PROPERTY MANAGEMENT WITH EASE: POSSIBLE?

* CONTENT*

INTRODUCTION

COMMON CHALLENGES TO PROPERTY MANAGEMENT

a) Rent Collection

b) Inadequate Remuneration

c) Lack of Maintenance

d) Recovery of Possession

e) Various Outstandings

f) Tenant Selection

g) Retaining & Increasing the Management Portfolio

h) Service Charge

i) Landlords and Tenants Obligations

j) Estate Records

k) Failure to separate company and client accounts


v PROPERTY MANAGEMENT WITH EASE

1) Clients interest paramount

2) Your client must pay you

3) Letter of appointment

4) Selection of tenants

5) Repairs and renovations

6) Collection of rent

7) Client & company accounts

8) Utilities & Rates

9) Service Charge

10) Estate Records

11) Expiration of Lease/Renewal of Lease


v CONCLUSION



PROPERTY MANAGEMENT WITH EASE: POSSIBLE?


§ INTRODUCTION

Property Management is a field of real estate that most practitioners avoid, primarily because of the perceived (real and imagined) difficulties that is associated with the practice of property management.

It is noteworthy to mention here that no real estate practice can have a clean bill of health without a guaranteed fee income on which annual projections can be made to take care of re-curring expenditure such as salaries, rent, utility bills, e.t.c.

The company’s management fee income for the year can be determined at the beginning of the year, based on the management properties in the company’s portfolio, at the point in time this fee being a percentage of rent. All that would be required of the real estate company is that a system is put in place, to ensure that the said rent is received as at when due. This would satisfy the client i.e. the property owner and also provide the company’s mainstay – the foundation of the practice so to say.

By the time we are through with the lecture, we shall see that practicing property management with ease is not only a real possibility, but also tested and proven.

§ COMMON CHALENGES TO PROPERTY MANAGEMENT

A. RENT COLLECTION
Collection of rent as they become due, is of utmost importance to the property owner, however more often that not collecting rent after the initial two or three years rent paid in advance is a herculean task, with the property manager having to beg the tenant and plead with him before rent is paid. Furthermore, the rent is atimes remitted in bits, at the tenants convenience, causing the property manager work related stress

B. INADEQUATE REMUNERATION
Unwillingness to pay fees as stated in the Scale of Professional Charges of The Nigerian Institution of Estate Surveyors and Valuers. Scale 11 of the schedule tilted Management of Property states:
1. When the property is let, the fee shall be 10% of the gross rent collected
2. When there is a re-letting in the course of management, the re-letting shall attract an additional 5% of the rent income of the area re-let.

What we find in practice is that some practitioners are paid management fees of 2% or 3%. The more fortunate ones receive 5%, the majority are not paid 10%, whilst the additional 5% on re-letting, is simply impossible.

C. LACK OF MAINTENANCE
It is a known fact in this country, that we lack a maintenance culture. This is also true of property owners, who do not want to plough back any part of the returns on their investment into the property. If a property owner keeps his property in a good state of repairs and maintenance, then he can be sure of many years of income. However, getting property owners to renovate their property is difficult, hence the property manager prefers to let as – is. This immediately creates management problems for the property manager, since the incoming tenant feels shortchanged, right from the inception of his lease.

D. RECOVERY OF POSSESSION
In the event that the tenant has to be ejected from the premises, whether as a result of a breach of his covenants and obligations, or the landlord requiring the space for personal use, the entire process of recovery of possession can be quite tedious. Where persuasion fails, the only legal and professional option would be by court process. This could take a while resulting in loss of income both for the landlord and property manager.

E. VARIOUS OUTSTANDINGS
Taking over management of property on which are huge oustandings, PHCN bills, Lagos State Water Corporation (LSWC) water charges, Tenement rate, e.t.c., or allowing tenants run up such huge outstanding in the course of their occupying the premises.

The common attitude of the managing agent is to refuse to address these issues, leaving the tenant to redress the problems as best as possible. At the inception of the lease the tenant is usually assured of a resolution of the outstanding issues, but once payment is made, the tenant is left to face the music.

F. TENANT SELECTION
When letting vacant spaces, there is usually a rush to let to whoever is able and willing to pay, particularly where it is a property on which several agents are trying to secure the management brief. Enough care is not taken with respect to the selection process. This thereafter creates problems if the wrong kind of tenant is brought into the premises.

G. RETAINING & INCREASING THE MANAGEMENT PORTFOLIO
It is a known fact that firms, big and small are losing their management briefs. Clients are taking back their properties and are either managing them themselves establishing property companies where they own several properties, handling them over to lawyers and occasionally to estate surveyors and valuers. Increasing the management, portfolio is becoming more and more difficult for estate firms.
Some now go to properties that they know are managed by other estate firms and use all manner of means to persuade the owners that they can do the job better, edging out the former management practitioner, their professional colleague. Others hang their ‘TO LET’ boards on property without the approval of the owner hoping to corner the brief when they get a tenant.

H. SERVICE CHARGE
This is a levy collected from tenants and occupiers of a property in multiple occupation for the discharge of those liabilities and functions, which each occupier would have had to perform if he were a sole tenant, but which he cannot now perform by virtue of the existence of several other tenants who have similar liabilities. For example each tenant would realise the need to secure the premises, but it would be counter productive, if each hires his own team of security guards. Other service charge heads include maintenance of the garden, cleaning, lighting and re-decoration of common parts, dislodgement of septic tanks and soakaway pits, maintenance of lifts, generator, air-conditioning and other installations, e.t.c.


A revisable sum is collected at the beginning of the service charge year or in the case of a fresh lease, at the inception of the lease. An account is rendered at the end of the year, resulting in credit or debit to the account of the tenant. Accounts could also be rendered quarterly on bi-annually as deemed fit by all parties. The most problematic issue on service charge accounts usually is the accumulation of a huge deficit, which is usually cushioned by the non-remittance of rent, since both rent and service charge are usually paid into the same account.

I. LANDLORDS AND TENANTS OBLIGATIONS
Both parties from time to time, breach the covenants of the lease agreement, if and when a lease is in place. These covenants include payment of rates, electricity bills, alter the structure e.t.c., the major covenant is of course the payment of rent. The tenant is usually reluctant to sign the lease agreement where one is drawn up. Worse still some practitioners do not prepare lease agreements, even after having collected a fee for the preparation of same. Enforcement of covenants is more difficult, when executed leases are not in place.

J. ESTATE RECORDS
Available estate records fall far short of that required for the management portfolio. There is a lack of needful correspondence and data. Inadequate or total lack of a filing system, whether manual or computerized. Details of leases of the management portfolio are kept haphazardly.

K. FAILURE TO SEPARATE COMPANY AND CLIENT ACCOUNTS
The lack of separation of these two accounts conveys a sense of financial well being, which may be totally baseless. The property manager is unable to ascertain the true position of either account, since company funds and client funds are together in the same account.
The challenges enumerated above are not exhaustive of the property management challenges that most practitioners face. Can these challenges be instigated, thereby bringing about ease in the practice of property management?

§ PROPERTY MANAGEMENT WITH EASE
The answer is yes. Property management with ease is actually possible. I however wish to state that it will require a paradigm shift on the part of as many practitioners as desire to experience it. Kindly note that your success with this is predicated on entirely ethical conduct. The format for ease is as stated hereunder.

1. CLIENTS INTEREST PARAMOUNT
Who is your client? You cannot have both tenant and landlord as your clients at the same time. Collecting fees from both parties predicates an immediate conflict of interest since you cannot protect the interest of both parties. Your client is none other than the owner of the owner of the property to be managed by you and his interest paramount. You may want to ask what then is the relationship between you and the tenants. They are not your clients. You have no business collecting agency fees from them. They are tenants in a property managed by you. This is the first bitter pill you need to swallow, if you are to attain ease in property management.

2. YOUR CLIENT MUST PAY YOU
You must not work for someone who behaves like he is doing you a favour by giving you his property to manage, hence his refusing to pay you your due. I can assure you that you will actually work real hard for every kobo he pays, and he certainly will derive great benefit from using your services. Never work for a person who does not respect you enough to pay you. If you your client advices that you collect fees from both himself and the tenants refuse to do so. Doing so will make both the tenant and the landlord your client. Nobody can serve two masters successfully. Your client, if you are to work for him must pay you a management fee of 10% and a letting fee of 5% in addition when a re-letting takes place. This is stated clearly in the Scale of Professional Charges of The Nigerian Institution of Estate Surveyors and Valuers.

Consultation fees must also be paid when you are taking over a management property that is not a new property. The fee to be demanded is determined by the extent of work that you must do to correct all the inherited management problems for which it is only fair that you be paid. You will therefore need to inspect the property and available records, to access the scope of work, to enable you determine the consultation fee you will charge.

3. LETTER OF APPOINTMENT
Do not manage property on a verbal instruction. It makes you less vulnerable to this excesses of the client. If the client does not appoint you in writing, stating the terms of the agreement, you do a letter to him stating same, requesting for your consultation fees, if not a new building. Most clients cannot make out time to write the letter or do not even know what to write hence your needing to write same for him. See Appendix IA. Once your consultation fee is forwarded you know you are in business, or in the case of a new building, once the keys are forwarded, you have been appointed as a letting and management agent, by the landlord, further to the receipt of the letter of appointment forwarded by you.

A meeting with the tenants is arranged, thereafter if an already tenanted building. See appendix IB, whilst marketing of the new building commences with the hanging of a ‘TO LET’ sign and placement of a paid advert on the pages of a property newspaper, if considered necessary.

4. SELECTION OF TENANTS
The clients’ interest is paramount. You are looking for the most responsible tenants to occupy the vacant units, whether residential or commercial. This is a most crucial aspect of management, hence you cannot afford to be in a hurry to bring in a tenant. This you would already have intimated your client. The prospective tenant must be invited for discussions, to enable a decision be taken as to the suitability or otherwise of the tenant.

An offer is made out, if suitable. See Appendix IIA and remittance of rent to the landlord is made as soon as it is received. See Appendix IIB and Appendix IIIF

5. REPAIRS AND RENOVATIONS
It has been made clear in the letter of appointment as managing agents that the Landlord will be expected to fulfill his contractual obligations with respect to repairs and maintenance of the space to be leased out. This is insisted upon, hence the landlord undertakes all of the needful repairs, resulting in the handing over of the lease space in a fit and proper state.
- An inventory of fixtures and fittings is taken and this is signed at the point of handing over by the tenant and the representative of the managing agent.
- If on the other hand the landlord does not want to undertake the repairs himself, this is done on his behalf and a fee of 10% of the contract sum is charged by the managing agent as supervisory charges.

The managing agent ensures that both landlord and tenant keep all the covenants of the lease agreement (which is signed at the point of handing over) by regularly inspecting the premises to ensure compliance on the part of the tenant and constantly updating the landlord on the state of the property whether verbally or in writing.

Note that a neglected property that runs into a state of disrepair cannot attract the right kind of tenants, hence property maintenance is vital if one is to be sure of many years of income. Furthermore, when property is not well maintained, getting tenants to fulfill their contractual obligations, becomes much more difficult

6. COLLECTION OF RENT
The tenant has already been put on the defensive by reason of the fact that the landlord is your client and he is simply a tenant in a property managed by you. He therefore does not have any hold on you, in any form whatsoever. He does not joke with the payment of his rent. Never accept post dated cheques. Rather advise that it be brought when it is backed by funds. Also do not collect part payment. Both payments if accepted give the tenant a sense of relief, which translates into complacency with respect to the rent owed. Non-acceptance on the other hand compels them to find the money in full as soon as possible.

The process of collection of rent is set in motion six (6) months before the rent is due, by correspondence. A letter is written to the tenant requesting that he confirm in writing whether or not he wants to remain on the premises for another year. See Appendix IIIB. If the tenant is to exercise a renewal option, a similar, but different letter is written to him requesting that he confirm. See Appendix IIIC. Upon confirmation of his intention to remain on the premises a reply is sent requesting for the rent payment. See Appendix IIID.

Failure to confirm intention to remain on the premises, is not taken lightly and a pre-vacation letter is written on the assumption that the tenant is leaving and informing him of dates for the two pre-vacation inspections, which are to enable the determination of the work to be carried out by the tenant, barring fair wear and tear and the inspection to ascertain whether or not the said works have been undertaken. See Appendix IIIG.

These letters are quite intimidating and very effective. The result is that rents are paid as at when due, with minimal delays in payment. In the event of inability to pay due to cash flow problems tenants request that they be given between a week and a month after the rent due date to pay their outstanding rent.

Receipt of cheque that bounces is sanctioned. See Appendix IV. There is a lot of disrespect for real estate practitioners. Force the tenant to respect you by insisting he pays his rent as opposed to him asking you to come and pick up the rent cheque. We must learn to master money. Money has mastered us for long enough. Everyone of your

actions sends a message which makes management of property easier or harder for you. The choice is yours.

7. CLIENT AND COMPANY ACCOUNTS
The separation of both accounts is a must. Apart from the fact that it is required by the regulatory bodies overseeing the profession, it also will enable you see clearly the state of your account and not misappropriate funds. If you receive a rent of N1,000,000.00 (One million naira only), your fee on the rent is N100,000.00 (One hundred thousand naira only). If you spend the entire sum it means you must undertake nine other such transactions to pay back the debt. You and I know that this is not an easy task.

Several property managers are already neck deep in debt as we speak, robbing Peter to pay Paul. It is in your interest that you separate the accounts and spare yourself needless stress. This will also teach you financial discipline as well as make you more prudent. Far more than this your reputation will remain intact, thus assuring you of continuing and increasing patronage.

8 UTILITIES & RATES
The tenant should be handed over the accommodation on a clean bill, there should be no outstanding whatsoever to his account. He should not be made to pay for services he did not consume, not PHCN outstandings, LSWC water charge outstandings, tenement rate outstandings, e.t.c. Anything to the contrary creates problems. Tenants should be monitored constantly to ensure that bills are not run up and demand must be made for water bills and tenement rate as at when due. See Appendix VI and Appendix VII.

If at the point of vacating the premises the tenant has any outstanding to his account, this should be debited from his Refundable Deposit and the balance if any, thereafter released to him.

9 SERVICE CHARGE
It is advisable that a separate account be created for this, distinct from the client account and the company account. The major challenge of the service charge account is the huge deficit, which is not too obvious when paid into the client account, since the un-remitted rent, cushions the effect of the deficit. If in a separate account the property manager will be aware of the deficit early and will be able to advice the tenants in good enough time as to reduce the deficit or eliminate it entirely.

A problematic issue due to the constant PHNC power outage is purchase of diesel for fuel generators. This almost always accounts for a huge chunk of the service charge. It is advisable that records of power cuts be kept religiously in the course of year, (since account must be rendered to tenants periodically) on a daily basis, having records of outage and the diesel consumption, so as to allow for accountability and transparency.

10. ESTATE RECORDS
An efficient system must be put in place, whether computerised or manual to ensure that all the records of the management portfolio can be readily assessed. Records of existing and past management portfolios should be maintained. The property manager should be meticulous in this regard, leaving nothing to chance. The estate records is the backbone of the management portfolio.


11. EXPIRATION OF LEASE/RENEWAL OF LEASE
It is advisable that fixed term lease agreements are made with tenants as opposed to open ended leases, which makes tenants tenants at will, after the initial rent paid in advance. Fixed term leases enable both the property owner and the tenant plan. We have adopted a three year term with the tenant paying two years rent in advance and having an option to renew for an additional year. Occasionally, clients insist on a two year term, however this is the exception rather than the rule.

If after the initial three year term they are willing to stay on and the landlord does not require his property for personal use and the managing agents are satisfied with the tenant, an offer of another three (3) year lease, rent payable annually, is made to the tenant. See Appendix IIIE.

§ CONCLUSION
Likelier than not, all the above is not like anything you are used to. I however wish to say that I have been in practice for almost fourteen (14) years now and have practiced in this manner right from day one.

No doubt it has been challenging. If you are rowing upstream with every other person virtually, rowing downstream, one cannot expect that it be otherwise.

I must say it has worked, it is working and there is every indication that it will continue to work.

Furthermore, it is a must fulfilling mode of practice, with your self respect and self esteem intact. I recommend it to everyone who seeks to make a lasting impact on the real estate sector, desires to have a fulfilling career and an enduring legacy.