What is Land Use Charge (“LUC”)?

Land Use Charge (“LUC”) is a Lagos State property tax backed by the Land Use Charge Law of 2018.

• LUC is a consolidation of ground rent, tenement rate, and neighbourhoodimprovement levy.

Is LUC a new form of tax?

• LUC is not a new form of tax.

• The Law backing LUC was first enacted in 2001.

What is LUC based on?

LUC shall be payable in respect of all real estate property situated in Lagos State (“the State”).

What was the rationale for repealing and re-enacting the LUC Law?

• The LUC Law was repealed and re-enacted to address some identified challenges which include:

1. Lack of clarity on the LUC formula to support self-assessment;

2. Obsolete rates which had not been reviewed in over a decade;

3. Need to improve LUC administration efficiency; etc.

• The new LUC Law also provides a robust legal and regulatory framework to support ongoing LUC administration reforms aimed growing the State’s economy.

Who benefits from LUC revenue collected?

• Revenue generated from LUC is shared between the State Government and all the 57 Local Government/Local Council Development Areas.

Which Government agency is responsible for administration of LUC?

• Administration of LUC is under the purview of the Lagos State Ministry of Finance (“MoF”).

Who is liable to pay LUC?

• Responsibility for payment of LUC is on:

1. Owner of property for owner-occupied property

2. Lessee of property –in case of long term lease of not less than 10 years


Could you please explain the concept of self-assessment and its implication?

• Self-assessment essentially means that payers can compute the amount of LUC payable on their respective property by themselves.

• What this means is that, since the formula is now easy to understand, you do not need to wait to receive a demand notice on your property before making payment; from the comfort of your home, you can calculate the LUC payable and are able to make your payments promptly.

• We expect that this will drive up compliance, improve the timeliness of collections and minimiseleakages.

What was the situation under the old Law without self-assessment?

• Before now, the formula/basis for LUC determination were not clearly defined thereby creating room for subjectivity in the computation of LUC amount payable.

• Furthermore, payers were only able to make payments of LUC based on demand notices served by the State Government.

• However, due to administrative challenges, including inadequate enumeration, LUC demand notices were not served timely/regularly in most cases.

• This meant that, if you did not receive a demand notice, you were not likely to pay LUC thereby resulting in lost revenue to the State Government.

How often is LUC payable?

• LUC is an annual tax which becomes payable from the first day of each new year (i.e. from 1 January).

How is LUC derived?

• LUC payable on a property shall be arrived at by multiplying the Market Value (“MV”)of that property by the applicable Relief Rate (“RR”)and Annual Charge Rate (“CR”), using the prescribed formula.


What is the formula for calculating LUC?

The formula that shall be used to determine the annual amount of LUC payable is:

LUC = (Land Value + Building Development Value) x Relief Rate x Charge Rate


How is the LUC formula interpreted?

• The formula can be interpreted as:

LUC = [(LA x LR) + (BA x BR x DR) x RR x CR]

•Where

LA= area of the land parcel in square metres

LR= average Market Value of a land parcel in the neighbourhood, on a per square metrebasis in Naira based on Market Value property as determined by professional valuersappointed the Commissioner for Finance for that purpose

BA= the total developed floor area of building on the plot of land om square metres, or total floor area of apartment unit in a building where the apartment has a separate ownership title

BR=average construction value of medium quality buildings and improvements in the neighbourhood, on a per square metrebasis in Naira based on the market value of the property as determined by professional valuersappointed the Commissioner for Finance for that purpose

DR= the Depreciation Rate for the buildings and improvements of land which accounts for the building being of higher or lower value than the average buildings in the neighbourhoodand which also accounts for the degree of completion of construction of the building

RR= rate of relief from tax (if any) applicable to the owner-occupier in the circumstances shall be determined by the Commissioner and published in the State Government Official Gazette and in one or more newspapers circulating within the State and reviewed by the Commissioner once every five years

‒CR= annual charge rate expressed as a percentage of the assessed Market Value of the property and which may, at the State Government’s discretion, vary between:

a)owner occupied and other property;

b)residential property and commercial (revenue-generating property);

c)physically-challenged persons; and

d)persons who have been resident at the same location for at least 12 years, minor, retired owners and occupiers, on the one hand, and other owners and occupiers on the other.

What is the specific Annual Charge Rate applicable to eligible property?

• The Annual Charge Rateto be applied to eligible property in Lagos State shall be as follows:

1.Owner-occupied residential property–0.076% per annum of the assessed property value

2.Owner-occupied pensioner’s property–Exempted from LUC

3.Lagos State Government property–Exempted from LUC

4.Industrial premises of manufacturing concerns–0.256% per annum of the assessed property value

5.Residential property (owner and third party–0.256% per annum of the assessed property value

6.Residential property (without owner in residence)–0.76% per annum of the assessed property value

7.Commercial property (used by occupier for business purposes)–0.76% per annum of the assessed property value

8.Vacant property and open empty land–0.76% per annum of the assessed property value

Are there any form of reliefs available for LUC payers?

•There are various forms of reliefs that are available to payers of LUC.

•The reliefs include:

a)General reliefof 40% (applicable to all property liable to pay LUC); and

b)Specific reliefsapplicable to property owners and leases of 10 years and above for:

I.Pensioners (60 years and above)–100% for owner-occupied property

II.Persons with disability–10% for owner-occupied property

III.Aged persons(70 years and above) –10% for owner-occupied property

IV.Age of property–10% for property aged 25 years and above

V.Long occupation by owners–5% for 12 years and above

VI.Federal and other State Government property–20% for non-revenue generating property

VII.Partial relief under the LUC Law–20% for non-profit-making organisations

How can payers take advantage of the available reliefs?
•To enjoy the available reliefs, payers will need to provide relevant documentary evidence to support their relief claims.

How can payers apply for the reliefs?
•All application for reliefs can be made to the Commissioner for Finance for approval and supported with relevant documents.

What do the payers stand to benefit from early payment of LUC?
•All LUC paired within 15 days of receipt of Demand Notice will enjoy a timely payment discount of 15%.

What is the minimum LUC payable?
•The minimum LUC payable on any given property shall not be less than ₦5,000 irrespective of any LUC relief granted on the property.

Who is responsible for the property enumeration and valuation?
•The Commissioner for Finance is empowered to appoint such Property Identification Officers, Professional Valuersand other persons as may be considered necessary for the purpose of assessing the charge applicable to a property.

Are there any property exempted from LUC?
•The following category of property are exempted from LUC:

1.Property owned and occupied by a religious body and used exclusively as a place of worship or religious education;

2.Public cemeteries and burial grounds;

3.Property used as a registered educational institution certified by the commissioner to be non-profit making;

4.Property used as public library or as a private library certified by the commissioner to be non-profit making;

5.Any property specifically exempted by the Executive Governor by notice published in the State Official Gazette; and

6.All palaces of recognised Obas and Chiefs in the State provided that if any of the exempted property is leased out to private entities for revenue generation, it shall forfeit its exemption status as contemplated under the provisions of this Law.

What are the offences and penalties?
•Any person who:

1.Refuses or neglects to comply with any provision of this Law when required to do so by the Property Identification Officer or an Assessor;

2.Prevents, hinders, or obstructs any Property Identification Officer or an Assessor in the course of lawful duty; or

3.Removes, damages or destroys a Property Identification plaque on any Property or building,

commits an offence and shall be liable on summary conviction to a maximum fine of two hundred and fifty thousand naira only (₦250,000) or to a maximum term of imprisonment for aperiodod three (3) months or both.

Is there any penalty for people who incites others to refuse to pay LUC?
•Any person who:

a)incites another person to refuse to pay LUC; or

b)Incites or assists any person to misrepresent in any way the person’s chargeable property;

commits an offence and shall on summary conviction be liable to a maximum fine of two hundred and fifty thousand naira only (₦250,000) or to a maximum term of imprisonment for a period of three (3) months or both.

What dispute resolution mechanism has been put in place?
The new LUC Law establishes an Assessment Appeal Tribunal (“the Tribunal”) in each division of the State to treat all appeals and resolve any potential disputes.

Who makes up the Assessment Appeal Tribunal?
•Each Tribunal shall consist of:

1.A Chairman who shall be a legal practitioner of not less than 15 years post-call experience;

2.A representative of the Attorney-General;

3.A registered town planner;

4.A registered land surveyor;

5.A registered estate valuer;

6.A representative of the Lagos State Valuation Office;

7.A person with cognate experience in accounting and taxation; and

8.Two (2) persons from the private sector.

Under which circumstance can one make an appeal against an LUC demand notice?
•A person may make an appeal to the Tribunal if aggrieved by:

1.A decision that the property which the person owns is a chargeable property, or that the person is liable to pay LUC in respect of such property; or

2.Any calculation of an amount which the person is liable to pay as LUC, and the Tribunal shall make such decision as it deems fit.

What is the mediation process under the new LUC Law?
•In resolving disputes arising from the provisions of this Law, the parties shall submit to a confidential mediation in an effort to resolve such disputes.

•Where the mediation does not resolve the dispute within 45 working days of the first session or when the mediator declares an impasse, the mediation shall be deemed inconclusive and parties shall be at liberty to resolve their dispute formally at the Tribunal or through any other lawful means.

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