Concerns over high charges in informal property rentals

High cost of commercial property rentals and other associated charges are staving off entrepreneurial spirit among prospective small business owners who need shops and outlets to thrive in Lagos and environs.

The Guardian’s investigation reveals that exorbitant charges in the name of ‘agents and agreements fees’ have become source of worry to many residents and disincentive to businesses.

Although, agency practice is a lucrative segment of the property industry, which allows for certain service fees, it has however, become an all comers affair.

Standard of practice shows that agency fees for tenancy agreements is 10per cent of the tenancy rates.

For instance, if the property is going for N500, 000 per annum, the agency fee will be 10per cent of N500, 000 which amounts to N50, 000yearly.

Expectedly, if the agent is collecting 2 years rent, that’s N50, 000 x 2 years which is N100, 000.

In terms of sales of property, the charge is usually 5per cent of the total price paid for the property. Agency fees are the responsibility of the buyer or tenant, not that of the landlord or seller.

Experts in the industry observed that agency fees are not illegal as they stand for reward for the service rendered to both the landlord and prospective tenant or a buyer looking for a house lease or a shop space. But they are worried about the high charges.

Regrettably, non-professionals, who perpetrate all manners of frauds as well as charge high rates from unsuspecting clients who patronise them have inundated the practice.

According to the Royal Institute of Chartered Surveyors (RICS), service charges in commercial real estate deal with the costs of operating a property, to comply with the landlord lease obligations for the provision of services.

The arrangement is set down in the lease(s) and aims to entitle the owner to recover their charges and any associated administrative costs incurred in the operational management of the property.

RICS position is that the charges will include reasonable costs of maintenance, repair and replacement of the fabric, plant, equipment and materials necessary for the property’s operation, plus any other works and services the parties agree are to be provided by the owner, but subject to reimbursement by the occupier.

Furthermore, if the property is fully let, the owner will normally be able to recover all expenditure on services through the service charge, except any concessionary discounts the owner may have given.

Usually, there will be a manager who administers those services, for which they will receive a fee.

The global body core principle on service charge for owners of commercial outlets and their managers cautioned that they should not profit from the provision or supply of services.

It states that charges should be based on a reasonable commercial management fee that reflects the actual costs of managing the services; the amount an owner may recover is limited only to the proper and actual cost incurred in the provision or supply of services.

Despite the established standard set out by the global body, some of those who engage in agency practices in the informal sector of commercial property particularly in Lagos and environs don’t observe the standard.

They often charge the equivalent of the cost of rent for shops as fees for agents and agreement.

At times, persons renting the outlets would have to pay additional cost of waste maintenance and electricity charges among others.

Narrating her experience, a renter in Berger area of Lagos, Mrs. Medinat Saka said she rented a shop in the area at the cost of N120, 000 per year.

After the payment, she was asked to additional N50, 000 as agent fee, N60, 000 for agreement and another N24, 000 for the cost of electricity.

She was forced to source for funds to offset the cost due to the urgency of the demand and scarcity of a moderately priced outlets in the area.

“I don’t expect to pay so high for agency and agreement because when you do a summation of both, it is about the actual cost of the shop. What I was given as agreement is just a document of about five pages that wouldn’t cost more than N500.00 and I paid N60, 000”, she stated.

Another renter, Mr. Chucks Odinaka explained that in 2017 when he rented his shop at Iyana Ipaja area of Lagos, about N650, 000 was demanded for the cost of the shop while he was also asked to pay the sum of N200, 000 and N100, 000 respectively for agency fee and agreement.

According to him, it has been very difficult to realize the spending on the shop from the wares he sells due to low patronage and economic difficulties in the country.

Also in Ikorodu, cost of rentals goes between 300,000 to N600, 000 yearly while in Ketu area the cost could be as high as 270,000 to 600,000 depending on the size, location. This is aside the agency and agreement charge.

Speaking on the development, the Head of practice, Ismail & Partners Lagos, Mr. Gbenga Ismail explained that operators in the informal sector are capitalizing on the high demand and decreasing supply in the sector to cheat unsuspecting renters.

He said, “This is not a common occurrence in normal market scenario. It is only a common practice in the informal sector. But in a formal commercial real estate sector, charges on rents are very clear; it’s a percentage of the rent agreed and the charge is between zero and 10per cent for agency fee. For legal fees, it is also between zero to 10per cent”.

“If the rent is for instance, is N100, 000, they can tell you to pay N50, 000 for agent and not based on percentage. There is no basis or criteria used nor minimum amount they would charge for any kind of transaction” In shop in Victoria Island, it won’t happen but in the informal sector like Iyana Ipaja, Agege, Isolo, Berger among others, those are the area you would find such practice”.

Ismail who is also a member of Royal Institute of Chartered Surveyors said the question remains if the standard been used as minimum, is right.
“For them it is their own standard because they are working on a micro-level. For a rent on a shop of N200, 000, the charge could be about N50, 000 or N80, 000.They don’t do percentage. There is the Lagos State landlord and tenant law, which states that agency fee will be 10 per cent and legal fee will be ten per cent but if you apply it to them, they won’t get much money and so won’t want to accept that. They are not complying with that law”, he stated.

The Chairman Faculty of Estate Agency and Marketing of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Sam Eboigbe maintained that there must be a basis for demanding for agent fee and agreement charges; otherwise it would amount to a rip off of people.
 
He observed that activities of quacks in some locations are also causing the high charges stating that such individuals are just out to profit from every property transactions and they don’t bother whether it is necessary to charge certain fees.
 
For members of NIESV, we are not allowed to charge more than 10per cent. If you have a shop that go for N120, 000, you don’t have to charge more than 10per cent, legal fee supposed to be ten per cent.

He said, “The charges asked for have various components. You are paying agency fee because the person whose service you have enlisted has to be paid for the services rendered for enabling you to get a space. There are terms and conditions attached to taking the space, which comes in the form of legal fees, to prepare documentations so that both parties could be aware of their contractual obligations. There are obligations the tenant has to bear; shop owner also has responsibility too. A lawyer would do the documentation and the services must be paid for”.
   
He lamented that people can’t just come into the industry and decide to profit the way they want without consideration for the financial standing of the would be tenants.

He said, “It doesn’t happen in other climes. That is why our institution is clamouring for a bill before the national assembly to regulate the industry. Stakeholders and customers should look for genuine customers to deal with so that they won’t be short-changed”.