An Examination of the Usufructuary Right of a Mortgagee in Nigeria

CONTRIBUTOR: LILIAN EKU

INTRODUCTION

In Nigerian legal history, the landmark case of Amodu Tijani v. The Secretary, Southern Provinces, NGSC 1 established the principle that customary land rights, including usufructuary rights, could be enforced by imperial courts. A usufructuary right is a legal right granted to a person (the usufructuary) by the owner of a property, allowing them to use and enjoy quiet possession of the property for a fixed period, while the original owner retains ownership of it.

Under Roman law, there are three recognized fundamental rights of an owner which are “usus”, “fructus” and “abusus”^[1]. A usufructuary holds two of these rights, which are usus, the right to use a property and fructus, the right to receive the fruits or produce of the property. However, a usufructuary does not have full ownership of the property because they do not enjoy the third property right, abusus, which refers to the right to consume, destroy, or transfer ownership of the property to someone else.^[2]

HOW A USUFRUCT WORKS IN A MORTGAGE TRANSACTION.

Though complex, Usufruct is a fundamental right that allows a person (the usufructuary) to use and enjoy someone else’s property, even though they are not the owner.^[3] In a mortgage transaction, where a mortgagor (borrower) defaults in the payment of the mortgaged sum, the mortgagee (lender) is empowered to take possession of the mortgaged property and use it in return for proceeds, which would be used to offset the mortgaged sum. For example, where a house owner in Nigeria decides to use his house as collateral for obtaining a loan from a mortgagee and ends up defaulting on the repayment of the loan after the expiration of the legal due date, the mortgagor can forfeit possession of the house in favour of the mortgagee who then takes possession and uses the house for rent till enough money, capable of offsetting the loan is recovered from such rental service. In this instance, the extent of the usufructuary’s (the Mortgagee) right is making use of the house or receiving rent where the house is rented, but they have no right to assign, dispose or sell off the property. The owner still retains ownership and enjoys reversery right^[4]

Key characteristics of the usufructuary right of a mortgagee include:

1. The right to use and enjoy the property (usus): This is a legal right of a usufructuary mortgagee upon the default of payment of the mortgaged sum by a mortgagor.
2. The right to receive income from the property (fructus): This is also a legal right to rent out a mortgaged property and receive proceeds of such property, but with the consent of the owner.
3. The obligation to maintain and preserve the property: The usufructuary (mortgagee) has an obligation to keep the property in a good state of use and make repairs when necessary.
4. The limitation on the right to alienate or dispose of the property (abusus): This is what differentiates a usufructuary from the owner of the property. A usufructuary mortgagee can not sell the mortgaged property.

At the termination of an usufruct or full recovery of the mortgaged sum, all legal right over a property reverts back to the owner of such property.^[5]

LEGAL FRAMEWORK GOVERNING MORTGAGE IN NIGERIA.

Nigerian laws governing mortgage transactions include:

1. The Property and Conveyancing Law (PCL) 1959.
2. Conveyancing Act 1881.
3. The Nigerian Land Use Act (LUA)1978.
4. The Mortgage and Property Law 2010.

CREATION OF USUFRUCTUARY RIGHT IN A MORTGAGE.

Usufructuary right of a mortgagee is created in Nigeria through:^[6]

1. By mortgage deed: Where a mortgagee inserts a clause of usufruct in the mortgage deed which permits the mortgagee to recover the loan by renting out the mortgaged property and keeping the proceeds, then a usufructuary right is created.
2. By contract: A mortgage can sign a contract permitting the mortgagee to take possession of the property, rent it out and receive the proceeds to offset the loan.
3. By operation of law: This refers to the instances where provisions in the law cater for the autonomous creation of a usufruct, for example, a parent’s rights over their children’s property.

TERMINATION OF USUFRUCTUARY RIGHT IN A MORTGAGE.

The usufructuary right of a mortgagee can be terminated in Nigeria through:

1. By repayment of the mortgage loan: Where the mortgage loan is fully paid, by the mortgagor, so fully retrieved as rent over the mortgage property by the mortgagor, all rights over the mortgage property revert to the mortgage.^[7]
2. By foreclosure: Foreclosure of the mortgage can also terminate the Usufructuary right.
3. By court order: The court can also order that the usufructuary right be terminated and provide other means of recovery of the mortgage loan.

RIGHTS AND OBLIGATIONS OF A MORTGAGEE WITH USUFRUCTUARY.

1. Such rights include:
2. Right to receive rent or income from the mortgaged property.

Upon default of payment of the mortgagor, the mortgagee may take possession of the mortgaged property either in person or by means of an appointed receiver. Where there’s a subsisting leasehold transaction, once possession is obtained by the mortgagee, he becomes entitled to all arrears of rent that the lessee owes (including all accrued at the time the mortgagee takes possession and after), but is not entitled to the rents gotten before the mortgage transaction began. ^[8]

1. Right to manage and maintain the mortgaged property.

The mortgagee becomes the manager of the property once possession is taken. However, it is a prerequisite that the mortgagee gives a notice of the mortgage and a notice of their intention to take possession of the property and a letter of demand for the rent to be paid to them (the mortgagee)^[9]. He also must ensure the property is in a good state of use throughout the time of being in possession.

1. Such obligations include:
2. Obligation to maintain and preserve the mortgaged property.

Throughout the duration of taking possession of the mortgaged property, the mortgagee must ensure the property is in good condition, all minimal repairs are to be done by the mortgagee, while major repairs would be done by the mortgagor.

1. Obligation to account for rent or income received from the mortgaged property.

While exercising usufructuary rights, the mortgagee is seen as an agent of the mortgagor and must render properaccount of all proceeds received from the mortgaged property. In addition to giving account, the mortgagee must ensure that the rent reserved is the best obtainable for the property. Also, once the debt is fully liquidated and possession is returned to the mortgagor, the mortgagee is mandated to return the balance of the rent paid to the mortgagor.^[10]

Implications of Usufructuary Right of a Mortgagee

As much as usufruct has proven to be an effective way for the recovery of the mortgaged sum, it can be stressful for the mortgagee to implement by having to take up a new responsibility of managing properties. It might also put the mortgagee at higher risk of incurring liabilities at the slightest form of negligence in handling the mortgaged property or not giving accurate accounts.

CONCLUSION

Usufructuary Right of a mortgagee appears to be one of the easiest ways for a mortgagee to recover a loan. It also takes the burden of having to run around to secure a repayment of the mortgaged sum from the mortgagor. It reduces the workload of the court, as it appears to be an alternative means of recovering the mortgaged loan without the court’s involvement. It is faster and easier compared to taking action for recovery of principal sums and interest in court.

REFERENCE

1. USUS FRUCTUS ABUSUS https://phmuseum.com/projects/usus-fructus-abusus accessed on March 2025 ↑

2. What Is Usufruct? How It Works With Property Use and Example https://www.investopedia.com/terms/u/usufruct.asp#:~:text=A%20usufructuary%20does%20not%20have,to%20his%20or%20her%20estate. Accessed on March 2025 ↑

3. Usufruct: what it is and how it can affect the buying and selling of property https://ideeimmobili.com/en/blog/usufrutto-compravendita-immobiliare/#:~:text=In%20the%20real%20estate%20market,they%20are%20not%20the%20owner. Accessed on March 2025 ↑

4. R. & Wade, W., The Law of Real Property (Charles Harpum ed. 6^th edn. Sweet & Maxwell 2000) 1170 ↑

5. Different types of mortgages https://www.axisbank.com/progress-with-us-articles/loans/home-loan/types-of-mortgage accessed on March 2025. ↑

6. Usufruct in Maltese Law https://gtg.com.mt/understanding-usufruct-rights-obligations-and-termination-in-the-maltese-law/ accessed on March 2025 ↑

7. R. & Wade, W., The Law of Real Property (Charles Harpum ed. 6^th edn. Sweet & Maxwell 2000) 1170 Access s ↑

8. Saka Abdulrahman and Abigail Juwah, ‘The Legal Threshold of Rights and Liabilities of the Mortgagor, Mortgagee, and Lessee of a Mortgage Property in Relation to the Validity of a Lease’ (2024) 7 International Journal of Law and Society 139. ↑

9. Turner v Walsh [1909] 2 KB 484 ↑

10. Aderoku v. United African Co. Ltd (1941) 7 WACA 39; Wema Bank PLC v. Bioku Investment & Property Co Ltd (987) FHCLR 275. ↑