A. INTRODUCTION: THE CAPITAL DEMANDS OF FREE ZONE OPERATIONS
Nigeria’s Free Zones are capital-intensive environments by design. The Nigeria Export Processing Zones Authority (NEPZA) requires every approved enterprise to remit its investment capital through banks located within the zones, with a Certificate of Capital Importation issued in evidence of that remittance. For any enterprise engaged in manufacturing, oil and gas support services, logistics or industrial processing, the combined cost of securing a lease, constructing purpose-built facilities, importing equipment and funding working capital runs into the millions of dollars well before operations commence.
Against that backdrop, it is commercially rational and legally consistent with the NEPZA framework for an enterprise to seek to leverage its land interest within the zone as security for a debt facility. The land and infrastructure that an FTZ enterprise develops represents its most significant asset and that asset should be available to support the financing that funds it. Nigeria currently hosts over forty licensed and operational Free Zones under NEPZA’s oversight, with committed investment running into billions of dollars across major zones including Lekki, Onne, Calabar and Lagos. The debt structures supporting that working capital need to be secured against something, and the enterprise’s leasehold interest in its zone property is the natural starting point.
We recently advised on the creation and registration of security over a leasehold interest situated within a Nigerian Free Zone, in support of a significant debt facility. The transaction brought into focus a question that receives less attention than it deserves in Nigerian secured lending practice: how does an enterprise operating within a Free Zone use its land interest to support a debt facility, and how does the process of documenting and registering that interest differ from the conventional approach applicable to land held outside a Free Zone where title documents are typically perfected through the relevant State Lands Registry? This article sets out the answer.
What this article addresses are the mechanisms for doing so, and the critical respect in which that mechanism differs from the approach that applies to land in the Nigerian customs territory (that is, the general territory of Nigeria which is subject to the ordinary land administration, customs and regulatory regime).
B. WHAT THE ENTERPRISE HOLDS: THE NATURE OF THE LEASEHOLD INTEREST
The starting point in any secured financing involving a Free Zone Enterprise (“FZE”) is to identify the nature of the land interest available to support the facility. In practice, an FZE’s rights over land within a Free Zone are typically derived from lease, sublease or other occupancy arrangements granted by the entity holding the relevant proprietary, concessionary or operational interest within the zone, which may be the developer,or Zone Management Company (“ZMC”), depending on the structure of the particular Free Zone, and it is this leasehold interest that ordinarily forms the basis of the security package provided to lenders. For context, a ZMC refers to the entity responsible for the administration and management of the Free Zone, while the developer refers to the entity responsible for establishing and developing the zone infrastructure.
The statutory framework supports this position. Section 18(1)(f) of the NEPZA Act contemplates the occupation of land by approved enterprises on rental terms, providing that enterprises are entitled to rent-free land during the construction stage, after which rent becomes payable as determined by the Authority. While the provision does not expressly characterise the enterprise’s interest as a leasehold, occupation within the zone is ordinarily documented through lease, sublease or similar occupancy arrangements granted by the entity authorised to allocate and administer occupational rights within the Free Zone, often the developer, operator or ZMC.
The leasehold structure within a Free Zone is therefore layered. The underlying land interest remains vested in the relevant authority, while the entity responsible for developing or managing the zone typically holds the concession, lease, licence or other proprietary interest through which occupational rights are granted to enterprises. The FZE ordinarily derives its leasehold interest from that entity, and it is that derived interest, rather than the underlying superior interest, that is typically charged, assigned by way of security or otherwise used as collateral in support of debt financing.
This distinction has important due diligence implications. The strength of the collateral depends substantially on the terms of the sublease itself, including its duration, conditions governing assignment, consent requirements, termination provisions and compliance obligations. Where an enterprise holds only an offer letter or allocation letter that has not been formalised into an executed sublease, the interest is not yet in a form suitable for use as collateral. Formalisation into an executed sublease is the prerequisite to any properly structured transaction of this kind.
C. THE REGULATORY PERMISSION TO BORROW AND GRANT SECURITY
A question that arises at the outset of almost every Free Zone financing discussion is whether the regulatory framework permits an FZE to borrow and grant security at all. It does, and this is expressly provided for in a number of Free Trade Zone Regulatory frameworks issued pursuant to the NEPZA Act.
Regulation 34 of the Alaro City Free Zone Regulations 2022, Regulation 18 of the Eko Atlantic Free Zone Regulations 2019, and Regulation 1 of the Lagos Free Trade Zone Regulations 2009 each empower an FZE to engage in banking and financial transactions, borrow funds, and grant security in support of its obligations. These are not implied permissions. They are express provisions, and they settle the question of legal capacity at the outset.
The consequence is that the relevant inquiry is not whether an FZE may grant security over its leasehold interest. It may. The inquiry that actually determines the integrity of the transaction is whether the title document evidencing that leasehold has been properly executed, and whether it has been registered in the correct registry. That is where the substance of a Free Zone-secured transaction is won or lost.
D. DOCUMENTING AND REGISTERING THE TITLE: THE NEPZA FRAMEWORK, NOT THE LANDS REGISTRY
In conventional Nigerian property transactions, perfecting the title document over land in the customs territory involves a defined set of steps. The instrument must receive the Governor’s consent under Section 22 of the Land Use Act (Cap L5, LFN 2004), which conditions the validity of any alienation of a right of occupancy, including a mortgage. It must then be duly stamped under the Stamp Duties Act, and registered at the relevant State Lands Registry. Where the mortgagor is a company, the charge must additionally be registered at the Corporate Affairs Commission (CAC) within ninety days of creation, pursuant to Section 222 & 223 of the Companies and Allied Matters Act (CAMA) 2020. These steps collectively constitute the orthodox perfection regime for security over land-based assets.
Within a Free Zone, this orthodox framework applies only in a limited and modified sense, reflecting the special regulatory character of Free Zones established under the NEPZA Act. Section 1 of the NEPZA Act empowers the President to designate Free Zones, with the legal consequence that such zones operate under a distinct administrative regime for trade, investment, and regulatory supervision. The Free Zone Enterprise’s interest in land is therefore not held as a statutory right of occupancy registrable at the State Lands Registry, but as a contractual leasehold interest derived from either the ZMC, developer or other authorised entity depending on the structure of the zone.
Accordingly, the recording and recognition of title within a Free Zone is administered through the NEPZA and/or Free Zone administrative framework, under which the deed of sublease and related interests are maintained in the zone’s official records. This registry functions as the principal administrative record of occupancy and entitlement within the Free Zone, and it serves as the mechanism through which the enterprise’s interest is recognised and monitored for regulatory purposes.
The relationship between the two systems is therefore functional rather than identical. In the customs territory, registration at the State Land Registry forms part of the statutory perfection of interests in land. Within a Free Zone, registration with NEPZA serves the corresponding purpose of administrative recognition within the zone’s regulatory system. While the underlying legal foundations differ, both systems operate to provide an official record of the relevant interest and to regulate dealings affecting it.
For parties entering into Free Zone-secured transactions, it is therefore essential that engagement with the NEPZA or the zone’s registration process is undertaken at the outset of the transaction. Each Free Zone operates its own administrative procedures governing registration and record-keeping, and compliance with those procedures is central to ensuring that the relevant interest is properly recognised within the Free Zone framework.
E. CONCLUSION
Free Zone leasehold interests are bankable assets. The NEPZA framework expressly permits FZEs to borrow and grant security. The mechanism for documenting and registering the title document exists within the zone’s own administrative structure and is coherent and workable. What has been absent in practice is the transactional experience to navigate that framework confidently, and a clear articulation of how it differs from the conventional property finance process familiar to most lenders operating in Nigeria.
The difference is not one of legal principle. Both the customs territory and the Free Zone regime operate on the same underlying logic: the title document is executed, and it is registered in the relevant registry to give it public record and legal standing. The registry is different. The regulatory framework governing the underlying interest is different. But the transactional objective is the same, and it is achievable.
As deal volumes in Nigeria’s Free Zones continue to grow and lenders become more attentive to the legal character of the assets within those zones, the structuring of Free Zone-secured transactions will move from specialist capability to standard expectation. The enterprises and institutions that invest in understanding the framework now will be better positioned to move with confidence when the transaction requires it.
Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this should please be directed at the authors.
