How To Avoid Disputes Arising From The Management Of Service Charge In Respect Of A Property
It is no longer news that Nigeria is currently facing a national housing deficit of 18 million units of houses. The housing deficit in Lagos State, the commercial hub of Nigeria is estimated at 5 million housing units representing 28% of the national housing deficit of 18 million.
The implication of the above is that, to solve the housing problem in Lagos State, there is an urgent need to build a minimum of 500,000 units of houses annually over a 10-year period.
In a bid to take advantage of the housing deficit in Lagos State, a lot of investors are currently developing various sizes of estates in most parts of Lagos State. The Lekki-Epe corridor is particularly notorious for having several estates on both sides of the corridor.
A common problem facing the residents and facility managers of most newly developed estates in Lagos State is the vexed issue of management of service charge. In some cases, the facility managers complain of lack of the cooperation from the residents of the estates, whilst in most cases, the residents either complain that the amount fixed as service charge is ridiculously on the high side or that the facility managers are not rendering proper accounts in respect of the service charge account. A dispute involving the management of service charge arose in the case of 1004 Estates Limited v. The Incorporated Trustees of 1004 Home Owners and Residents Association Suit Nos.: LD/3744/2014 (“the 1004 Estate Limited’s case) which was decided by Honourable Justice K.O. Dawodu of the High Court of Lagos State on 2nd December 2015.
I shall therefore consider the judgment of the Honourable Court in 1004 Estate Limited’s case in providing suggestions to residents, homeowners, prospective homeowners and facility managers on how disputes relating to the management of service charge can be averted.
Summary Of The Facts Of 1004 Estates Limited V. Incorporated Trustess Of 1004 Home Owners And Residents Association
The Claimant, 1004 Estates Limited, purchased the 1004 Flats Housing Estate, Victoria Island, Lagos State from the Federal Ministry of Works and embarked on massive reconstruction works on the flats and buildings in the estate. Upon completion of the reconstruction works, the Claimant executed Deeds of Sublease of the flats and buildings in the estate to various sub-lessees (Homeowners).
The sub-lessees also executed a Management Agreement with the Claimant to the effect that the Claimant shall be responsible for the management and maintenance of the facilities in the estate.
Following the execution of the Management Agreement, the Claimant commenced collection of service charge from the residents of the estates. Some residents however paid the amount demanded as service charge, whilst others complained that the service charge was exorbitant.
Whilst the issue of service charge was building up, some homeowners and residents of 1004 Estates registered the incorporated trustees of 1004 Home Owners and Residents Association, the Defendant, with the Corporate Affairs Commission.
The Defendant subsequently wrote several letters to the Claimant inviting it to render account of the service charge and other payments made by the residents of the estate and that the accounts should be audited. The Defendant went ahead to retain the services of an international consulting firm to the accounts, but the Claimant refused to submit its account for the audit. The Claimant also failed to render accounts to the Defendant, but instead, it commenced an action at the High Court of Lagos State by an Originating Summons dated 5th March 2014 seeking the following reliefs:
- A Declaration that interference by the Defendant with the Claimant’s lawful management and administration of 1004 Housing Estate, Victoria Island, Lagos (the Estate) and all the demands of the Defendant with respect to the Estate are unlawful, null and void.
- A Declaration that the interference by the Defendant with the rights and obligations of individual sub-lessees of the Claimant at the Estate under individual Deed of Sub-lease (the Deed of SubLease) entered into between the Claimant and the individual sub-lessees is wrongful and unlawful and constitutes the procurement by the Defendant or an attempt by the Defendant to procure the breach by the individual sub-lessees of their Deed of Sub-lease.
- A Declaration that the Defendant having been constituted in a manner in constituent (sic) with the provisions of schedule 4 of the Deed of sub-lease is not the association provided for or required to be constituted under the Deed of Sub-lease and as such cannot lawfully exercise the rights or carrying out the obligations of the Association vis-à-vis the claimant under schedule 4 of the Deed of Sub-lease…
In response to the Claimant’s case, the Defendant argued that it was the agreement of the parties that the Claimant should render account of the service charge and other payments made by residents of the Estate and this account should be audited.
The Honourabe Judge agreed with the Defendant’s case and dismissed the Claimant’s case. In dismissing the Claimant’s case, the Honourable Judge, at page 19 of the judgment, held thus:
“In my humble view a demand for audit of account of the claimant and a request to express opinion in fixing and review of management/service charges is not an interference with the claimant’s management and administration of the Estate. In any civilized society, the Government will always render account to the governed, the people. I therefore do not see anything wrong for the claimant to render account of its stewardship to the Defendant. More so, since it is the Defendant that pays the service charges to the claimant for the management and administration of the estate. It is in order for the Defendant to request and know its money are being spent judiciously. Claimant is supposed to be working for and on behalf of the Defendant. The Defendant is at liberty to give suggestions and advice on the management of their estate and there should be corresponding understanding
between the residents and management of the Estate.”
Effect Of The Decision In 1004 Estates Limited’s Case
Although it is commonplace for the Deed of Sublease, Deed of Assignment or Lease Agreements in respect of properties in an Estate to contain a clause stipulating that the occupier/owner of the property shall pay service charge to the facility managers of the Estate, the judgment in 1004 Estates Limited’s case, makes it clear that the facility manager cannot determine the amount to be paid as service charge in a capricious manner.
The foregoing therefore shows that one of the best ways of averting disputes on the management of service charge is for the Facility Manager and the Residents’ Association of a given Estate to jointly determine the amount, which would be paid as service charge. This is because a joint determination of the amount to be paid as service charge would help to ensure that the residents are not overcharged.
Also, the Facility Manager must make it a point of duty to render regular accounts on the management of the service charge to the Residents’ Association/residents and be prepared to submit such accounts for auditing, if the residents make a request for an audit. This is because the Facility Manager is more or a less a trustee for the service charge received and it has a duty to be accountable to the residents.
In addition, it is important for the Deed of Sub-Lease, Management Agreement or Lease Agreement in respect of a property to be clear on the mechanism for determining and administering the service charge. This point is important because a lot of agreements usually only state that the Facility Manager shall determine and administer the service charge, without detailing the fine details of how the service charge shall be fixed.
In conclusion, disputes relating to the management of service charge account in respect of a property can be averted if Facility Managers make it a point of duty to be transparent and open in the management of the service charge account.
Disputes relating to the management of service charge account in respect of a property can be averted if Facility Managers make it a point of duty to be transparent and open in the management of the service charge account.