THE ISSUES AND CHALLENGES IN SERVICE CHARGE ADMINISTRATION IN MULTI-TENANTED OFFICE COMPLEX

THE ISSUES AND CHALLENGES IN SERVICE CHARGE ADMINISTRATION IN MULTI-TENANTED OFFICE COMPLEX

CHAPTER ONE

1.0     BACKGROUND OF THE STUDY

The importance of property in daily commitment of human being is inevitable. The fact that property fulfils basic needs of mankind, there will be a strong demand for it to be met by the property manager. Property management according to Thorncroft (1974) is defined as:

“the executive function of planning, controlling, supervising, directing, organising and co-ordinating an interest in land and landed property with the aim of securing optimum returns which need not be financial only but may be in terms of social status, prestige, political powers, or other goals or group of goals”.

A facility manager plays an important role in the management and maintenance of property. In the case of leased properties such as multi-tenanted commercial properties, after playing the role of an Estate Agent, the valuer may be further needed by the client to monitor the physical condition of the property of which property maintenance is prominent in order to enhance its value and potentialities. Hence the task of managing and administering service charge on a multi-tenanted property comes in order to regulate physical and functional obsolescence and to enhance the utility value of service jointly used by the tenants e.g. lighting, cooling, lift, maintenance of garden etc and to bring it to an acceptable standard.

Service charge is therefore a means by which an owner is able to recover from the occupiers the cost of providing the services for the benefit of the premises. The service charge is structured such a way that the nature of the services provided varies with the type of premises e.g. office blocks, industrial/warehousing, shopping centers, High rises residential building, multi- tenanted commercial and mixed use properties. It has always been the challenge of facility managers to recover the money spent in some occasion when the landlord or the facility manager needs to rescue situation from getting out of hand.

Perroman (2013), sees service charges as the amounts levied on the tenants by the landlords to cover for extra facilities or services they may provide. These services may include provision of generator, general cleaning of the compound, installation of Air conditioners, gardening or general maintenance. In most new houses and apartments for rent, these service charges could reach up to fifty percent of the original cost of renting the apartment.

Service charge costs should be restricted to charges and associated administrative costs properly incurred by the owner in the operational management of the property including the reasonable costs of maintenance, repair and replacement (where beyond economic repair) of the fabric, plant, equipment and materials necessary for the property.

The position of the accountability of Facility Manager in the administration of the service charge has been a case for questioning and auditing. It is against this background that this study is designed to evaluate the issues and prospect in the administration of service charge on multi- tenanted commercial properties using Elephant Cement House, Alausa as a case study.

1.2       STATEMENT OF THE PROBLEM

Service charge as a means of recovering cost has been in existence for some time. Older leases often do not reflect current best practice. As new leases are granted and older leases renewed, it is essential to bring service charge clauses up to modern standards. This ensures that users of the property can operate transparently. If this modernization of the service charge provision of the lease results in an increase or decrease in the amount payable by the occupier, this would usually be reflected in the rent payable. It is unlikely that all leases will fall for renewal on the same date. Modernizing the service charges on an “as and when” basis may lead to a ‘dual’ service charge. Interim measures may therefore be necessary to ensure the practical operation of the services and the recoverability of the service costs during the intervening period.

Service charge administration is the means that enable the sharing of costs of common services in properties among multiple occupiers. There will be a manager who administers these services (for which he or she will receive a fee). Best practice requires services to be procured on a value for money basis and that competitive quotations are obtained for the supply of these services. The service charge will be on a ‘not for profit, not for loss’ basis.

This does not mean suppliers of services cannot make a reasonable profit on the services they provide (or manager(s) cannot make a profit on their management services) but the costs will be transparent so that all stakeholders; owners, occupiers and managers, are aware of how the costs are made up. Management fees should be transparent with no hidden markups.  The manager will issue budgets to occupiers with an explanatory commentary at least one month prior to the start of the service charge year and reconciliations following the year end to all users within four months of the year end.

However, the place of accountability where the service charge account is opened and managed by the facility manager needs a thorough investigation and consideration. These will be examined using Elephant cement House as a case study.

In view of the challenges inherent in the administration of service charge in multi-tenanted commercial properties, there are concerns by the stakeholders and decision makers. In recent times, a lot of landlords have lost their tenants because of the exorbitant service charges they levy on them. Aside from the fact that rent generally is expensive, service charges seem to compound the issue of the average person looking for affordable house to rent. The issue of high service charge is majorly predominant in houses on the Island and Ikeja area in Lagos. Considering the electricity situation and existence of businesses, the need to maintain a high profile environment arises, this would include the provision of these various facilities hence the extra charges.

1.3       RESEARCH QUESTIONS

Thus when dealing with research study of this nature, the following research questions are postulated:

1. What facilities/services constitute service charge in Elephant Cement House, Alausa, Ikeja? 
2. What are the processes and procedure for the apportionment of Service Charge in the subject property?
3. What are the issues and challenges involved in the process of administration by the property manager and the tenants in the case study?

4. How adequate is the maintenance structure put in place in Elephant Cement House?
5. What is the level of efficiency in the administration of service charge in the subject property?

1.3     AIM AND OBJECTIVES OF THE STUDY

The aim of this study is to evaluate the issues and challenges in service charge administration in multi-tenanted office complex with particular reference to Elephant Cement House, Alausa, Lagos, with a view to ensuring effective service charge delivering system.

In achieving this aim, the objectives are to:

1. Identify the facilities that constitute service charge in Elephant Cement House, Alausa, Ikeja,
2. examine the process and procedure for service charge apportionment,
3. investigate the issues and challenges involved in services charge administration in the study area,
4. examine the adequacy of the maintenance structure put in place in the subject property and,
5. evaluate the level of efficiency in the administration of Service Charge within the subject property.

1.4   SCOPE OF STUDY

In order to achieve a precise and concise analysis as well as deviating from the specific objectives of the study, the scope of the analysis is limited to service charge administration in Elephant Cement House, Alausa, Ikeja, Lagos being one of the well known multil-tenanted property in the Central Business District of Lagos State.

The subject property is chosen as a result of its multi-tenanted nature and neighbourhood characteristic. It would be able to provide richer information and data needed for the evaluation of service charge administration as a reference point for other commercial multi – tenanted properties within Lagos metropolises.

Besides, in terms of vertical depth, level of efficiency of the administration, issues and challenges confronted by the service charge administrators and adequacy of the maintenance structure in the Elephant Cement House, Alausa, Ikeja

1.5 JUSTIFICATION OF STUDY 

This study is necessary at this time when government and investors are talking about infrastructural development. What will readily come to mind is how do we maintain facility? It is certain that multi tenanted buildings without service charge administration always become shadow of itself. We need to analyse the effect of the traditional challenges and modern ones. Several Scholars had looked into different aspect of this study;

Pargma (2004) among others – examines in depth the often -contentious issue of service charges from the occupier’s perspective. The intention is to explain what should and should not be recoverable for the repair and maintenance and the provision of vital services, usually within multi tenanted buildings.

Nwankwo (2004) identifies the need for a service charge administrator and the expectations of the property owner.

Service charges are a matter of growing interest within the commercial property sector, resulting in an increasing number of initiatives designed to better understand and constructively determine practical steps to improve the management and administration of such expenditure. The relative size and importance of the commercial service charge market is now clearly understood and there is increasing support from occupiers, landlords and managing agents for improvements in best practice within the industry. (The Service Charge Operating Report 2010/11 (SCOR) on commercial service charges).

This study is therefore necessary to bridge the gap between what had earlier been studied and the current development in the built up industry, examining the responsiveness of the property manager to issues and analyzing the performance level in times of accountability of the property manager. It will also help us as professional on how to avoid the pitfalls in service charge administration as people are becoming more aware of the Importance of service charge in multi-tenanted buildings. It will also help in sharpening proper policy direction in facility management that conforms to international best practices.

1.6 THE STUDY AREA:

Fig: 1   Elephant Cement House, Alausa

The subject property is owned by LAFARGE Cement WAPCO Nigeria Plc. (WAPCO) – LAFARGE Worldwide formally known as West African Portland Cement Company (WAPCO).  It is a commercial property known as Elephant Cement House comprising main building on eight floors with pent house, occupying a parcel of land known as Block H, Portion 01, Central Business District, Ikeja, Lagos State.

The referenced Central Business District where the property situates is accessible through a right turning off Obafemi  Awolowo Way precisely at Elephant/Cosmic Bus Stop, opposite Ikeja Mall (popularly called Shoprite) when approaching from Alausa en-route Awolowo Way. The subject property is located on the right hand side of Assbifi road behind Skye Bank Plc.

Alausa is a locality in Ikeja local government of Lagos State, Nigeria. It is the seat of the Lagos State Secretariat and offices of the Governor and Deputy-Governor of Lagos State. Alausa also has a vibrant and growing Central Business District with several multinational business concerns like Cadbury Nigeria Plc and many others having their offices located in the area. It also has many low density residential estates like the Cornerstone Estate; MKO Abiola Gardens located within it.

The neighborhood is majorly commercial in nature. Notable landmarks available within the neighborhood include; Skye Bank Plc, Assbifi House, Alausa Secretariat, Central Mosque, LTV House, Ikeja Mall (harboring Shoprite) amongst others. Infrastructural facilities available within the neighborhood include mains electricity, water, telecommunication services and a network of good roads.

The Accommodation afforded by the property comprises a total of 12,320.48m² lettable floor spaces. The property is occupied by a total of 40 companies including Lafarge and the tenancy period of all the occupants’ runs from 1^st January – 31^st December Annually.