How We Structure Lagos Real Estate JVs for Capital Protection
Introduction
In prime Lagos real estate, the difference between a good project and a defensible asset often comes down to how the joint venture is built. Capital is rarely the constraint at the top end of the market. Governance is. When equity from multiple sponsors must live alongside bank debt, construction risk, title perfection, and sales execution, the vehicle carrying that risk needs to be engineered with the same precision as the tower itself.
Our approach starts with a clean special purpose vehicle that ring-fences liabilities, establishes decision rights, and sets a predictable path for money in and money out. The shareholders’ agreement is the operating system. It defines reserved matters, board composition, veto thresholds, information rights, drag and tag mechanics, and the conditions under which a counterparty can be diluted or replaced. The constitution of the company then mirrors those rights, so governance is embedded in the charter documents rather than left to side letters.
We treat the cash flow as infrastructure. Equity goes in against milestones, not promises. Escrow and waterfall provisions are drafted before the first draw, not after the first delay. If the project carries debt, lender direct agreements and step-in rights are aligned with sponsor cure rights so that control, remedies, and continuity sit in the same place. Where the asset is inside a free zone such as Eko Atlantic, the JV also incorporates estate consents, technical no-objection certificates, and recognition of lender and buyer step-in so that estate rules, state law, and finance documents move together.
Lastly, we design for dispute avoidance, not just dispute resolution. Clear default triggers, objective performance tests, and a credible arbitration framework keep the venture bankable even when the market turns. The result is a JV that institutional capital can underwrite: transparent, enforceable, and built to survive more than one cycle.
The SPV that lenders trust (capital structure, reserved matters, board controls)
We build the joint venture around a single-purpose company that ring-fences risk and makes decision rights unambiguous. In practice, that means a private company limited by shares with a narrow objects clause, clean cap table, and bank mandates that mirror the governance architecture. Lenders want to see a vehicle that cannot wander into unrelated business, take on off-balance-sheet liabilities, or change control without the knowledge of investors and charge holders. We hard-code those limits in the constitution and then reinforce them in the shareholders’ agreement.
Capital structure. We keep it simple and testable. Ordinary shares carry economics; a small class of preference or management shares can be used for waterfalls or promotes, but only if the priority is clear. Pre-emptive rights protect existing investors from dilution. Any issuance, buy-back, or external debt requires supermajority approval. We avoid complex convertibles unless the lender, the valuation model, and the exit plan can all tolerate the moving parts.
Reserved matters. The board manages the company, but certain decisions must be escalated to shareholders. We define a short, high-signal list: changes to business scope, approval of the project budget and material variations, incurrence of debt above agreed thresholds, security over assets, issue or transfer of shares, changes to key project contracts, related-party transactions, appointment or removal of auditors, dividend policy, and any step that could impair lender security. Supermajority thresholds are calibrated to protect minority and cornerstone investors without creating veto paralysis. Where two sponsors hold equal power, we add a deadlock mechanism with tight time limits and a neutral chair or expert determination.
Board composition and controls. The board is small, skilled, and decision-capable. We balance sponsor nominees with at least one independent director who understands construction risk, finance, and Lagos regulation. Quorum requires attendance from both sponsor blocs so that no material decision is taken unilaterally. Information rights are scheduled: monthly management accounts, QS certificates, cash-flow forecasts, covenant compliance certificates, and a standing agenda that tracks title, permits, cost-to-complete, and sales velocity. For banked projects, we invite the lender as an observer at key meetings and align board calendars with drawdowns, so governance and funding move together.
Controls that protect capital. We embed a negative pledge and restrictions on disposals. Related-party contracts are priced at arm’s length and pre-cleared by the board. Signatory matrices require two signatures, with at least one director from each sponsor group for payments above agreed thresholds. The company maintains separate project, escrow, and reserve accounts; sweeps follow the documented waterfall. On default, cure rights are objective and time-bound. If a sponsor misses capital calls, their interest dilutes under a pre-agreed formula or flips to a non-voting economic stake until cured. If performance fails tests set in the programme or QS reports, step-in rights allow the non-defaulting sponsor or the lender to replace a non-performing contractor or manager without resetting the entire JV.
Documentation harmony. The articles, shareholders’ agreement, finance documents, and major project contracts must say the same thing in different places. We reconcile definitions, consent thresholds, and enforcement mechanics across all documents before first draw. That avoids the most common failure point in Lagos structures: conflicting texts that invite disputes when pressure rises.
Cashflow as collateral (escrow, waterfalls, and step-in that hold up)
In Lagos development and income assets alike, cashflow is the most reliable security once you strip away marketing gloss. We structure the finance spine before the first naira moves: a bank-managed escrow, a documented waterfall, reserve accounts sized to real risk, and step-in rights that allow continuity if a counterparty fails. The goal is simple—segregate cash, enforce priority, and eliminate timing gaps between legal transfer, perfection, and disbursement.
Escrow that actually protects funds. Escrow is not a label; it is a contract. The deed must hard-wire conditions precedent (title pack lodged, duties paid or adjudicated, consent application filed where applicable, estate no-objection in Eko Atlantic, insurance notes in force) and conditions subsequent (registration receipts, consent letters, updated folio). Releases occur against objective evidence, not emails or assurances, with the bank acting only on the agreed checklist.
Waterfall with lender-grade priorities. A credible waterfall pays the unavoidable first: statutory charges and insurance; then operations and ring-fenced reserves; then debt service; then contractors against independent QS certification; only thereafter do distributions flow to equity. This sequencing keeps liquidity where it is needed—compliance, uptime, and debt service—so that a short-term shock does not trigger a broader default. Reserve mechanics matter: a Debt Service Reserve Account is typically set at six to twelve months of scheduled principal and interest, tested and replenished on reporting dates. That single feature stabilises projects through delays, voids, or temporary cost spikes.
Step-in and continuity. When performance slips, sophisticated capital does not want a courtroom; it wants continuity. Step-in rights do that work. Intercreditor and recognition agreements should let the lender (or the non-defaulting sponsor) replace a non-performing contractor or manager, cure technical breaches, and keep the programme moving without collapsing the JV. For income assets with key tenants, a standing SNDA keeps the rent roll intact if enforcement ever occurs: the lender commits to non-disturbance so long as the tenant performs, and the tenant recognises the lender as landlord after enforcement. That keeps cashflow bankable through stress.
Stamping, consent, and timing risk. Even the best cash architecture fails if the instruments cannot be enforced. We sequence stamping within statutory periods, file consent applications early where required, and use gap cover only as a bridge—not a substitute—for perfection. That discipline keeps instruments admissible and priorities intact at the moment they are most likely to be tested.
Keeping the JV bankable (transfers, dilution, and dispute mechanics that preserve value)
Transfers and exits are where most joint ventures break. We design them so that value is preserved whether the market is rising or the partnership is stressed. In a Lagos private company, the starting point is simple: share transfers are restricted by the articles, and any movement in the cap table must respect pre-emptive rights, disclosure of beneficial ownership, and the company’s solvency and maintenance-of-capital rules. That gives lenders and investors a predictable perimeter around who can sit on the register and on what terms.
Transfers that don’t destabilise control. We build a short, enforceable sequence: first, a right of first refusal (or broader pre-emption) in favour of existing shareholders; second, drag-along rights that permit a majority to deliver a clean sale of 100% on agreed terms; third, tag-along rights so minorities can exit on the same price and terms if a controlling bloc sells. Board consent is not a rubber stamp — it is tied to objective criteria (KYC, sanction screening, competition issues, and any lender consent). We also define “change of control” at the sponsor level so that an upstream sale cannot smuggle a new principal into the JV without approvals.
Dilution that is fair and fast. Capital calls are the pressure test. If a shareholder misses a properly noticed call, the JV cannot stall. We use a waterfall of remedies that an investment committee can underwrite: automatic pro-rata top-up by non-defaulting investors; issuance of make-up shares at a formula price (often VWAP from the last round or an independent valuer’s range); temporary loss of voting rights until cured; and, after a defined cure window, an option for compulsory transfer at fair value less agreed default costs. Where the business case supports it, we may permit buy-backs or limited financial assistance — but only within the statute’s solvency, special-resolution, and “whitewash” safeguards — so exits can be cleaned up without breaching capital-maintenance rules.
Dispute architecture that prioritises continuity. We don’t design for litigation; we design for momentum. The contract hard-codes a stepped process: negotiation at board level, then time-boxed mediation (often via the Lagos Multi-Door Courthouse), and only then arbitration seated in Nigeria under the modern statute. The arbitration clause is detailed: seat and venue, institution, number and qualifications of arbitrators, emergency arbitrator access for interim relief, confidentiality, limited document production, cost-shifting, and a strict timetable to award. We keep narrow court carve-outs for urgent injunctive relief over assets or registry filings. Because third-party funding is expressly permitted for Nigerian-seated arbitrations, we also require disclosure of any funder to avoid conflicts. The effect is practical: when partners disagree, there is a fast path to a binding outcome without freezing projects or frightening lenders.
Why this holds value in practice. Clear transfer mechanics prevent hostage-taking at exit. Predictable dilution keeps money moving without destroying minority protections. A modern ADR stack delivers enforceable outcomes on timelines that credit committees can live with. Together, these features keep the JV bankable across cycles — and make it easier to refinance, recapitalise, or sell when the market window opens.
Conclusion
In Lagos real estate, joint ventures succeed when governance is designed first, capital follows process, and continuity is engineered into the documents. A lender-grade SPV with clear reserved matters and decision rights prevents drift. Cashflow architecture, escrow, waterfall, reserves, and step-in, turns promises into enforceable priorities. Transfer, dilution, and dispute mechanics keep momentum when pressure rises, so projects remain bankable across cycles.
The outcome is practical: committees can underwrite the vehicle, lenders can advance against predictable protections, and sponsors can execute without re-negotiating the rules midstream. That is how we structure JVs that protect downside while preserving the capacity to scale, refinance, or exit when the market window opens.