Creating an owners' association (OA) for your development means more transparency and tighter control over financial matters, which is certainly good news for property investors. However, until now, these associations haven't fully come to fruition, despite a slowly maturing market.
According to the Real Estate Regulatory Agency (Rera), figures showed that in April as many as 161 OAs had been registered. However, Graham Yeates, head of the Owners' Association Management unit, Cluttons, claims this simply refers to the fact a large number of interim OAs (IOAs) have now lodged budgets, supporting financial documents and minutes of IOA meetings and are compliant in that they are conversing with Rera on a regular basis. "I would refer to this jointly owned property as a ‘recognised IOA' but certainly not a formally registered OA with a name and number issued by the Land Department, enabling it to open a bank account and transact business," says Graham.
Several contentious reasons have been cited for this delay. Some developers have set up an OA management division and are happy to continue in this role, claims Graham.
"They make a profit on the service charges, which in some instances may exceed a normal profit rate. Businesses are entitled to make a profit for providing a service but the problem is an OA can run the building as a non-profit enterprise, which will lead to lower service charges by cutting out the profit layer created by the developer," he adds.
Developers are supposed to register their Jointly Owned Property Declaration (JOPD) with Rera, eventually paving the way for the registration of the OAs. Delaying registration, in turn, delays the election of the OA board. Such a situation could put owners at risk of being in the dark on sensitive issues, such as serious structural faults or legal matters involving a timeline to satisfy court requirements.
Jerry Parks, partner and head of real estate at Taylor Wessing, says the registration of OAs was held up following the issue of Law 27 of 2007 pending the release of the Jointly Owned Property Regulations (JOP Regulations).
These JOP regulations were finally issued and became law in 2010 in the form of: (i) the Direction for General Regulation Concerning Jointly Owned Properties, (ii) the Direction for Jointly Owned Property Regulations and (iii) the Direction for Association Constitutions.
"It is now, therefore, possible to register OAs, although we understand few have in fact been registered to date," says Jerry.
While this is the situation, what is being done about it? After all, owners residing in a community have to deal with a host of issues, irrespective of whether an OA exists or not.
Gary Adamson, CEO, Stratum Owners' Association Management, says, "Most completed developments, if not all, should have formed an interim owners' association and elected an interim board. Due to the time it may take for OAs to be formally set up and licensed, these informal groups are set up to facilitate the handover and management of the developments from the developer to owners."
For the IOAs, however, the road ahead is far from smooth. One of the biggest hurdles is the actual attendance and contribution of all owners in the OA meetings. The owners need to actually get involved in the process of how the building is operated, says Debby Sinclair, who sits on the interim board of Concorde Tower in Jumeirah Lakes Towers (JLT).
"It would appear that many owners are only interested in the lowest price per square foot for service levies and are not willing to get involved when asked. From memory, I think there were approximately 15 owners who turned up at the meeting to elect the board, which is very disappointing, and I continue to hear similar stories for other developments," she says.
A learning curve
Debby says the introduction of the OA for freehold properties has been a learning curve for both developers and investors. "Getting the OA up and running is a two-way process that requires input from owners and cooperation from the developer."
She feels that developers should have implemented steps to contact owners and inform them of the OA registration process requirements. For Concorde Tower, its developer the 32Group, did follow the process as required. "Owners who wanted to sit on the board were invited to do so. The IOA members were elected the same day and were later registered at Rera," says Debby.
"The initial and future success of the OA is dependent on dedicated homeowners who have the best interests of their investment at heart and the unobstructed cooperation and transparency of the developer during the transitional process."
While the interim associations are vital, Gary Bugden, chairman, PRDnationwide, Dubai, suggests that the IOAs are in a totally different position to legally constituted owners' associations. "The IOA is a concept created by Rera. It has no readily identifiable legal standing. Strictly speaking, it may, therefore, have no legal powers. However, in a practical sense, being created and backed by Rera, it relies on Rera's directive powers in order to operate."
Registration
To date, it's thought that there are approximately 850 to 900 OA registrations and licences pending with Rera. Unfortunately, we were unable to get this confirmed by the agency, despite contacting them. However, while Rera may well have pending registrations in the hundreds, Graham suggests as many as 2,000 OAs may ultimately be registered in Dubai.
"This large number has come about because in some buildings — as in the case of mixed-use projects — there is more than one [interim] association. The Burj Khalifa, for example, is reported to have seven — for hotels, commercial, serviced apartments, residential, etc, with each component formed to represent its respective interest. Clearly, the cost structure of a hotel is vastly different from commercial or residential and [hence] separate associations look after these interest groups."
When the OAs are up and running successfully, the benefits will be worth the wait. Adrian S Quinn, chairman, Essential Community Management, says, "Owners will, for the first time, be able to operate their buildings as they deem fit. If they require more cleaning, then they can adjust the cleaning specifications. Across all the contracts that they take over from the developer, owners have the option to respecify every contract."
Adrian points out most property owners do not realise if the common areas lack sufficient cash allocated to them, then the value of their units will be affected in proportion to these areas being downgraded.
Rera's involvement
Despite the registration deadline having been October last year, many developers still haven't registered their JOPD. However, with penal action on the way, hopefully investors aren't going to have to wait much longer for OAs to be approved.
Adrian says, "Rera is now assisting many OAs to call their first general assembly meetings to elect their official board of between five and seven members with three reserve members. They are approving their budgets and also appointing their OA management company."
For now, it seems we will simply have to watch this space for a little while longer.
Did you know?
"An owners' association [OA] is a legal entity, just like a company. It can sue and be sued in the courts. It has the responsibility for supervising, managing and controlling the common areas of its building or community, as well as its other assets, such as movable equipment, furniture and fittings. It's given a range of powers to enable it to discharge that responsibility, including the power to raise service charges to fund the maintenance and renewal of common areas and assets. It can make community rules to regulate use of the common areas. Owners of units are legally obliged to pay their service charges and comply with the community rules, and if they fail to do this, the OA can take enforcement action," says Gary Bugden, chairman, PRDnationwide Dubai.
