Service charges are an often-overlooked facet of property ownership that can wield considerable influence on your financial commitments.
As homeowners or landlords, grappling with these charges is an essential part of managing and maintaining a property. Covering everything from landscaping to security and general upkeep, service charges represent a vital aspect of property ownership.
When we discuss purchasing property or houses, our focus typically centers on upfront costs and sale or rental prices.
Yet, the ongoing, long-term expenses—specifically those associated with day-to-day maintenance and service provision—often go under the radar.
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Ignoring these costs can significantly impact our perception of affordability and, potentially, compromise the sustained well-being of the property and its residents.
In this blog, we unveil the true impact of service charges, shedding light on their often underestimated long-term implications. Join us as we navigate the waters of service charges, gaining insights essential for making prudent decisions about your property investments.
Table of Contents
What is Service Charge in Real Estate?
Service charge refers to the fees collected from occupants of a property to cover the costs of managing and maintaining the shared spaces and facilities within that property.
These charges are typically levied in properties such as residential complexes, commercial buildings, shopping centers, and gated communities.
The purpose of service charges is to ensure the upkeep, functionality, and enhancement of the property, providing a pleasant and well-maintained environment for occupants.
Components of Service Charges
Service charges may vary depending on the property type and the services provided. The components typically include:
- Maintenance and Repairs: This covers the costs of regular maintenance, repairs, and replacements of building systems, equipment, and common areas.
- Cleaning and Housekeeping: These charges encompass the costs associated with the cleaning and upkeep of shared spaces, including lobbies, hallways, elevators, and restrooms.
- Security Services: Service charges may include expenses related to security personnel, surveillance systems, access control, and other security measures.
- Utilities: Charges for utilities such as water, electricity, lift and escalators, gas, and waste disposal are often included to cover the shared usage of these resources.
- Landscaping and Grounds Maintenance: This component covers the maintenance and beautification of outdoor areas, gardens, swimming pool, gym house, playground, parking lots, and landscaping features.
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How Much is Service Charge in Kenya?
In Kenya, different developers or property managers apply varying service charge rates, which are typically outlined in the sub-leases agreed upon by tenants.
These charges may also be specified in the Letter of Offer (LOO) for unit purchases. While the usual practice is monthly payments, this timeline may differ depending on the specifics of the lease agreement.
There isn’t a standardized method or rationale employed by developers or property managers in Kenya for computing service charges. Instead, the proportion of these charges hinges on the range and quality of services provided.
Properties with premium amenities like swimming pools and high-speed lifts tend to incur higher service charge rates.
Nashon Okowa, a Project Manager in Nairobi in an article in The Standard states that “It is imperative to know how much you will be paying as monthly service charge before settling on a house to buy. This is something you must, by all means, as a buyer, find out. Sometimes you may be lucky to have it indicated on the sale agreement.”
Interestingly, despite constituting a substantial portion of household income spent on housing, the issue of service charges is not widely discussed in Kenya.
This highlights the need to thoroughly consider and account for these costs when evaluating the affordability and suitability of a property.
Lack of Regulation
In Kenya’s housing market, a notable challenge arises from the absence of a regulatory body to standardize service charges. This regulatory gap grants developers and property managers significant latitude in setting these fees.
Consequently, this lack of oversight can result in instances of exorbitant charges being levied on homeowners and tenants.
Without a standardized framework, there’s little to prevent unscrupulous practices, potentially leading to financial strain for residents and impacting the overall affordability of housing in the country.
This underscores the need for a structured approach to service charge regulation, aimed at ensuring fairness and transparency for all parties involved in the housing market.
Ian Olwana, a lawyer in Nairobi notes that “The absence of a regulatory body in Kenya’s housing market for standardizing service charges gives developers and property managers a wide discretion in determining these rates. This can lead to situations where charges become unreasonably high, potentially burdening homeowners and tenants and affecting the overall affordability of housing.”
Can You Negotiate Service Charge in Kenya?
Yes, you can negotiate service charge in Kenya however, when negotiating a service charge it’s essential to approach this process thoughtfully and professionally.
Understanding the influencing factors, being well-prepared, and maintaining a courteous demeanor are key. Familiarize yourself with your rights and be willing to find common ground through compromise. If necessary, don’t hesitate to seek advice from professionals who specialize in this area.
This approach can lead to more equitable arrangements and ensure that service charges align with the needs and expectations of all parties involved. Successfully negotiating your service charge hinges on several key factors. These include:
- Payment Track Record: A history of timely payments and property care improves negotiation chances.
- Property Condition: Needed repairs or maintenance can strengthen the negotiation position.
- Relationship with Management: A good relationship may lead to more willingness to negotiate.
Understanding the costs associated with your service charge is fundamental. These expenses can fluctuate annually based on actual incurred costs. Many modern leases allow for the collection of charges in advance, initially based on estimates.
However, adjustments are typically made after the end of the fiscal year to ensure accuracy. It is imperative that the service charge covers only reasonable costs and does not result in a profit for the management.
As a tenant or homeowner, you also have the right to request a summary of the previous accounting year, providing a detailed breakdown of the charges along with supporting documents, offering you transparency and clarity regarding the expenses.
This knowledge empowers you to engage in negotiations with confidence and make informed decisions about your property investment.
Conclusion
There is a need for standardized computation of service charges. It is imperative that market stakeholders, particularly government authorities, to take the lead in this endeavor.
“By establishing clear and uniform guidelines, this measure would not only guide developers and property managers but also significantly contribute to the stability and affordability of the housing market. Ultimately, standardization would create a level playing field, ensuring that service charges are determined transparently and equitably, ultimately enhancing the overall quality and accessibility of housing in Kenya.” Ian states.
For prospective property buyers and renters, it is imperative to inquire about the service charge beforehand.
This proactive approach allows for necessary negotiations and ensures that all parties are in agreement regarding this crucial aspect of property ownership or tenancy.
This practice is equally applicable to renters, as being aware of the service charge can greatly impact their overall housing expenses.
It is a critical consideration for both potential buyers and tenants in making informed and financially sound decisions.
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