Renting a home in Nigeria comes with a range of costs beyond the actual rent itself. Many tenants are familiar with additional charges such as agency fees, legal fees, and caution deposits, but the logic behind these fees often remains unclear. Why should a tenant bear the cost of an agent hired by the landlord? Why is legal documentation charged at a seemingly high rate when many agreements are just copied and pasted? Is this standard practice worldwide, or is it unique to Nigeria?

In this post, we’ll explore these questions, shedding light on the rental process in Nigeria and offering insights into possible reforms that could make housing more affordable and fair for tenants.

What is “Agency” in a Rental Agreement?

When renting a property, the term “agency” refers to the involvement of a real estate agent who facilitates the transaction. In most cases, the agent is hired by the landlord to find suitable tenants, market the property, and handle negotiations. However, in Nigeria, it is customary for tenants to bear the cost of this service in the form of an “agency fee,” typically set at 10% of the total rent.

The justification for this practice is that both parties benefit from the agent’s involvement. The landlord secures a tenant faster, while the tenant gains access to a property they might not have found otherwise. Some agents also assist tenants in the house-hunting process, making them intermediaries for both sides. However, the reality is that many tenants feel they are paying for a service that primarily benefits the landlord.

Why Do Tenants Pay for Legal Fees?

Legal fees are another significant cost added to rental agreements in Nigeria, often charged at 10% of the rent amount. These fees are meant to cover the cost of drafting and reviewing the lease agreement. While it’s true that legal expertise is valuable, many tenants question why such a high percentage is charged when rental agreements are often reused with minimal modifications.

According to a lawyer’s rebuttal on X (formerly known as Twitter), she described legal fees as a form of “compound interest” for lawyers, where they leverage accumulated knowledge to justify recurring charges. In other words, even if the legal work is minimal, tenants are still expected to pay for the lawyer’s expertise and time.

From a legal standpoint, these fees are not arbitrary. Lagos State law, for instance, recognizes legal fees as a necessary component of rental agreements, ensuring that contracts are properly documented and enforceable. But does this mean tenants should always be the ones footing the bill?

The Cost Burden on Tenants

Let’s break down the financial impact of these charges.

If a tenant rents a property for N2 million per year, they will likely face the following additional costs:

• Agency Fee (10%) = N200,000
• Legal Fee (10%) = N200,000
• Total Extra Costs = N400,000

Now, imagine the landlord requires two years’ rent in advance, a common practice in Nigeria. The tenant must now pay N4 million in rent plus N800,000 in additional fees, bringing the total upfront cost to N4.8 million.

In some cities like Enugu, tenants report even higher charges:

• Rent: N350,000
• Legal Fees: N100,000
• Agency Fees: N100,000
• Caution Deposit: N50,000 – N100,000 (as the lawyer decides)

This means that for a property with an annual rent of N350,000, the total upfront payment can exceed N600,000—nearly double the rent.

These figures highlight a major affordability challenge in Nigeria’s rental market. While these fees may be justified by industry norms and legal frameworks, they impose a significant burden on tenants, many of whom struggle to meet these financial demands.

Is This Practice Common Worldwide?

The Nigerian rental system stands in stark contrast to practices in other countries, where rental transactions are structured to be more tenant-friendly and transparent. In many developed real estate markets, key differences include:

1. Landlords Pay Real Estate Agents

In countries such as the United Kingdom, Germany, and Italy, landlords are responsible for paying the real estate agents they hire to manage their properties. This is in contrast to Nigeria, where tenants often bear the cost of agency and legal fees in addition to rent. For instance:

In the United Kingdom, estate agent fees typically range between 1% and 3% of the property’s sale price, covered by the seller or landlord.

In Germany, commission rates vary from 3% to 6%, often split between the buyer and seller, ensuring the burden does not fall entirely on one party.

In Italy, both the buyer and seller pay an agency fee of 2% to 3% each, depending on the agreement.

2. Minimal Legal Fees for Lease Agreements

Unlike in Nigeria, where tenants often face high legal and agency fees, many developed countries include lease-related legal costs within standard tenancy agreements. For example:

In Ireland, lease agreements are subject to a 1% stamp duty on rental payments, which covers legal formalities without excessive additional charges.

In Ukraine, lease agreements are typically negotiable, with legal requirements focused on rent amount, property description, and responsibilities of both parties—without imposing hefty legal fees on tenants.

These global best practices highlight a rental system that prioritizes affordability and fairness, a stark contrast to Nigeria’s model, where tenants often shoulder multiple financial burdens beyond just rent. In many countries, instead of paying hefty agency and legal fees, renters are only required to pay a refundable security deposit and, in some cases, a small administrative fee to cover processing costs.

For example, in the UK, tenants typically pay a security deposit (equivalent to 4-5 weeks’ rent) and the first month’s rent upfront. Agency fees for finding tenants were banned in 2019, ensuring that landlords, not tenants, bear the cost of hiring agents.

In the US, real estate agents earn their fees from landlords, except in highly competitive rental markets like New York City, where tenants sometimes pay a “broker’s fee.” Even then, these fees are often negotiable and are not as universally enforced as they are in Nigeria.

This raises an important question: should Nigeria adopt similar tenant-friendly policies?

What Does the Law Say?

Lagos State has some legal provisions governing real estate transactions, including:

• The Lagos State Tenancy Law (2011), which prohibits landlords from demanding more than one year’s rent in advance for properties below a certain rental value (though enforcement remains weak).
• The Lagos State Estate Agency Regulatory Authority Law, which recognizes a 15% agency fee when multiple agents are involved.

While these laws exist, they have not effectively curbed excessive rental charges. Many landlords and agents continue to demand large upfront payments, often exploiting the housing shortage to justify high fees.

What Can Be Done?

Many stakeholders believe the Nigerian real estate sector needs better regulation. A few possible solutions include:

1. Government Regulation of Fees

Setting a maximum cap on agency and legal fees to prevent excessive charges. Making it mandatory for landlords, not tenants, to pay agency fees, as is the case in many other countries.

2. Enforcing Existing Laws

Strengthening the enforcement of the Lagos State Tenancy Law to prevent landlords from demanding multi-year rent advances. Ensuring that agency fees align with actual services provided, rather than being a standard percentage-based charge.

3. Introducing Rent Control Measures

While Nigeria operates a free-market economy, real estate price controls could help prevent exploitation. Incentivizing landlords with tax benefits or other advantages for offering fairer rental terms.

4. Encouraging Alternative Housing Solutions

Promoting mortgage options and rent-to-own schemes to reduce dependence on expensive rental markets. Supporting the development of affordable housing projects through public-private partnerships.

Final Thoughts

The cost of renting in Nigeria is undeniably high, and the burden placed on tenants through agency and legal fees only exacerbates the problem. While these fees are legal and justified within the current system, they raise concerns about affordability and fairness.

A more balanced approach—where landlords take greater responsibility for agency costs and legal fees reflect actual work done—could create a rental market that benefits both property owners and tenants. Until then, tenants must navigate the system as it is, budgeting not just for rent but for the often-overlooked additional costs that come with securing a home in Nigeria.