The real advantage of the recently enforced Jointly Owned Property Law is that owners associations have to employ an experienced strata/association manager who follows up with each individual property owner to ensure that the service charges are paid. So far, developers trying to collect the money are only pursuing property owners up to the point of threatening that they will lose their privileges or will not get access to the gym, pool, lifts, parking areas, etc if they are not paying up their outstanding service fees.
Property owners who are living in their own property do not usually pose a risk of not paying their share of service fees to the rest of fellow owners in a property or community. The main risk factor still lies with owners who do not reside in the country. They are difficult to reach, often ignore emails and don't care as to what is happening to their property. All they are interested is a quick return on their investment (RoI) through the highest rent possible. In cases such as these, the tenants will suffer unpleasant consequences.
A mandatory charge
Paying for the upkeep of the common areas within a community which owners have invested in is not really high on the agenda for most overseas investors. However, from the moment a sales and purchase agreement is signed, developers make it very clear that the payment of service charges is mandatory.
Nowadays, developers even link the key handover to the service charge payment for a year upfront. Although it is absolutely fair and investors are allowed by law to pay service charges on a quarterly basis, most developers demand the full year payment in advance. Every property owner has to make provisions once they have signed on the dotted line of a purchase agreement. This commits them to not only paying for the property but also to accepting to pay a communal charge towards jointly owned properties. So far, developers have tried to collect service charges. In the case of non-payment by owners, some developers apply cruel tit-for-tat measures under which tenants suffer, for example not handing over access cards for parking areas or disconnecting them from help desk or security services. According to the law, the power of service charge collection and the application of legal measures will have to be handed over to the owners associations by October 2010. Most buildings are now in the second or third year of operation; investors are slowing down when it comes to paying their service charge payments on time while others don't pay at all. Rental income has taken a massive hit during the last 12 months and the realisation of paying high service charges and receiving less rent has not been accepted very well. A RoI of up to 30 per cent was the initial selling point of buying property in Dubai. Now, during and nearly exiting the recession, a yield of 5 to 10 per cent is still possible and should be viewed as still very respectable compared to other markets. However, property investors are feeling cheated and disputing service charges or, even worse ‘playing dead' and letting their tenants suffer the consequences.
What are the consequences for the unfortunate tenants living in a community where maybe 30 to 50 per cent of owners are either extremely delayed on their service charge payments or do not pay at all?
Early signs can be that the access to the parking area is getting revoked. Also, where initially four lifts were available to serve the occupiers, tenants will start to see notices that lifts are ‘out of order'. A usual two-minute wait for a lift can now extend to 10 or 15 minutes in a G+40 tower. Service intervals for swimming pools get reduced until the pool maintenance guy disappears completely. Playgrounds are not cleaned and are no longer maintained. Plants and landscaping services are suspended from one day to another and consequently left untended. The reason for the aforementioned instances is that all these services are sub-contracted to specialised companies to maintain them for the occupiers and longevity of the community. But, when the service charges are not paid, the consequence is that the service providers are not getting paid, which leads to services initially being reduced and then eventually being stopped completely. A number of developers have taken drastic measures such as ‘naming and shaming' defaulters. It remains a discussion point as to whether this is really the right method to tackle this issue.
Regulatory measure
A more effective method is offered by applying the Jointly Owned Property Law as this clearly states the correct steps to be taken by the owners association (OA)/association manager to address the issue of defaulting owners. If the law is followed and actions taken are in line with the described process over a period of three months, then a property owner can risk losing his property through an auction. The funds will be used by the OA to clear all outstanding dues and reinstate the professional maintenance for the greater benefit of all occupiers and owners. This power is now in the hands of the owners association and individual owners are best advised to accept their responsibility as part of the owners' community.
The naming and shaming really doesn't create any useful outcome, as owners living abroad don't care, unless an owner is occupying his own property; I would deem it highly unfair to fight the battle in the open. The recession has put a lot of people under extreme stress to follow-up with their payments. One resolution would be to introduce individual payment plans which would allow defaulting owners to pay service charges on a monthly basis, for example. So many items and services have to be paid upfront in big lump sums, so it should really not turn out to be a surprise that property owners residing in the country have trouble making payments on time. This is not a phenomenon particular to Dubai, this happens all over the world.
The key is responsible management, creating awareness, transparency and open communication. The Jointly Owned Property Law should not only be perceived as a legal framework with limitations, it also offers a standard where everyone is treated equally and shows measures to deal with non-compliance in a professional manner.
Christiane Murray is the head of Landmark Property Management
