Nigeria is not whether there was fair hearing at the time the case of the termination or dismissal occurred but whether the terms and conditions of the written contract of employment was/were adhered to by the parties in effecting the termination or dismissal of the contract of employment. Where there is no written contract of employment, the court will, subject to the general practice of trade or industry relevant to the employment, apply such reasonable trade or industry terms and conditions. This is the reason why many employers prepare a standardised and encompassing contract of employment with an accompanying staff handbook for all their employees.
Breach of employment contracts – Compensation
The fundamental basis for assessing damages in breach of contract cases is the compensation which the injured party would have been deprived of if the contract was not unlawfully terminated. Thus, in the case of an unlawful termination, the Court will only award as damages the compensation of such period of salary that the terminating party would have been paid in lieu of the giving of the proper notice of termination. For wrongful dismissal without notice, the measure of damages will be the amount the injured party would have earned had he or it continued with the performance of the contract until the contract is lawfully terminated.
Nigerian law does not recognise claims for injured feelings, physiological trauma or such similar claims when considering the amount to award as damages for breach of any employment contract. This is particularly as the injured party is required to mitigate whatever loss he or she may have suffered by getting another employment or securing another employee's services.
Conclusion
The Nigerian Labour Act was passed into law in 1971. This law, in the twenty-first century, is restrictive and outdated. Equally correct must be the observation that this Law, like others of its era, have remained unable to promote the much required human capital development in Nigeria. The Nigerian legislature will therefore do well to amend the provisions of this Law to meet the fundamental development requirements of the Nigerian economy.
Also, some Nigerian employers need to reappraise their belief that they have the legal authority to hire and fire at will. This is because such a belief or strategy must inhibit the ability of a serious business owner to engage and retain the best people in a massively aggressive and competitive global business environment.
Lastly, the Nigerian employee needs to review his or her expectation on job retention and security. The best of the latter will only lie in employees continuously equipping themselves by bringing more value to their individual environment, employment and country, in contrast to remaining on a job; this is particular as the common law rule on the freedom of parties to easily enter into and exit from contracts remains one of the basis canons of capitalism.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
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DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm. Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert for March 2010 – Housing Laws in Nigeria Part 2
 

In this Issue:
1. Legal Alert for March 2010 – Housing Laws in Nigeria Part 2
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3. Disclaimer Notice.
LEGAL ALERT—HOUSING LAWS IN NIGERIA – PART 2 – NATIONAL HOUSING FUND ACT
The Federal Mortgage Bank of Nigeria's website, www.fmbnigeria.org, reiterates the legal position that the principal funding vehicle for the Federal Mortgage Bank of Nigeria wholesale mortgage lending activities in Nigeria is the National Housing Trust Fund which said Fund is established by the National Housing Fund Act, 1992.
The National Housing Fund ("NHF") was established to, among other things:-
(a) Facilitate the mobilisation of long-term housing funds for the provision of affordable houses to Nigerians.
(b) Facilitate the constant supply of long-term credit facilities to Nigerians for the purposes of building, purchasing and improving residential houses in Nigeria.
(c) Provide incentives to the capital market to invest in the property market in Nigeria.
(d) Encourage the development of programmes that will ensure the effective financing of housing development in Nigeria.
(e) Provide proper policy control for the housing sector.
(f) Provide long term loans to Mortgage Institutions for lending to contributors to the Fund. See Section 2 of the National Housing Fund Act ("NHF Act").
CAPITAL CONTRIBUTIONS TO NATIONAL HOUSING FUND
The resources of the fund are derived primarily from:-
(a) Contributions of Nigerians, in both the private and public sectors, to NHF.
(b) Investments in the Fund by Banks and Insurance companies licensed to carry on these kinds of businesses in Nigeria.
(c) Financial contributions by the Federal Government of Nigeria for long-term housing loans.
MANDATORY CONTRIBUTIONS TO NHF
The NHF Act requires that every Nigerian employee in the public and in the private sector, earning more than N3,000.00 per annum, must contribute 2.5 per cent of his basic monthly salary to the National Housing Fund ("NHF"). An interest rate of 4% is required by this Act to be paid on all contributions made to this Fund.
All commercial banks in Nigeria are required to invest 10% (ten per cent) of their loans and advances in the NHF at an interest rate of 1% per cent above the interest rate payable on current accounts by commercial banks to their customers.
The Central Bank of Nigeria ("CBN") is authorised to collect from Nigerian licensed Banks, at the end of every financial year and not later than a month thereafter, this statutory housing contribution to NHF. The CBN shall in turn ensure that within two months of making the collection from the Banks, such collections are remitted to the FBMN for investment in National Housing Fund. See Section 11 NHF Act.
Every Insurance company is required to invest 20 per cent of its non-life funds, and 40 per cent of its life funds in real property development of which not less than 50 per cent shall be paid into NHF through the FMBN at an interest rate not exceeding 4 per cent per annum. FMBN is authorised to issue on insurance companies such demand notices for such amounts that it deems as their contribution to the fund after examining their audited accounts. The failure of any insurance company to comply with these provisions is a ground for the cancellation of the business licence of such an insurance company. See Section 12(3) of the NHF Act.
The Federal Government of Nigeria ("FGN") is required to make adequate financial contributions to the NHF for the purpose of granting long term loans and advances for housing development in Nigeria.
ADMINISTRATION OF NHF
Contributions to the National Housing Fund are statutorily required to be managed and administered by the Federal Mortgage Bank of Nigeria.
REMITTANCE OF CONTRIBUTIONS
Employers are required by law to deduct the housing contribution from their employees' monthly wages and ensure that such deductions are remitted to the NHF via the FMBN within one month of making such deduction.
Self-employed individuals are also authorised to make 2.5 percent of their monthly salary as their housing contributions to the Fund provided that such contributions are remitted on a monthly basis.
BENEFICIARIES OF THE FUND
Section 14 of the NHF Act provides that licensed mortgage institutions are the secondary beneficiaries of the Fund as they qualify for loans from the Fund, on such terms and conditions as may be published in the Federal Government of Nigeria in its official Gazette from time to time. The primary beneficiaries of the Fund are the contributors to the Fund who take loans from the FMBN through the licensed mortgage institutions to build, purchase or renovate their houses in Nigeria. The repayment of these contributors' loans are also statutorily regulated by the Government's published Gazette specifying the mode and manner, with the terms and conditions for the repayment of any loan obtained under the NHF ACT.
SECURITY OF NHF CREDIT FACILITIES
All loans obtained from a mortgage institutions must be secured by a first mortgage while all loans granted by the FMBN to a mortgage institution must be secured by a charge on a block of existing mortgages of the mortgage institution, under the cover of a Sales and Administration Agreement executed between FMBN and the Mortgage Institution. The later Agreement must be registered at the Land Registry along with the Deed of Assignment of the block mortgages to which the said agreement relates.
INTEREST CHARGED ON NHF LOANS
The rate of interest to be charged by the FMBN on loans it grants to primary Mortgage Institutions shall be slightly lower than the prevailing commercial interest rates in Nigeria. Such an interest rate shall be fixed for the duration of the long-term loan with no room for adjustments to suit the variances in the money market.
Mortgage Institutions are statutorily allowed a minimum spread of four percentage points above the rate charged by the FMBN while FBMN is only statutorily allowed not more than one percentage point above its own borrowing rate on loans it grants to Mortgage Institutions in Nigeria.
REFUND OF CONTRIBUTIONS
On the attainment of the age of 60 years old or upon been retired from employment, any contributor to the NHF that becomes incapable of continuing to make contributions to the Fund, shall be eligible to a refund of his contributions within 3 months of his application to the Minister of Housing provided that such a contributor has not obtained a housing loan under the Fund which loan remains unliquidated.
RENDERING OF ACCOUNTS
FMBN is statutorily required to render periodic accounts on the Fund to the CBN. In the like manner, FMBN is also statutorily required to render annual returns to all contributors showing among other things, the total amount contributed, the accrued interests and the balance in the contributor's account as of the date of the making such return.
Mortgage Institutions who have obtained loans from the FMBN must also render statutory quarterly returns to the FMBN in such manner and form as the Minister of Housing may from time to time specify.
OFFENCES AND PENALTIES UNDER NHF
Any employer who fails to make a deduction from the basic salary of his employees as required by this Law, or who deducts any sum from the basic salaries of his employees for the purpose of the Fund and fail to remit the sums so deducted to the FMBN is guilty of an offence which on conviction for corporate bodies attracts a fine of N50,000 and for individuals the fine is N20,000 or imprisonment for a term of five years or to both the fine and the term of imprisonment.
A self-employed person who fails to make the necessary deduction is also guilty of an offence which on conviction carries a fine of N5000 or a term of imprisonment of one year or to both the fine and the term of imprisonment.
Any individual who prevents or obstructs the deduction or remittance of the housing contribution is also liable to the fine and or to the term of imprisonment as those attributable to a self-employed person. The institution of criminal proceedings or the imposition of the appropriate penalty does not relieve any employer or self-employed person from the subsisting liability to pay to the FMBN the sum deducted for the purpose of the FMBN.
False statements, misrepresentation, production of false documents or failure to produce requested documents during inspection attract fines and terms of imprisonment on conviction.
The Federal High Court has the exclusive jurisdiction to try all offences under the National Housing Fund Act.
EXEMPTION FROM INCOME TAX REGIME
Contributions under the NHF and refunds of any such contributions under the NHF Act are exempted from the payment of any form of income tax, on such contribution or refund.
TERMS AND CONDITIONS FOR OBTAINING LOANS FROM NHF BY MORTGAGE INSTITUTIONS AND INDIVIDUAL CONTRIBUTORS
A licensed Mortgage Institution must submit all its application(s) for a loan to the FMBN. Such application must enumerate the applications received for loans from individual contributors against which the loan(s) request shall be disbursed under the NHF scheme.
It is mandatory that no mortgage Institution shall in any given financial year be granted a loan in an amount that is more than 50 per cent of the Mortgage Institution's shareholders' Fund.
SECURITY FOR HOUSING LOAN
These terms and conditions repeats the provisions of substantive law to the effect that a housing loan granted by FMBN to a Mortgage Institution shall be secured by the existing registered Mortgages previously granted by such a Mortgage Institution whether the financing for such previous Mortgages were obtained from FMBN or not .
A Sales and Administration Agreement with a Deed of Assignment in such form as may be prescribed by the FMBN, from time to time, and duly stamped and registered in the Lands Registry is required. The cost of stamping and registering such an Agreement at the Lands Registry shall be borne by the mortgage institution save where waivers on these costs are granted by the approving authority at the Land Registry. FMBN is also authorised in some instances to require a Mortgage Institution to execute a floating charge over its assets.
DISBURSEMENT CONDITIONS
According to the NHF Regulations, to safeguard the resources of the Fund, and prevent the misallocation or diversion of the mortgage loans given under the Fund, the FMBN shall only make loan disbursements to a mortgage institution on the presentation of the acceptable securities as stated in the above sub-section where a misapplication or diversion is shown or envisaged.
FMBN is authorised to demand the immediate repayment of all loans with interest thereon, inclusive of a 200 per cent penalty on the interest differential between the market rate and the Fund rate from a mortgage institution which misallocates or diverts its loans. In addition to the penalties, FMBN is authorised to suspend any erring Mortgage Institution from further borrowing from the NHF for a period of six months and cause such Institution to remain suspended until it complies with the above provisions.
All disbursement from the Fund shall be by cheque or by any other acceptable instrument of settlement. The FMBN is not allowed statutorily to disburse loans in cash or to charge more than 0.25 per cent of the value of a loan as legal, survey and administrative charge fees. But this excludes stamping, registration and other statutory fees.
CONCLUSION
Developed economies encourage their citizens, from adolescence, to join the housing mortgage market. From these young first-time mortgage buyers, a large stock of long term investors is built. The requirement of the NHF and the FMBN for applicants to provide a first charge or collateral before a housing loan will be granted will inhibit the ability of Nigeria to build its mortgage market.
The requirement for the various NHF loan Agreements to be stamped and registered at the Lands Registry attracts very exorbitant statutory fees which will discourage the long term benefits of the NHF and the FMBN.
The rate of return on mandatory housing contributions from licensed Banks and Insurance companies will only encourage these financial institutions to refuse to make their statutory contributory obligations for the larger returns in the money market particularly when the penalties are negligible and the judicial system is expensive and time consuming.
The Nigerian employee is already burdened with many direct and indirect taxes, pension, national health and housing contributions that the latter will be gladly compromised when evidence do not abound of beneficiaries of housing loans actually residing in their own homes.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.
Legal Alert for February 2010 – Housing Laws in Nigeria Part 1
 
In this Issue:
1. Legal Alert for February 2010 – Housing Laws in Nigeria Part 1
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
LEGAL ALERT—HOUSING LAWS IN NIGERIA – PART 1 – FEDERAL MORTGAGE BANK OF NIGERIA ACT
INTRODUCTION
The rapid growth in global population has not been matched by a reasonable availability of safe and affordable houses. The situation in Nigeria is made more excruciating by a cumbersome land tenure system, with an unbalanced short-term and expensive credit/mortgage structure meant to fund long-term housing requirements of the Nigerian populace.
The housing insufficiency in Nigeria is not only due to defects in the existing housing structures – i.e. land tenure and financing as mentioned above - but also exacerbated by the non-dissemination of information on the existing structures, with the applicability of such existing structure to the citizenry by all the stakeholders in the housing industry.
This Legal Alert and a few others following it will provide you with some information on the existing housing laws in Nigeria, how they affect you and what benefits you could derive from taking some action concerning them.
FEDERAL MORTGAGE BANK OF NIGERIA ACT
The Federal Mortgage Bank of Nigeria Act, 1993 established the Federal Mortgage Bank of Nigeria ("FMBN") to among other things provide long-term credit facilities to Mortgage Institutions in Nigeria. The FMBN is also established to encourage and promote the development of Mortgage Institutions in rural, local, State and Federal government levels in Nigeria.
Subject to the provisions of the Land Use Act, the FMBN is also authorised to acquire, hold or dispose of property, whether such property is movable or immovable. For the purpose of achieving its other objectives, the FMBN is also authorised to undertake the following activities:-
OBJECTIVES OF THE FMBN
1. Provide long-term credit facilities to other Mortgage Institutions in Nigeria at such rates and on such terms as may be determined by the Board of the FMBN in accordance with the policy directives of the Federal Government of Nigeria. The rates and terms for the long-term credit facilities are by statute required to be designed to enable Secondary Mortgage Institutions grant comparable mortgage facilities to Nigerians desiring to acquire houses of their own - See Section 5(a) FMBN Act.
2. Licence and encourage the emergency of viable Mortgage Institutions to service the housing delivery needs of Nigerians.
3. Encourage and promote the development of Mortgage Institutions in rural, Local, State, Federal levels in Nigeria.
4. Regulate the activities of all Mortgage Institutions in Nigeria.
5. Collect, manage and administer all contributions made under the National Housing Fund ("NHF") in compliance with the National Housing Fund Act.
FUNDS AND REGULATORY AUTHORITY OF THE FMBN
The FMBN is empowered to accept deposits and savings from Mortgage Institutions and other Financial Institutions. The FMBN is also empowered to issue its own securities under the Federal Government guarantees, with promissory notes and other bills of exchange for the purpose of raising Funds from other Financial Institutions.
To ensure that securities issued by FMBN are redeemed, the FMBN is required to establish a sinking Fund for the redemption of its securities. FMBN provides the contributions to this sinking Fund.
The FMBN is further statutorily required to organise and operate, in collaboration with reputable Insurance companies, a Mortgage protection system designed to guarantee liquidity to Mortgage Institutions in Nigeria, in addition to affording these mortgage institutions the opportunity of having long-term credit on liberal premium terms.
The above liabilities of the FMBN are re-discountable with the Central Bank of Nigeria. See section 6 of FMBN Act on the above powers.
CAPITAL REQUIREMENTS FOR THE FMBN AND TAXATION
The principal sources of capital to the FMBN are its authorised paid-up Share Capital, a general reserve Fund into which its net profits for each Financial year are paid, with loans from the Federal Government of Nigeria and other approved bodies or sources.
The FMBN is exempted from the payment of any form of tax on its income. The provisions of the Banks & Other Financial Institutions Act ("BOIF") are not applicable to the FMBN.
CONCLUSION
Whether the Federal Mortgage Bank of Nigeria is providing the minimum retail, supervisory and regulatory support to the housing needs of Nigerians is a matter of minimal debate. Allegations of bureaucratic practices and the inability to ensure the regular collection of monthly contributions from National Housing Fund contributors continue to plague the Federal Mortgage Bank of Nigeria.
The Federal Mortgage Bank of Nigeria has not been able to adopt a proactive strategy of providing affordable long-term loans to a double digit interest rate short-term lending economy. Statutory authority provided under the National Housing Fund Act to compel banks and insurance companies to make mandatory contributions appear to be unimplemented by the Federal Mortgage Bank of Nigeria.
The unsuccessfulness of the National Housing Fund as operated by the Federal Mortgage Bank of Nigeria also has the effect of jeopardising the various rent control legislations in Nigeria as most of these rent control legislation cannot be implemented in an environment where the housing demands outstrips the supply of available houses for rent.
The Federal Government of Nigeria must therefore restructure and modernise the Federal Mortgage Bank of Nigeria to meet the challenges of the twenty-first century. Should this be impossible, the Federal Mortgage Bank of Nigeria should be privatised to operate like other mortgage institutions while greater tax and investment incentives should be provided to mortgage institutions that provide minimum long-term loans with a tenure of not less than ten (10) years.
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Legal Alert for January 2010 – Taxation of Charities, Trustees and NGOs in Nigeria
 
In this Issue:
1. Legal Alert for January 2010 – Charities, Trustees and NGOs in Nigeria
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
Charities, Trustees and NGOs in Nigeria – Legal and Tax Regulations
The separation of the Church from state political power has always historically being a matter of conflict and apprehension. The same could be said of Trustees and registered or unregistered charitable organisations, which are more popularly referred to as Non-Governmental Organisations (NGOs) in Nigeria. The regulation of the latter is primarily hampered in the practice by the non-separation of the individual trustees from the direct personal ownership and benefits of the trust assets belonging to the NGOs.
Attempts by governments to apply existing statutory regulations to the above organisations are always met with political resistance as a result of the government's inability to explain clearly the remarkable legal distinction between the incomes of the individual operators of the charities or trusteeship or NGOs, from the organisations that they are entrusted to administer.
This Alert is a summarisation of the legal and tax requirements for registered companies in Nigeria that are limited by guarantee and therefore entitled to carry on charitable objectives without the shareholders distributing the profits of the company among themselves. This Alert also summarises the legal and tax obligations of registered trustees under Nigerian Law.
REGISTERED CHARITABLE COMPANIES IN NIGERIA
Generally in Nigeria, only companies that are registered under the Companies and Allied Matters Act ("CAMA") can carry on business in Nigeria. The nature of such business or businesses are those approved and incorporated as the company's objects at the time of registration with the Corporate Affairs Commission ("CAC"). Companies that are not registered under CAMA are deemed to be associations lacking the capacity to enter into any legally binding agreements within the territory of Nigeria.
There are three forms of business associations recognised under Nigeria Law. These are: (a) Companies; (b) Partnerships; and (c) Sole Proprietorship. The First form of business, which are Companies, do in turn have three different types namely: Companies limited by shares, unlimited companies and companies limited by guarantee. A company limited by guarantee will be treated in this presentation.
COMPANIES LIMITED BY GUARANTEE
A company limited by Guarantee is one that is incorporated primarily to promote the objects of such a company with its shareholders barred from distributing its profits among its members, as dividend or otherwise. Also, the liability of the shareholders of a company limited by guarantee is restricted to the amount that they have subscribed to pay in the event that the company limited by guarantee is wound up or dissolved.
A company limited by guarantee is not registered with a share capital and requires the prior approval of the Attorney General of the Federation before it can be incorporated.
In practice, companies limited by guarantee are registered in Nigeria to undertake strictly charitable objectives. The members/shareholders of such a company are aware that the income and other assets of the company must be applied solely towards the promotion of the objects of the company and no portion of its profits can inure to the private benefit of the members or shareholders of the company. In the event of the dissolution or winding up of a company limited by guarantee, its assets, after the liquidation of its liabilities, cannot also be distributed to its shareholders; in its stead, such profits must be transferred to another charitable organisation with objects similar to that of the company that is been dissolved.
Where however a company limited by guarantee carries on business for the purpose of distributing profits among its members, such members or officers of such a company who are aware of this statutory contravention shall be liable for the payment and discharge of all the debts and liabilities of the company. The infringing officers or members shall also be liable to a fine not exceeding N100 for every day during which the company carries on business for the profit of its members.
EXEMPTION FROM TAXATION OF COMPANIES LIMITED BY GUARANTEE
All companies in Nigeria are liable to pay Companies Income Tax on their global profits accruing in, brought into, derived from or received in Nigeria. However, the profits of any statutory, charitable, ecclesiastical, educational or other similar associations are exempted from Companies' Income Tax obligations provided such profits are not derived from any trade or business carried on by such an organisation or association, and distributed among the members, trustees or shareholders of such a company, association or organisation. See Section 23 of the Companies Income Tax Act ("CITA").
What constitute a "trade" or "business" is however not defined or described in the Companies Income Tax Act (as amended). Because of this difficulty, Dr. J. Orojo, in his book "Company Law and Practice in Nigeria", Fifth Edition, referred to the Supreme Court of Nigeria decision in the matter of Arbico v. FBIR (1966) NCLR 401 @ 410 where the Supreme Court applied the dictionary meaning which is that a trade or business is "....... The practice of some occupation, business or profession habitually carried on especially when practiced as a means of livelihood". It was also decided in this case that the question of whether or not the activity in question is a trade or business is a matter of fact and not of law.
LEGAL REPORTING FOR LIMITED LIABILITY COMPANIES
The Company and Allied Matters Act requires every company in Nigeria, including companies limited by guarantee, to keep proper accounting records that sufficiently show and explain the financial affairs and position of the company.
At the end of every financial year, each company must deliver to CAC an annual returns filing, duly accompanied by a copy of its balance sheet, profit and loss account, and notes on the statement. Failure to discharge this duty is an offence.
REGISTERED ASSOCIATION OR TRUSTEES
An unregistered body or association is not recognised under Nigerian law. It cannot enter into legally binding contracts; it cannot sue or be sued in the name of the association save where each individual member or principal officers of the association are sued or sue others in their individual capacity. To assume legal protection, every association must be registered under Nigerian law.
The Companies and Allied Matters Act provides that where one or more trustees are appointed by a community of other people, bound together by a common custom, religion, kinship or nationality, for the promotion of specific religious, educational, literary, scientific, social development, cultural, sporting or other charitable purpose, such trustees are required, with due authorisation of its members, to apply to the Corporate Affairs Commission for registration as a body corporate.
It is the law that from the date of registration or incorporation, the association becomes a body corporate with perpetual succession and a common seal, the power to sue or be sued in their corporate name and the power to hold and acquire, transfer, assign or otherwise dispose of any property or interest belonging to or held for the benefit of the association.
The income and property of an incorporated body or association shall be applied solely towards the promotion of the objectives of such a body or association. It is legally forbidden for any portion of the income or property of a registered body or association to be paid to or transferred directly or indirectly, by way of dividend, bonus or otherwise, or by way of profit, to any of the members or trustees of the association. See Section 603(1) CAMA.
The exception to the above rule is that "... payments, in good faith, of reasonable and proper remuneration to an officer or servant of the body in return for any service actually rendered to the body or association..." is exempted from the rule against the distribution of trust income.
Also exempted from the rule against the distribution of trust income are the reimbursements of out-of–pocket expenses or reasonable and proper rent or reasonable fees for services rendered by members of the association to the association.
The penalty for breach of the restrictive provisions on the non distribution of trust income is captured in Section 603(3) of CAMA which provides that "if any person knowingly acts or joins in acting in contravention of this Section, he shall be liable to refund such income or property so misapplied to the association".
LEGAL REPORTING FOR REGISTERED TRUSTEES
The trustees of all incorporated associations must not earlier than the 30th of June and not later than the 31st day of December of each calendar year file the annual returns of their registered Associations. Such a return must show the name of the association, the names, addresses and occupation of the trustees of the association, the members of its Governing Council, particulars of any changes which may have taken place with regard to the constitution of the association during the preceding year, etc.
Where the trustees of an association fail to comply with the above reporting requirement, they shall individually be liable to a fine of N5 for each day that the default continues unremedied.
TAXATION OF CHARITIES AND TRUSTEES
The tax exemption provisions enumerated above, with regard to companies limited by guarantee, are also applicable to associations also known as incorporated trustees.
Whether income derived by the trustees of an association are liable to personal income tax has been a matter of much political debate. The Personal lncome Tax Act provides that the income of individuals, communities, families and others arising from or due to a trustee or estate are liable to the imposition and payment of personal income tax.
Also, the income of all individuals from any source within or outside Nigeria including income from any trade, business, profession or vocation, or profit from any employment including compensation, bonuses, premiums or benefits are liable to personal income tax.
The tax exemption provision in Section 13 of the Third Schedule of the Personal Income Tax Act (as amended) only exempts the income of the associations themselves and not the income of the individual trustees, their employees, etc from the payment of tax.
OTHER TAX EXEMPTIONS FOR REGISTERED CHARITIES
The Capital Gains Tax Act requires that a capital gains tax must be paid on the gains accruing to any person on the disposal of such a person's asset. The rate of this tax on such a gain is ten per cent (10%).
Section 26 of the Capital Gain Tax Act however grants an exemption to the payment of this tax by any ecclesiastical, charitable, educational institutions of a public character, any statutory or registered friendship society, any registered co-operative society of any state and trade union registered under the Trade Unions Act, provided that such a "... gain is derived from any disposal of any asset acquired in connection with any trade or business carried or by the institution or society and the gain is applied purely for the purpose of the institution or society, as the case may be."
The Customs, Exercise Tariff, etc (Consolidation) Act 2004, Section 8, Second Schedule, exempts from the payment of import duty, certain goods meant for charitable or humanitarian purposes. The exemption from the payment of this duty is granted by the Minister of Finance.
CONCLUSION
The income of charitable organisations and other similar associations are exempted from tax liability. It is arguable in law whether the profit of a registered association is liable to tax assessment and payment where such profits are channeled exclusively to the promotion of the objectives of the charitable institution.
It is also the law that income derived by the members of a charitable organisation, save for the exempted items like reimbursable out-of-pocket expenses, are also liable to the payment of personal tax. A contrary interpretation will lead to an inequitable tax system and tax evasion.
Ultimately, tax compliance will only be enhanced when good corporate governance and responsibility, in accordance with the rule of law, are practised by both the governed and especially those in government. The opposite situation will be maintained when the governing class disregards the rule of law.
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DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment purposes ONLY. This Alert, by itself, does not create a Client/Attorney relationship between yourself and our Law Firm.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed with many thanks.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is always acknowledged and this Disclaimer Notice is attached.