Option to Purchase Agreement (Nigeria)

An Option to Purchase Agreement in Nigeria governs the sale and transfer of property between buyer and seller and the obligations of each.

Nigerian option to purchase agreements are governed by the principles of contract law applicable in Nigeria (derived from English common law), and by the Land Use Act 1978 where the property subject to the option is land held under a statutory or customary right of occupancy. Under Section 22 of the Land Use Act 1978, the exercise of an option to purchase land — which constitutes an alienation of a right of occupancy — requires the prior consent of the state governor. An option agreement therefore typically includes a condition that the full sale and purchase (following exercise of the option) is subject to governor's consent under the Land Use Act 1978, with both parties obligated to cooperate in the governor's consent application.

Option to purchase agreements in Nigeria are widely used in the real estate development sector, where developers acquire an option over land before committing to the full purchase price, giving them time to conduct due diligence, obtain planning approval, secure development financing, and line up buyers or tenants. Commercial lease agreements frequently include options for the tenant to purchase the leased premises at an agreed price at any time during or at the end of the lease term (a lease-option or right of first refusal). The option fee — typically 1% to 5% of the agreed purchase price — compensates the grantor for binding themselves during the option period and is generally non-refundable if the option is not exercised, but is applied against the purchase price if the option is exercised.

An Option to Purchase Agreement must be distinguished from a Right of First Refusal (ROFR) — which only gives the ROFR holder the right to match any third-party offer, not to buy at a pre-fixed price — and from a Conditional Sale and Purchase Agreement (CSPA), under which both parties are bound to complete the transaction subject to the satisfaction of specified conditions.

The legal framework governing the Option to Purchase Agreement (Nigeria) in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Option to Purchase Agreement (Nigeria) in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Land Use Act 1978 (Cap. L5, LFN 2004) sets the foundational requirements.

An Option to Purchase Agreement in Nigeria is needed in the following circumstances.

An Option to Purchase Agreement is required when a real estate developer has identified a parcel of land for development but needs time — typically 3 to 12 months — to conduct thorough title due diligence, commission a survey by a SURCON-registered surveyor, obtain approvals from the Lagos State Physical Planning Permit Authority (LASPPPA) or other planning authority, and arrange development financing before committing to the full purchase.

An Option to Purchase Agreement is needed when a commercial tenant negotiates a lease agreement with a right to purchase the leased premises at any time during the lease term at a fixed price, giving the tenant the security of knowing the property can be acquired without competitive bidding if the business proves successful.

An Option to Purchase Agreement is required when an investor purchasing shares in a company also negotiates an option over real property owned by the company's principal shareholder, as a condition of the investment transaction — confirming the investor can acquire the property if the company's business plan requires it.

An Option to Purchase Agreement is needed when two parties have agreed on the price of a property but need additional time to complete financing arrangements, obtain governor's consent under the Land Use Act 1978, or satisfy other conditions before executing the full Deed of Conveyance or Deed of Assignment.

An Option to Purchase Agreement is required when an oil and gas company needs to secure an option over land adjacent to a planned pipeline route or facility site before the regulatory approval process is complete, to prevent the land being sold to a third party during the approval period.

Parties in Nigeria should prepare a Option to Purchase Agreement (Nigeria) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A valid Nigeria Option to Purchase Agreement must contain the following essential elements.

Parties: Full legal names, addresses, and descriptions of the option grantor (owner/seller) and option holder (prospective purchaser). For corporate parties, include the CAC registration number under CAMA 2020. The grantor must have clear title to grant the option, confirmed by a search at the relevant State Land Registry.

Property Description: Precise description of the property subject to the option, including property address, plot number, survey plan number (from a SURCON-registered licensed surveyor), total area, Certificate of Occupancy or deed of title reference, and state and local government area. An attached survey plan is strongly recommended.

Option Fee: The amount of the option fee paid by the option holder to the grantor in exchange for granting the option, the date of payment, and whether the option fee is refundable (if the option is not exercised) or is to be credited against the purchase price (if the option is exercised). Most Nigerian option agreements provide that the option fee is non-refundable but creditable on exercise.

Option Period: The specific duration of the option — from the effective date of the agreement to the last date on which the option may be exercised. The option period should be reasonable (3 to 24 months typically), as an excessively long option period may be characterised as an equitable interest in land requiring governor's consent under Section 22 of the Land Use Act 1978 to be valid against third parties.

Purchase Price: The agreed purchase price at which the grantor is obliged to sell and the option holder is entitled to buy if the option is exercised, stated in NGN. Any adjustment mechanism (such as a price escalation clause linked to an index) must be clearly stated.

Exercise Mechanism: The method by which the option holder exercises the option — typically a written notice served on the grantor before the option expiry date — and the obligations triggered upon exercise, including execution of a formal Sale and Purchase Agreement and payment of the balance of the purchase price.

Governor's Consent: Acknowledgement that the full sale following exercise of the option requires governor's consent under Section 22 of the Land Use Act 1978, and mutual obligations to cooperate in the governor's consent application at the option holder's cost.

Additional compliance elements for a Option to Purchase Agreement (Nigeria) used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.