How to Determine Service Charges in Property Management

Service charge is an amount payable for the general maintenance of facilities in a residential or commercial property. This is in addition to the rent paid. Service charge is mostly collected yearly for annual tenancy for the upkeep of facilities attached to the property for the use of tenants.

It is usually collected alongside the rent in advance. The amount contributed by tenants is unanimously agreed on or where there is an existing property manager also known as a caretaker, the amount payable can be determined by analyzing the total expenses to be incurred annually on the purchase of diesel for generator set, maintenance of sumo for pumping of water, purchasing of electricity units, cleaning of the pool site, waste disposal, evacuation of the septic tank, salaries for gardener, cleaner and security man among others then shared equally amongst the sitting tenants or on pro-rata basis in the case of commercial properties such as shops, warehouses, plaza, malls, showrooms, stores, etc. to be paid together with their rents annually or periodically as agreed.

The service charge is subject to changes depending on future economic conditions or sudden hikes in the cost of materials, labour, or services. Once there is a need for a review of the charge the entire tenants concerned are pre-informed. The landlord or property manager is expected to have a special bank account where the monies are kept while the monthly statement of accounts is prepared and distributed to the tenants.

Service charge is not compulsory for all property categories, rather it’s necessary for properties with special facilities that the tenants will enjoy during their tenancy period.

It is always better to contribute service charges once a year, though due to economic conditions, some landlords may decide that it be paid monthly, quarterly, or even half yearly (every six months). Whichever the case what’s paramount is the accountability, transparency, and judicious use of the money to cover the entire period anticipated.

Service charges are flexible and require proper monitoring and committed hands to manage.

How to Determine Amount Payable as Service Charge

The best way around this is to do a proper market survey and come up with an annual amount that can cater for maintenance of the available facilities including salaries for services rendered in the premises all year round or within a period under review for this purpose.

See the example below;

S/NDetailsUnitAnnual expensesTotal
1Security @N40,000/month/guard2480,000960,000
2Cleaner @N30,000/month1360,000360,000
3Cleaning materials @N5,000/month60,00060,000
4Sumo maintenance @N5,000/month60,00060,000
5Electricity recharge for external light, pumping of water @N10,000/month120,000120,000
6Waste Management levy @N15,000/month180,000180,000
7Contingency @N20,000/month240,000240,000

After determining the total amount required to service the available facilities, it should then be shared among the tenants or apartments as the case may be.

Therefore: N1, 980,000 ÷ No. of Apartments = Amount payable per flat as service charge.

Frequently Asked Questions on Service Charge

Do landlords pay Service charges?

Yes. If they live on the property

At what point do I pay the service charge?

Mostly at the beginning of the year except if you are allowed to pay monthly or half-yearly

Is payment of service charge compulsory?

Yes. If there are special facilities or services you enjoy in common with other tenants

What is the consequence of not paying the service charge?

You will be cut off from the facilities and services on the premises or asked to vacate the premises.

Can I challenge the service charge?

Yes. The landlord or property manager has the responsibility to justify how the money in the service charge purse is being used. This is done by giving all tenants monthly or annual reports.

How do I know I am not overcharged for the services that I enjoy?

If you think you are overcharged approach the landlord to explain how he came about the amount imposed. You can do your little investigation by approaching the cleaners, gardeners, security guards, etc. to know how much they are being paid monthly.

Can I pay the service charge in parts?

Depends on the landlord or property manager. But in most cases yes, you can.

Can I negotiate the service charge?

Only if the charge is not equally shared otherwise you will have to pay what others pay to avoid prejudice.

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