EXEMPLIFYING CHARGEE’S STATUTORY POWER OF SALE
Statutory power of sale refers to the right and mandate donated by law to a lender to sell a charged land (security) upon default by a borrower without seeking the intervention of the court. The cornerstone of this right is pegged on the right to property as enshrined in the Constitution.
The Land Act in its tenor describes this right to sell in substance and in procedure which must be followed to the letter. It bears mentioning that the Act was enacted with the object of taming and arresting the oppressive behavior of financial institutions when enforcing loan securities.
The statutory power of sale kicks in upon DEFAULT of an obligation to pay or perform a term under the contract for more than one MONTH. It must be said that in a loan agreement, the borrower undertakes to pay the principal money and interests in the frequency and manner described in the contract. Before exercising this power, there are THREE ESSENTIAL NOTICES to be issued by the lender. These are:
1. The first notice under section 90 of the Land Act-Rectification Notice
This notice shall contain the following;
a) The nature and extent of the default in clear and discernible language.
b) If the default is on money, the amount owing and the repayment period which must be not less than three months after service.
c) If the default is on non-performance of a term, the rectification act and the time being not less than two months after service.
d) The consequence if the default is not rectified within the periods above.
e) The right of the borrower to seek a relief from the court against the exercise of this power.
On non-compliance with the above notice, the lender shall proceed to issue the second notice below.
2. The second notice under section 96 of the Land Act-Notice of Intention to Sell
Due to non-compliance with the first notice, the lender shall issue a notice of intention to sell to be served on the borrower. The lender shall not proceed to complete any contract for the sale of the charged land until at least forty (40) days have elapsed from the date of the service of that notice to sell.
This notice shall also be served on-
a) The National Land Commission, if the charged land is public land
b) Any lessee or sub-lessee if the charged land is a lease.
c) The spouse of the chargor who had given the consent.
d) Any person who is a co-owner with the chargor.
e) Any other chargee.
f) Any guarantor of the money advanced under the charge.
g) Any licensee.
3. The third notice under Rule 15(d) of the Auctioneers Rule 1997-Redemption Notice.
The lender will proceed to instruct an auctioneer licensed under the Auctioneers Act through an instruction letter. Upon receipt of a letter of instruction the auctioneer shall give in writing to the owner of the property a notice of not less than forty-five (45) days within which the owner may redeem the property by payment of the amount set forth in the letter of instruction.
NB-The second and third notice can be issued concurrently.
Why the notices?
The principle in law is that a charge is always a charge and does not amount to transfer of an interest in land to the lender upon its registration.
The purpose of the notice is to give the borrower an opportunity to redeem the property by way of paying all the liabilities as captured in the notice. It is meant to warn the borrower that due to his default and due to the outstanding debt, the charged property is susceptible to a sale if he fails to redeem it within the notice period after service.
Any time after the expiry of the notice period, the charged property is out of the hands of the borrower.
The Price of Sale
When exercising the power of sale, the lender owes a duty of care to the borrower to obtain the best price possibly attainable at the time. To fulfil this obligation, the lender is duty bound to undertake a forced sale valuation of the subject property.
During the sell, the chargee should not sell the property at a price below 75% of the market value at which comparable interests in land of the same character and quality are being sold in the open market. A violation of this duty amounts to the property being sold at an under-value.
A borrower whose land is sold at under-value has the right to move a court of law to have the sale declared void. S/he has to satisfactorily demonstrate why the valuation report relied on in disposing of the property did not give the best price obtainable at the material time.
Of importance are the powers incidental to the statutory power of sale in section 98(1) of the Land Act captured as herein below;
a) If the sale is by a private contract or treaty then it should be sold at Market Value.
b) If the sale is by public auction, then it should be with a reserve price which should not less than 75% of the Market Value.
The procedure of sale at a public auction
On the lapse of the redemption period, the auctioneer shall place an advertisement for sale in a newspaper. The advertisement shall consist of the following items pursuant to Rule 16 of the Auctioneers Rules 1997;
a) The date, time and place of the proposed sale.
b) The conditions of sale or where they may be obtained.
c) The time for viewing the property to be sold.
d) An accurate description of the property being sold.
e) A statement that the land is sold subject to a reserve price.
The duration period of the advertisement is fourteen days, after which the property shall be sold.
Is the Purchaser protected from legal liability?
Upon the purchase of the property by way of private treaty or at a public auction, the purchaser obtains a good title of the property against the whole world.
A borrower who has the right to sue alleging a breach of duty if any cannot sue the purchaser pursuant to section 99 of the Land Act. The section immunizes the purchaser.
What is clear from the section is that once a property has been knocked down and sold by a chargee in exercise of its statutory power of sale, the equity of redemption of the chargor is extinguished. The only remedy for the chargor who is dissatisfied with the conduct of the sale is to file a suit for general or special damages.
Can the lender (chargee) purchase the property?
Yes but after obtaining leave or permission from a court of law to buy the property by way of a private treaty. The chargee shall in its application to seek leave from a court of law satisfies the court that a sale of the charged land to the chargee is the most advantageous way of selling the land so as to obtain the best price attainable.
In an auction, the chargee can bid for the price without leave from the court. It will only purchase the bid property if;
a) It is the highest bidder at the auction.
b) The bid amount is equal to or high than the reserve price