Dubai: The vexed issue of service charges — and more pertinently who now has the right to set them — is ensuring that developer-property owner relations continue to boil.
The latest flash point has to do with the "delay" in the setting up — and registering — of formal owners associations for the many completed developments.
Only on doing so would owners associations have the rights vested in them under the Strata Law to take full control of the setting of service charges.
It's still not clear whether developers are dragging their feet on getting the registration paperwork done, or whether it's an issue at the bureaucratic level.
An "interim" status for an owners association will not do.
"From my understanding, there has been no owners association registered under the directions issued by the Land Department," said Kent O'Brien, chief executive officer and managing director of Strata Global, a company specialising in strata services.
Close scrutiny
"Interim boards have been registered with the Real Estate Regulatory Agency (Rera) and, to their credit, it seems to be getting on top of service charge budgets lodged by developers. The facilities management costs are being scrutinised very closely," he said.
While that does represent progress, it's still far short of allowing property owners, through their groupings, to take over full control of the strata regime. And here's why.
Under the terms of the jointly-owned property law, an owners association becomes a separate legal entity only on its registration with the relevant government agency.
"The key is having owners associations registered and lawfully in existence," said Dean Cheesley, senior legal consultant at the law firm of DLA Piper M.E.
"Interim owners associations do not have the same legal status and therefore cannot sue or be sued."
Complacent
Whatever the reason, developers are quite comfortable with any delay there is on owners associations making the transition from interim to formal entities. They — or the entities that do facilities management on their behalf — retain control over service charges and their collection.
Based on anecdotal reports, some developers are also raising the ante against recalcitrant property owners who fail to pay up. Disconnection of utilities is proving a particularly effective weapon in the developer armoury.
But others are trying to work out solutions that inhabit the middle ground by taking on board property owners' requirements.
"Many developers appear to be genuine and try to comply and work with interim boards," O'Brien said.
And there are those developers who do nothing of that sort.
Lack of clarity
"A similar number seem determined to run at their own pace — what is not helping is the lack of clarity on numerous issues," O'Brien said.
"Why would a developer spend funds on consultants, etc, without knowing what will be approved?"
Developers may state otherwise, but the perception is that service charges in Dubai are way above the norm. In a rental market that remains steadfastly soft, high service charges are a bane for property owners/investors.
"There's no compulsion to buy a property and place it for lease when you end up paying a third of the rental income as service charges," said an investor who has two apartments in Dubai Marina.
"When the lease agreement comes up for renewal, rents could slip further and all I would be left with is a service charge that remains static."
Such investor concerns are contributing to the clamour for developers to exit the facilities management space in full.
"The use of a third-party, specialised property management company should be mandatory," said Iseeb Rahman, managing director of Sherwoods.
Transparent process
"The selection of a management company should be a transparent process whereby offers are tendered and the decision put to vote by the owners. The vote would require a two-thirds majority for a company to be appointed to service a building," he said.
As for the immediate future, developers can dilly-dally on their owner associations, but at some point they will have to get it done. That could be the time when developer-property owner relationships may be put to the final legal test.
"If there is a major issue with the development which prejudices a significant number of owners, they could attempt to sue the developer through the owners association which, once registered with Rera, may lawfully sue or be sued," Cheesley said.
But there are processes to go through even then.
The concerned owners association would need to apprise members of the legal costs involved and the risk such an action could entail.
The members are collectively liable for all legal costs incurred, which would be levied by a special charge. The matter would then be put to vote at the general assembly. "The difficulty will be to get a two-thirds vote in the case of Dubai's market situation," Rahman said.
"There has to be a formula for the voting mechanism whereby investors who are absent can also have their say… for instance, by proxy votes."
Property owners will soon find that enforcing the Strata Law will be the hardest part.
Financial details: Better disclosure required
Effective January 13, any property coming up for sale from a developer would need to do more by way of disclosure.
"The relevant sale and purchase agreement will be void and of no effect if a developer fails to provide a purchaser with a Disclosure Statement," said a note issued by law firm Hadef & Partners.
"Although it remains to be seen how the courts will apply this in practice, clearly this requirement is of critical importance. It is possible a purchaser will be able to get out of a sale and purchase agreement without application to the courts."
Included in the new disclosure norms are details of the budget for the general and reserve funds as well an estimate of the service charges. Another would be copies of any agreement related to the supply of goods and services, including that related to utility, to an owners association.
"In addition, the regulation implies a warranty from a developer that the information contained in a Disclosure Statement is true and correct. If within two years of the date on which the unit is transferred from the developer the Disclosure Statement is found to be materially inaccurate or incomplete, the developer will be liable for damages."
However, the warranty does not only apply to purchasers who buy direct from a developer. Purchasers who sell units to third parties are required to give the new investor a copy of the Disclosure Statement received from the developer.
Have your say
Are you a member of a home owner’s association? Have you had any difficulties in
understanding the new rules by Rera?
