Just Compensation in Compulsory Acquisition of Land: the Nigerian experience viewed from the prism of FAO Guidelines

Photo of Onitsha end during construction of the Second Niger Bridge. Credit: Julius Berger

Overview of the governing law
Compulsory Acquisition is a legal process, that empowers governments take over of private property or land for public use, paying adequate compensation for same. In Nigeria, the 1978 Land Use Act as embedded in the 1999 constitution of the Federal Republic of Nigeria is the operating instrument that guides this process. The Act has variously been criticized for coming short of international best practices in protecting and promoting the interest of land owners in the acquisition process.

Compensation methods and processes – our focus – is covered by section 29. 4.(1) a, b, c of the Act. This section confers powers to determine values, on the “appropriate officer”. Sec.30 empowers the government’s appointed Land Use Committee to arbitrate on compensation, worse, is the exclusion of the courts from entertaining any matter on the inadequacy of the compensation. The governor has the powers to resettle an owner, and in the process turn him into a government debtor, incase of a difference in “assumed” values. The provisions leaves the governments in the proverbial position of “holding the yam and the knife”

The provisions clearly fall short of the requirements of fairness, equity and equivalence, as enunciated in (FAOLTS 10) Food and Agriculture Organization, land studies on Compulsory Acquisition of Land and Compensation, guidance note 10.

The FAOLTS 10
The guide seeks to recommend the adoption of laws and practices, that guarantees land security for land owners, while allowing governments access to land without undue interference in its capacity to access land for economic growth. It further seeks to balance the interests of both parties and hinges its thrust on the principle of “equity and equivalence”. Principles that should be reflected in the governing laws. Laws that provides for a transparent process, that guarantees the payment of an adequate, just and fair market value based compensation. A compensation that covers all consequent “human cost” occasioned by the “disruptive” nature of compulsory acquisition.

Guiding Principles
Principle of equity and equivalence can be interpreted to mean that the owner of acquired land should be left in his pre-acquisition financial position. He is not to bear sole responsibility for the benefit of all. A compensation payment based on these principles is seen as just, not discretionary but participatory and unbiased. It can be interrogated or litigated and must apply the appropriate methods and persons for value assessment. It must be premised on the principle of fairness. It creates a situation that balances the parties’ interests and ensures the dispossessed are neither disadvantaged nor find themselves in a worse position. In this post, we will examine just a few reasons that have made compulsory acquisition compensation in our climes contentious.

Causes of unjust Compensation

  1. Bad laws make room for sharp practices and abuse. An example of discretionary abuse encouraged by the LUA, is the case of the acquisition of Nigeria Airways Land situated opposite Grange School GRA Ikeja. In the late 1980s, the Lagos state government compulsorily acquired the land ostensibly for ‘Overriding Public Interest’ – Ikeja Stadium. The government soon after the publicized acquisition found the place unsuitable and without returning the land nor paying Nigeria Airways promptly laid it out into residential plots and allocated same to private individuals. Best of all the area currently bears the governor’s name Otedola Estate.
  2. The process. While 2.21 of the FAOLTS recommends a participatory process that runs through the various stages from, planning, publicity, valuation, payment, possession, appeals and restitution, the LUA has no provision for such participatory imputes. For example, the impact assessment and prepayment meetings organised by some acquiring bodies are more informative than participatory as envisioned by international best practice. A participatory engagement would not only serve a notice appropriately by specifying the purpose of acquisition, but would specify the duration and further encourage/request owners to submit their claims. This type of engagement not only signals early warnings of possible challenges but would provide a bird’s eye view of possible total cost for compensation. The LUA, the enabling law, is lacking in this respect, thereby creating room for long, drawn out completion and payment periods. Some acquisitions in our experience have been known to last ten years and seem unending. In such a situation any payment made years after the date of valuation, when the owners’ rights are extinguished, is unjust and inadequate and cannot be deemed equivalent or equitable.
  3. Incorrect valuation methods: for any compulsory acquisition to be considered legal, it must be shown to meet two requirements: one of “overriding public purpose” and the other of payment of “adequate compensation”. A failure in any of the two, should invalidate the acquisition. Does the provisions of the LUA meet the criteria? The answer is NO. As shown in the Nigeria Airways example and valuations rates below, our experience indicates that while people rarely contest the purpose, the unjust compensation paid as derived from the valuation method specified in the LUA creates a lot of challenges for the project/purpose of the acquisition. The method prescribed for estimating values and the ambiguous “appropriate officer” authorised to carry out the valuations is neither objective nor transparent.
    • For one, rent is not value. The provision in section 29.2 for the payment of the equivalent of annual rent on the land lease is erroneous.
    • Two, Depreciated Replacement Cost prescribed for the valuation of improvements is not the appropriate valuation method for establishing a fair value. A value that is representative of the losses occasioned by the acquisition is the market Value/Income approach which takes land value into consideration. Costs for other losses that will adequately reflect an equitable and a fair value for the acquisition should be added to the derived value of the improvement. A compulsory acquisition is fundamentally a forced or compelled sale for the owner, who had acquired the rights to enable him enjoy a long term use of his development. This person must be adequately compensated through an objective, transparent and globally accepted method. A method that compensates for loss of livelihood, investments, and future income flows. It is punitive and contrary to the social contract for the government to do otherwise. Worse is the exclusion of adequate remedies by the enabling act, for owners to obtain redress for compensation, that failed to take into account the unplanned/disruptive costs. Losses arising from partial takings, disturbance, goodwill, costs of relocation/rebuilding, cost of new land, (a government lease attracts charges and rents professional fees for surveyors/architects and emotional distress are not provided for. A dispossessed land owner, who moves to a completely new distant neighborhood due the unjust payment received, incurs increased commuting costs to work etc. and may never ever be able to enjoy the socio economic benefits of which his land was taken.
    • Three, it is baffling that the Act lists agriculture as “overriding public purpose” yet the act in sec 29.4.1c makes an ambiguous provision for compensation for agricultural product crops. Why the drafters of the law, would make an ambiguous provision for an item that is the source of living for a large percentage of the population, is questionable. Could it, be due to the drafters attempt to help governments reduce project cost? If this be the case, then it is a misplaced concern, for it’s been proven that the reverse is the case. The rural areas may have few high cost dwelling homes and improvement, but every inch of land is privately/communally owned, used for some form of income producing farming activity. The ambiguity and discretionary provisions in the enabling law empowered the use of different and unscientific derived rates for crops and economic trees. The average values applied as compensation across the nation including the federal government range between 50-100 Naira per cassava stalk, 100-200 Naira per yam stand and 1,500 -3,000.Naira for hardwood/economic trees. The discretionary powers are granted to the “appropriate officer”, (who may or may not have the requisite professional competence) to “determine” the value. The above rates, are not supported by current market data, nor any known method for valuing crops and economic trees. Agricultural products should be valued based on its per capita yearly yield. The current applied rates are grossly inadequate, and unjust. It is no surprise then, when the soon to be dispossessed, lacking negotiating power, and for fear of being tagged anti progress, adopt passive-resistant – sometimes combative attitudes, and circumvention as mitigating strategies to protect their interest.
  4. Time Factor: as stated earlier, the Act is not specific on duration or time for completion of an acquisition. This is a major oversight, for values are not static, and crops are seasonal. A long drawn out acquisition and delayed payments only further burden the land owners. The provision for payment of interest at CBN rate for delayed payment, is unrealistic and unattainable given the fact that courts are barred from adjudicating on compensation sum. On what sum then will the interest be paid, the inadequate amount?

Unjust Compensation is Counter-productive.
Major disputes, sharp practices, usually envelop the pre/post acquisition process as a consequence of the effects of causes listed in (A) above. An opaque methodology for acquired assets valuation, negatively impacts the project execution and outcomes. In our practices, we have found that communities (with a high number of life income yielding crops/economic trees, developed structures, and mineral producing areas) relying on the experiences of past acquisitions, would upon the announcement or gazette of acquisition notices, circumvent the process in one of the following ways:

  1. erect make-shift structures on the cropped land area.
  2. sell off the land to non-resident family members.
  3. harvest the crops and rent the land to an itinerant farmer.
  4. increase the number of claimants for community farms/cemeteries/shrines.
  5. engineer ownership claims and double claims, due to poor claimant identification, a consequence of a non-participatory planning process.
  6. owners/renters cultivate new and different crops.
  7. improve an existing development/complete the construction of an unfinished one during the intervening time periods.

With one or more of the above listed activities happening within the acquisition process, it becomes challenging and difficult to take possession of the site. Possession will only be possible after claimants for new crops and developments have been identified and paid. Delays in resolving these issues, will not only increase the cost of the acquisition, but open up a new land market and homes for squatters. Instead of strengthening its internal process, governments have taken actions that are contrary to the principles of social justice and common good, in an attempt to scapegoat communities for “high” land acquisition costs. Costs that are avoidable when the appropriate valuation method, persons and acquisition processes are employed.

What can be done?
It has been established that, the inadequacies in the legislative instrument, the LUA driving the compulsory acquisition and compensation process is the bane of unjust compensation. The law as it is with all its defects has to be obeyed. However, practitioners can explore initiatives that may ease some of the challenges and make the process less acrimonious.

Perhaps the best place to start is to look at areas and or lacunae in the law that can be applied to improve participation, cooperation, and strengthen the process for the mutual benefits of government operators and owners.

One such is to follow the first step recommended by FAO at the planning stage as the law does not prohibit consultations. The acquiring party should actively pursue robust participation by the affected owners/communities, who should be carried along from inception. A sensitization meeting, should precede the issuance of notice to owners. Owners should have the confidence to participate without feeling disadvantaged or fearful of intimidation by security operatives.

Notices should ideally be issued in person where possible as this enables proper identification.

Claimants should be encouraged to engage their own consultant, who will aid them in claim submission and subsequent negotiation with the officers. The fees for such engagement should form part of the claims, and owners should not bear the cost.

The law provides for the method of valuation for land and improvements(rent / depreciated replacement cost) and specifies by extension – the rates for crops, but is silent on how it should be calculated. This lacuna which gives discretionary powers to “appropriate officers” to “determine” rates resulting in differential rates can be employed to get the appropriate officer to adopt a more humane, fair and just method of deriving the rates.

Professional valuation consultants on both sides of the aisle can leverage the fact that the Act does not expressly prohibit payment for attendant human costs, reach some form of agreement, in pre-valuation meetings, that can allow the officer exercising his powers to make allowances for those costs. Such agreement will yield positive results.

The parties would jointly agree on a work plan and timelines for the acquisition process to encourage timely payment of claims.

If such steps are adopted at the early stages, it will greatly improve project outcomes, pending when a full scale amendment of the extant law is made.

Last words
The role of compulsory acquisition in nation building cannot be overemphasized. Land is a key driver of economic security and peace of a nation. Matters pertaining to the provision of such a critical asset is of major interest to the legal and real estate professions. It calls for robust discussion, comments and opinions are welcome imputes to better address a subject with such universal interest.

Further Readings:

Akinsola. John Oluwasegun, Illusory Nature of the Concept of Compensation under the Land Use Act in Nigeria..Journals.oowagoiwoye.edu.ng

FAOLTS Rome 2008 note 10. www.fao.org

Land Use Allocation Decree1978 Section 29. of the Federal Republic of Nigeria.

UTCHAY. A. OKORJI. Alternative Rates Approach to valuation of economic crops and trees in Nigeria.2017, oasis.net>pdf

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