There are ways to get around the intractable problem of unpaid service charges. But it will require a lot of give and take. Image Credit: Shutterstock

Dubai property owners need a permanent solution on service charges.

Surely, we live in the paradise of the individual. Proof lies around us.

It was at the time of the Industrial Revolution that the idea of professionalism appeared, in that the contribution it made to society was an assertion of possession of reason. Obviously, the cooperation of the whole group - with each other and with society as a whole - was essential for the benefit of the general population.

Nowhere is this more needed at present than in homeowner associations and service fee collections in Dubai. Service fees are not understood by almost anybody in the industry. Owners keep complaining about how high the rates are and that they need to be brought down.

No linkage at all to rents

The link them to falling rents, which is a false argument at best. Owner association providers seem to be caught in the middle, where they lack enough muscle to enforce collections. Since the pandemic set in, they have been unable to give adequate explanations for why fees are structured the way that they are.

Or alternatively, keep the asset well-maintained. Regulators have incrementally improved the transparency of these charges. But in a market structure dominated by foreign investors, they have been unable to galvanize the latter into paying on time.

Short-term rentals became a loophole whereby higher rents that have been collected by the operators have been done without any onus being placed on the same providers to ensure service fees too are paid.

Mollak invoices have been sent numerous times to the wrong address (because of old databases), with the result dues keep rising, with a proliferation of unpaid service fees of more than five years. Developers left with unsold stock promise service-free periods, only to then turn around and neglect the asset, which creates a further disincentive to the ones that have complied with payments.

The result, inevitably, has been that everyone has felt powerless, even though the intent was the exact opposite. What is to be done?

From the micro to the macro, there are a series of measures that can be taken to enforce compliance. Individual access cards to common areas such as elevators, gyms and pools that would disallow usage to those that have not paid would be an effective way to start.

Property management companies that collect rents could have their license renewals linked to service charge collections, creating an incentive for databases to be updated and ensuring that monies are coming to the service providers.

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Getting everyone to pay up

At the regulatory level, this would imply that a joint committee of owners, property managers, facilities providers and OA managers would coordinate collections. Efficiency in collections through oversight would also allow for rates to come down as the burden of unpaid dues does not fall disproportionately on service providers.

Most crucially, at the allocation stage, the levy of fees should factor in areas such as balconies and terraces, which skews the burden towards larger-sized unit owners and thereby create a perverse incentive to not pay from the ones who are the most able to.

Everyone wants service charges to be reduced (as they well should), and yet there is confusion as to how exactly this is to be done. This is hardly surprising, because individual incentives have run over the collective responsibility, with the result being that even when media enters the fray, the issues remain opaque.

The experts add to this incomprehension, with information retention as a source of power, rather than colluding with various stakeholders such that the underlying asset is maintained in a robust manner. The impact and incidence of such collections and calculations can be sharpened through varied inputs from stakeholders in a mechanism where everyone is collectively responsible.

In Le Proces-verbal, a novel by the French writer Le Clezio, the hero says “I am in the cartoon of my choice”. A short time later society locks him up and tells him that he is insane. To a remarkable degree, the same applies to the service charges and the HOA industry, where the visual side of the narrative is in the hands of the cartoonist. The experts are increasingly the allies of the irrational and their imprisoned reality.

For this to be unshackled, the only way is for there to be in imaginative set of solutions that seek to resolve the impasse and thereby diffusing this topic.