Dubai developers cannot dictate terms to owner associations

Dubai: Once they deliver on their projects, developers in Dubai will need to take a step back. They will no longer have a direct role to play in the setting up — and running — of owners associations.

This is a major departure from the earlier regime, where developers could insist on having a central role for the first three years after a project’s completion and certification. They even had clauses to this effect in the SPAs (sales and purchase agreements).

Now, “The developer cannot be part of an owners committee unless there are unsold units (in the project),” the new Law No. (6) of 2019 states.

And property owners need not even wait for the project to be delivered. Whether at master-developments or individual ones, the owners committee “should be” set up when 10 per cent of the freehold units at that project are registered. (And the committee should not include more than nine members selected by Rera (Real Estate Regulatory Agency).

Dilution

The Law “dilutes the influence of the developer post-completion and eliminates any conflict of interest,” said Nasser Malalla Ghanem, Senior Partner at the law firm of NM Associates. “In the past, the standard SPA stipulated that developer would effectively be the manager of the building for the first three years.

“This Law is a logical consequence to fix responsibility for assets that have started ageing — maintenance defects that have risen to the surface that may not have been addressed in the past.”

Tougher new standards

Indeed, the stakes have been raised across the board. The developer is required to submit all necessary documents of the project to the Land Department within 60 days of completion date and receipt of completion certificate. (The Department can extend the deadline for this by 30 days.) If they are not submitted, the Department can request the documents from any other party, and the developer all related fees and expenses.

It will be Rera that will regulate and inspect maintenance of these properties and common areas. The facility management firm — or the OA management company — will need to submit reports every six months to Rera on its handling of a property. (Rera can request information on revenues and expenses related to service charges at any time.)

In its overview of the new Law, the law firm of Afridi & Angell notes that owners committees must receive “complaints from property owners and submit these to Rera “if the management fails to address them within 14 days of being notified”.

In another move to bring on more transparency, the OA representative cannot collect any service charges unless “they have obtained prior approval of Rera to the budget allocated for the service charge,” the Afridi & Angell report notes. Rera will appoint an auditing officer for the purpose. (There is a six-month transition period from September 4 for the new requirements to come into effect, according to Afridi & Angell report.)

Settling disputes

The Rental Disputes Centre in Dubai — which hitherto only oversaw rental issues — is now tasked with reviewing all disputes that could arise from applying the new Law on freehold property maintenance and service charges. Violations carry penalties of up to Dh1 million, while penalties will be doubled in case of repeats within a year.

“The strict penalties are a warning to such companies to ensure strict adherence to best practices,” said Ghanem. “FM companies will be forced to open up their books and ensure compliances. OAs have been empowered to scrutinise such budgets and the jobs that have been carried out.”

Tougher times

For FM service providers, these will bring further pressure in handling cash flows. “FM rates have reduced by nearly 20 per cent already because of pressure from OAs,” said Tariq Chauhan, CEO of EFS. “In 2010, industry gross margins were above 15 per cent — now it’s below 10 per cent. At the same time, there are costs for better equipment, minimum salary bands, and higher skills.”

Defining the property buyer’s right

A developer should allocate parking space for all owners of a unit, and these spaces cannot be sold separately.

The OA management firm of facility manager cannot charge fees for operating or maintaining common facilities unless there is approval from Rera.

The developer is responsible for any damage to the structure of the property occurring within 10 years, starting from the date of issuance of the completion certificate. The developer is also required to replace and repair faulty items in the individual units within a period of one year from the date of delivering the unit to the owner. In case the owner refuses to take possession of the finished unit for any reason, this period will be calculated from the date of issuance of the completion certificate.