Remember the Service Charge

Recently, I came across this very interesting article written by Caroline Akinlotan, a real estate consultant with over 20 years property expertise under her belt, both in Nigeria and the United Kingdom, UK. I decided to bring you the article today not only because it is intriguing but very relevant to the present situation in the industry, even though, it was written some time in 2014. Akinlotan, who also writes a weekly column for Business Day newspaper and Castles property magazine as well as a personal blog, wrote this article from personal experience.

Read on:

A lot of people want to live on serviced estates but fail to realize that the estate needs extra funds apart from the rent in order to run the estate properly. Many conveniently forget to pay their charges after the first few times. Service charges can be expensive and can vary from N200,000 per year on medium income estates to N2.5million a year in highbrow areas like Ikoyi and Banana Island. The most common services can include general repairs and maintenance, cleaning of the communal areas like the roads, compounds and staircases, paying for the security, even if it is a mallam, also paying for the maintenance of the boreholes and water treatment.

Residents can usually get away with paying minimal service charges for just the above mentioned services only. When residents expect swimming pools, gyms, tennis courts, club houses and 24 hours power, air-conditioners etc they must expect to pay heftily for these. The service charge is usually an estimate prepared each year of the running costs of the development. These could include for example Landscape Maintenance – from cutting the grass, maintaining communal gardens, watering and sweeping. This is particularly important in multi tenanted developments and those with commercial properties such as bars, restaurants or retail outlets that have communal areas accessible to non-residents.

For high-rise blocks of luxury flats, window cleaning would typically include all external windows as well as internal windows in communal areas. Lift maintenance is another service that would require huge payments for servicing and repairs. Fire equipment maintenance in high- rise blocks of apartments, offices and leisure facilities need to be installed and serviced regularly, which adds to the charges. Buildings Insurance – in the case of apartments, full building insurance is required under the terms of the lease to cover the risks relevant to the development. Standard insurance risks might include fire, explosion, flood, sprinkler leakage, subsidence, among others. Audit fee, management fee and salaries of all on-site staff must be factored into charges. Most estates in high-brow areas are rented to multi-national companies who pay rent and service charges in advance up between three to five years so it is easier to manage their services.

Service charges are typically paid monthly, but on some estates, commercial and leisure facilities; this is requested in six monthly intervals or yearly, to prevent nonpayment from residents. Even with these steps in place, it is common to get residents who will not pay or challenge the authenticity of the bills they are presented with. This can cause a breakdown in service provision as service provision must be continuous and if some do not pay the ones who pay will have to cover those that have not paid. It is therefore wise for the service providers to ensure a quarterly or bi yearly audit of service costs and present this to all residents individually and at Residents meetings. Services should as much as possible be collected in advance

Diesel amounts are best paid separately from service charges to prevent confusion with the two amounts. Diesel is usually on an as used basis and can vary from week to week depending on consumption and price, so auditing of diesel amounts needs to be accurate and detailed. Unless the estate provides prepaid meters that run on a fixed amount for both PHCN and generators power, it is usually a battle to get diesel payments from residents. A number of large estates have installed prepaid meters in individual home as a fixed amount per kilowatt hour. The residents are usually made aware of this when buying or signing up to their tenancy, so there is no dispute about the amounts later into the tenancy.

On a particularly large estate in Victoria Island, service charges have been a major source of dispute between the residents and the management company overseeing the provision of the services. Diesel and service charges have increased many times since inception, causing residents to challenge the amounts and services. This has become so bad that both parties have instituted legal action against one another.

In another smaller estate in Lekki, service provision has broken down completely due to nonpayment of charges from some residents. The communal generator has stopped running and all the residents now have individual generators in their flats and terraces.  The borehole has not been serviced for months; a mallam now opens and closes the gates. Residents are not happy but realize that unless they all agree to pay collectively for the services and the staff; they will not enjoy living on the estate.

In her submission, Akinlotan maintained that service charges and similar regular payments need to be factored into the rent and household budget so that concerned individuals can cope with the added costs of living on a serviced estate.