A legal opinion on the remuneration of a real estate agent:focus on the Lagos State real estate

regulatory authority (LASRERA) LAW ,2022 AND MIKANO INT’L LTD V EHUMADU

Introduction

The remuneration of real estate agents has long been a controversial topic in the industry, with both
clients and agents themselves holding varying positions on the matter. In Lagos State, Nigeria, the Lagos
State Real Estate Regulatory Authority (LASRERA) Law 2022 has recently been enacted to regulate the
conduct of real estate agents and their remuneration. This paper seeks to provide a legal opinion on the
remuneration of a real estate agent, with a specific focus on the LASRERA Law 2022 and the case of
Mikano Int’l Ltd v Ehumadu. Through an analysis of these legal provisions and relevant case law, this
paper aims to shed light on the appropriate and legally sound methods of remunerating real estate
agents in Lagos State.

Overview of LASRERA Law, 2022 ,On EnumerationRenumeration of a Real Estate Agent

The Lagos State Real Estate Regulatory Authority Law, 2022 (LASRERA Law) is a legislation enacted to
regulate the real estate industry in Lagos State, Nigeria. The LASRERA Law aims to streamline the
operations of real estate agents, developers, and other stakeholders in the industry while promoting
transparency, accountability, and consumer protection.

One of the key provisions of the LASRERA Law is the compulsory registration of all real estate
practitioners, including agents, developers, and property managers, with the Lagos State Real Estate
Regulatory Authority (LASRERA). The registration process involves compliance with certain
requirements, such as obtaining a minimum level of education, undergoing training, and passing an
examination. Another provision of the LASRERA Law is the establishment of a dispute resolution
mechanism for disputes arising from real estate transactions. The mechanism involves the creation of a
specialized tribunal to hear and resolve disputes in a timely and efficient manner.

Furthermore, the LASRERA Law provides for the protection of consumers of real estate services by
requiring every real estate transaction to be properly documented and by prohibiting the collection of
any form of advance payment or commission from consumers. Overall, the LASRERA Law seeks to
professionalize the real estate industry in Lagos State, promote ethical conduct, and engender trust and
confidence among consumers of real estate services.

Agency fees are not illegal ,but areit is but a reward for the service rendered to the clients, either a
person looking to buy a piece of land or a prospective tenant looking to rent a house. Generally,agency
feesAgency fee for tenancy agreements areagreement is 10% of the tenancy fee paid. If for instance the
property is going for N200,000 per annum, theannum,the agency fee will be 10% of the tenancy fees
paid, whichpaid,which will be N 20,000 .Agency fees on property sales on the other hand is usually 5% of
the total consideration advanced for the property.

An realtorestate agent must be paid his professional agency fees by his principal only; the practice of collecting agency fees from both a prospective

tenant and Landlord or a prospective purchaser and seller is now unlawful. Anunlawful.An realtorestate agent must remit all income collected by him or

her to his or her principal within fourteen (14) days of such a collection unless otherwise formally instructed not to do so by his or her principal. This

lawLaw therefore requires that all estate agents in Lagos State must not charge agency or commission fees exceedingin excess of 10% of the total rent

collected on any tenancy or lease transaction.

In the case of the sale or purchase of land and buildings, the maximum agency or commission feefees permitted is 15% of the total proceeds of the sale.

 
The total authorizedauthorised fees or commission, as stated above, must not be exceeded by any realtorestate agent irrespective of whether there are

more than one agent acting for the party concerned. Estateconcerned.Estate agents are barred from preparing legal documents relating to any real

estate transaction undertaken by them on behalf of their clients. All real property agreements must be prepared by a legal practitionerLegal Practitioner

whose fees must not exceed 12.5% of the total consideration of the transaction.

Similar to the Old Law, the LASRERA Law also limits the fees that clients can be charged by real estate practitioners. Section 32(2) of the Law sets out the

applicable fees a person or organizationorganisation dealing in real estate may demand from the prospective clients;

(a) in a Letting/Lease transaction, not more than ten per cent (10%) of the total rent collected on any transaction; and  
(b) in sale or purchase of interests in buildings; where two or more holders of permits are retained by the owner/vendor for the sale /sale/ lease, fees

shall not be more than fifteen percentper cent (15%) of the total proceeds of sale or tenancy.”  
 A real estate agent is not to represent two (2) principals on the same transaction in the case of an agency not to collect money from more than one

prospective client in respect of the same premises or building and shall remit money collected to the landlord in the case of a tenancy , within seven (7)

working days, unless otherwise directed in writing by the landlord and such money collected shall be receipted. In effect to section 32(2)(a) above,

a person or organizationorganisation dealing in real estate shall not demand a fee exceeding ten (10%) percent of the total rent or purchase price

received from a client in respect of a lease or sale. Forsale.For instance, if in a tenancy transaction, the rent of the property is Eight Hundred Thousand

Naira (N800,000) per annum, by implication the permit holder cannoncannot demand an amount exceeding eighty thousand naira (N80,000) from the

tenant.

Furthermore, if there are two or more permit holders retained by a principal in the same sale or lease, the permit holders shall jointly demand an amount

not exceeding fifteen (15%) percent of the total proceeds in a sale or lease of interests in property. This will help to protect members of the public

against extortion

The analysisAnalysis of Mikano Int'l Ltd v Ehumadu case

In the Mikano Int'l Ltd v Ehumadu case, the court considered the question of whether a real
realtorestate agent was entitled to receive commission on a property transaction despite not having
procured the buyer. The plaintiff, Mikano, had engaged the defendant, Ehumadu, to market its
properties for sale. Ehumadu subsequently introduced a buyer to Mikano, but the buyer ultimately
purchased a different property through another agent. Ehumadu argued that he was entitled to
commission on the sale because he had introduced the buyer to Mikano, while MilanoMikano
contended that commission was only payable if Ehumadu had actually procured the buyer.

The court ultimately sided with Mikano, holding that commission was only payable if the agent had
actually procured the buyer. The court noted that while Ehumadu had introduced the buyer, he had not
played a significant role in securing the sale and had not been the effective cause of the transaction. As
such, he was not entitled to receive commission on the sale.

This case highlights the importance of clarity in real estate agency agreements and the need for agents
to clearly specify the circumstances under which commissionscommission will be payable. Additionally,
it underscores the importance of a clear understanding of the concept of procuring cause in real estate
transactions, as the effective cause of a sale may not necessarily be the agent who initially introduced
the buyer.
ConsideringIn light of the Mikano Int'l Ltd v Ehumadu case, real estate agents should ensure that their
agreements with clients are clear and unambiguous regarding commission payments. Additionally,
agents should strive to play an active role in securing the sale toin order to position themselves as the
effective cause of the transaction.

ConclusionsConclusion and recommendations

In conclusion, the Lagos State Real Estate Regulatory Authorityreal estate regulatory authority
(LASRERA) LAW, 2022 has provided clarity on the issue of remuneration for real estate agents in Lagos
State. The ruling in the case of Mikano Int’l Ltd v Ehumadu has affirmed the legality of the contractual
arrangement between real estate agents and their clients, and the limits of their compensation.

Based on the legal opinion provided, we recommend that all real estate agents operating in Lagos State
ensure that their activities comply with the provisions of the LASRERA Law, 2022. This includes ensuring
that all contract agreements with clients are clear, comprehensive and legally binding. In addition, real
estate agents should actively seek to avoid any actions that may be perceived as unethical or in the
violationviolation of the law.

It is also recommended that clients engaging the services of real estate agents in Lagos State should be
aware of their legal rights and obligations, particularly with regardregards to the payment of commission
and other forms of remuneration. They should seek to understand the terms of any contractual
agreement and ensure that they are fully satisfied with the services provided before issuing payment.

Finally, we recommend that the Lagos State government and other relevant stakeholders continue to
monitor the activities of real estate agents in the state, and take appropriate measures to ensure
compliance with the provisions of the LASRERA Law, 2022.
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