SERVICE CHARGE ADMINISTRATION IN COMMERCIAL PROPERTIES: CHALLENGES AND SOLUTIONS

ESV Olatunji Adeyemo

Introduction

Effective management of buildings, particularly commercial buildings, is essential. This is because it produces a lot of money if managed well. However, if it is neglected, it will lead to several issues and challenges, including non-compliance with rent, security, insurance, and service charge administration (Raji and Ashafa, 2023). The managers of a commercial property are required to maintain the building and its amenities, which gives rise to the idea of a service charge (Emoh and Anyoha, 2021). In the event of multiple occupancy, a service charge is an extra rent that landlords or management agents impose on tenants of a property in exchange for the provision of shared services that the landlord has agreed to provide. Service fees are paid in advance and at the frequency specified in the rental agreement, which could be annual, semi-annual, or quarterly (Zedomi, 2018).

Both the building’s condition and the quality of the services offered are greatly impacted by service charge administration. While poor service charge administration would result in sub-par service delivery and a generally poor state of the building, good service charge administration should ideally guarantee the provision of quality services and a good general condition of the structure (Ogunmola, 2024). Bello, Khamis and Ibrahim (2020) stressed that service charge administration in multi-tenanted commercial buildings is one aspect of property management that requires careful thought. When commercial property tenants are happy, there will be long-term relationships (landlord/tenant, property manager/tenant), high occupancy rates, tenant retention, and recommendations from tenants to others.

Challenges in Effective Service Charge Administration in Commercial Buildings

According to Ogunmola (2024), Raji and Ashafa (2023) and Emoh and Anyoha (2021), some of the challenges in service charge administration are:

1. Poor Record Keeping: It may become difficult to track expenses, income, and other financial data related to the building if records are not kept accurately or appropriately. Without reliable records, it becomes difficult for managers to justify the service fees. Tenants may contest the charges’ justification, which could lead to disagreements.
2. Low level of communication between occupants and managers: This is evident in some commercial buildings where the tenants are denied access to the managers or even a copy of the service charge terms.
3. Management of commercial properties by non-professionals or agents: The main cause of this is a lack of knowledge about the advantages that a property owner enjoys from having a licensed estate surveyor and valuer (ESV) handle their property. Instead of managing properties, the majority of lawyers and agents focus on collecting rent.
4. Mismanagement of Fund(s): Improper money management raises the risk of unstable finances, poor budgeting, and resource misallocation, all of which can lead to service disruptions, delayed maintenance, or the inability to cover necessary expenses. The overall condition of the building and tenant satisfaction will be degraded as a result.
5. Lack of transparency in communicating the purpose and breakdown of service charges to tenants: Lack of transparency in the cost of services suggests that tenants are not entirely informed about the rationale and process underlying these costs. This uncertainty may cause them to get irritated and perplexed. Transparency builds trust and gives tenants greater assurance about the value they get for the service costs they pay.
6. Vacancy rate: The vacancy rate of a building is another major challenge of service charge administration. When there are vacant spaces, it could be difficult to determine how best to split service fees among existing tenants. When there are vacancies, the cost-of-service fees might be split among fewer tenants, which leads to increased expenses per head.
7. Economic Fluctuations: Price hikes and inflation rates affect budgets and the amount of service expenses. Uncertainty and volatility in the economy might influence how users perceive the cost of services and how reasonable they are.

Solutions to the Challenges in Service Charge Administration

1. Estate surveyors and valuers (ESVs) should begin to educate the public about the benefits of property management and service charge administration. This will help to eliminate all opportunities for quacks.
2. In order to support the amount paid by tenants, service charge accounts should be promptly and appropriately reconciled and accounted for. The amount should also be reviewed regularly to determine whether it needs to be changed upward or downward.
3. Service charge administrators, who ought to be registered ESVs, should give building occupants adequate information with the hope of boosting their confidence that the service charge is split fairly among all building tenants.
4. The service charge administrator should make adequate provision in their budget for building vacancy and economic fluctuations, and tenants should be well informed.
5. In conclusion, a code of practice should be established by the Nigerian Institution of Estate Surveyors and Valuers (NIESV) for commercial service charges to encourage uniformity and fairness.