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Ripples over service charge in estates

24th Sep 2018
The controversy dogging the imposition of exorbitant service charges in various estates in the country is set to boil over, with bitter quarrels between the property owners or managers and the occupiers.

In rare cases, the trouble has been between residents and associations executives.

Service charge is a mandatory payment made by tenants toward the cost of maintenance and repairs of common facilities, beyond those being personally used by individual residents’ in their apartments.

According to the Royal Institution of Chartered Surveyors’ (RICS) Code of Practice document, the service charge enables owners of estates to recover the costs of operating a property from the occupiers as well as any other persons who benefit from and use the services/facilities provided.

The fees, also covers; car park or shared driveway, reception areas, corridors, lifts, grass cutting/gardening, general repairs and maintenance, Close Circuit Television (CCTV) equipment and block insurance among other things.

The most worrisome aspect of the issue is the astronomical increases and lack of fixed charges for such services, which often result to regular cause of disagreement between landlords and tenants.

For instance, in 1004 Estate in Lagos, tripartite quarrel has brewed between the former facility managers and the residents. Subsequently, the matter shifted between the occupiers and the association.

All have bothered on service charges. In most major cities, the story is the same.

In highbrow locations like Lagos, Abuja, Kaduna and Port Harcourt where such structures are rented, some tenants pay rent and service charges upfront like three to five years in advance for easy management of their services.

The prices are subject to review, in which case they may go up/down.

Investigations showed that service charges differ from one estate to another depending on specific services provided at each location as well as the value of the estate.

In ‘Banana Island estate’, Ikoyi, Lagos which is one of the country’s most expensive neigbhourhood where dwellers are provided with world-class utilities including underground electrical systems (versus the overhead cabling common throughout Lagos), an underground water supply network, a central sewage system and treatment plant, and street lighting and satellite telecommunications networks, service charges are quite expensive.

It ranges between N3.5 million, N2.5million, N2million and N1.5million and could be above.

While in ‘1004 estate’, Victoria Island the rate for service charges is put at about N658, 000 yearly (about N52, 000 monthly) in 2015.

The rate rose from the initial take off N450, 000 when the estate was partially occupied in 2011 down to N350, 000 in 2012, further down to N250, 000 in 2013 and incredibly down to N180, 000 in 2014.

Furthermore, in ‘Osborne foreshore estate’, service charge fee covers; security, environmental services and waste management and the charge starts from N500, 000 and above and could also be lesser.

Experts say, the way out is to enforce efficiency in procurement as well as transparency in order to bring down the cost for the benefit of tenants.

Speaking on the development, an estate surveyor and valuer, Olugbenga Ismail explained that discrepancies exist in service charges in estates because of three reasons, which are; the services provided, the level of energy consumption especially with respect to diesel and the size of the estate.

He said, “Service charges may depend on how each estate consumes energy.

If you have an estate that starts from 12 to 400units like 1004 estate, which is probably the biggest estate in Lagos, their service charges should be comparatively low in compared with others.

But if you have an area with just 12-20units and they have a fixed service like generator, water, cleaning and security, the service charge would be high”.

Ismail stated that the service charges are usually calculated in different ways, which include, per unit cost and service cost plus.

According to him, the unit cost implies if you know the total cost of service to be provided, you will have a total cost of budget for each of the services for the year divided by the number of units in the estate.

“The cost plus is the situation whereby the facility manager provides the services and adds a percentage on top of it for providing the services but that is not the service fee.

For example, if you bring in a carpenter, a generator service provider, you add a 15per cent to it”.

The service charge is similar to the land use charge, where the government charges everybody for providing services for the people. And so service charge is for providing services within the estate.”

He said, “When we said the charge is huge, we need to think of how to bring it down.

The question is, are we efficient in procurement, which is the major way of bringing down the cost of service charge in estate.

If the cost is efficient, then we are at the best cost.”

On allegations of corruption in service charge process, he advised that every tenants in estate should be able to request for accounts of how the money paid are expended on each of the services which has been provided.

The past chairman, Lagos State branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Sola Fatoki explained that the greatest challenges to charging higher service charge, is affordability as many of the residents won’t be able to afford the cost leading to voids in such estates.

He said before now, service charge in estates was usually based on about 10/20per cent, stressing that because some aspect of the services provided such as the cost of diesel and power can’t be quantified, it is now rated as they are consumed.

Fatoki stated, “The services provided will enhance the value of estate and the rental charges.

If the services are centrally provided, it will enhance the value of the estate and make it easy for people to come in and go out.

High charges could bring about rifts, high rates of defaults and delays in payments of the charges by facility managers of the estate and it could result into court cases if not amicably agreed on”.

African regional president, International real Estate Federation (FIABCI), Mr. Chudi Obosi, emphasized that every estate cannot have same service charge because in most cases, the services and quality are different.

Speaking on the challenges of exorbitant service charge he warned that, “As the tenants go through economic difficulties, even though if they pay their rents, it is the service charge that suffers.

Corroborating Mr. Ismail, he said to win the supports of tenants in estates, facility manager must account for service charge especially how it is spent, for the sake of transparency. This, he stressed is the only way to tackle issue of corruption.

On his part, the past chairman of Royal Institute of Chartered Surveyors, RICS, Nigerian Group, Barin Epega pointed out that power supply is a big problem in estate management, adding that as long as power supply cannot be guarantee, the service charge would never be the same.

He said, “Diesel usually causes a lot of the significant change in service charge.

In most cases, the amount you collect as service charge for one-year may not even last for five months. Where you have a block of flats occupied by a corporate body, it is much easier to manage.

For effective management in estates, he said, the best the best measure is to form association with key executives who will take up the responsibility but also better to have a professional manger saddled with the management of property than giving it to an association that lacked experience.

Culled From The Guardian

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