Stock property management
This time, Dubai's OA companies are not facing problems of service fee payments from absentee landlords. End-users are failing to keep up on their contractual commitments. Image Credit: Shutterstock

Dubai: Payment delays - and even outright non-payments – on property service charges are once again flaring up in Dubai’s freehold market, leading to a breakdown in relationships between property owners and OA (owner association) management companies. But this time, the issue comes with a twist.

“It’s end-users residing in their own homes who are creating the payment problems now,” said an official with an OA company, who are chosen to handle the management of buildings and communities by homeowners. These OA companies also handle the tricky issue of collecting service charges for the upkeep of the properties.

“There are non-payments dating back to a year to 18 months, and something needs to be done by the authorities to help us get the arrears. A vastly reduced service charge collection is already starting to impact the concerned properties. We have made this clear to the authorities.”

OA companies are saying that penalties and action should be initiated against end-user homeowners to make them pay up on all such dues. Property management sources say cutting access to common areas such as gyms and pools is one way to convince end-users that they cannot afford to not pay up.

What’s different this time

Through the years, problems on service charge payments have always been there. It reached a peak in the early months of 2020, when the pandemic broke out and there were job losses or salary cuts that impacted many, including homeowners or property owners. This led to a sharp drop in service charge collections, as these homeowners – most of whom were overseas investors not staying in those properties - suddenly found themselves without a tenant or had to make do with reduced rental income on their properties.

This forced OA companies to escalate the matter with RERA and the Rental Disputes Settlement Centre, which started taking up non-payment of service charges too. Verdicts were passed by the RDC against homeowners who had a history of non-payment.

Any continued refusal to pay arrears meant no ‘Ejari’ certificate would be issued by the Dubai Land Department on any rental involving these properties

- Saeed Al Fahim of Stratum

No renting, selling

“Any continued refusal to pay arrears meant no ‘Ejari’ certificate would be issued by the Dubai Land Department on any rental involving these properties,” said Saeed Al Fahim, CEO of Stratum, one of the biggest privately-owned property management companies in the UAE. “Similar with any sales transactions on properties where the owners had dues to clear.”

These interventions by RERA and RDC meant that OA companies started seeing improvements in collections and in clearing dues owed from early 2021 onwards. By the second-half of last year, the arrear backlog was cut further as the rental market improved and property owners used some of that to pay off on past service charge obligations.

In addition, OA companies were offering steep discounts to convince property owners to settle.

Need new penalties

By not issuing Ejari certificates, property investors were convinced they stand to lose out more by not paying on their dues. As the rental market improved, the need to be up-to-date on service charges became all the more vital. “From 70-80 per cent non-payments, the situation improved to around 40-45 per cent,” said Al Fahim.

That’s been the case - until now.

“The RDC penalties are effective only with property investors giving out the homes for rent or wanting to sell,” said an OA manager. “When the property’s owners are staying in those units, not getting Ejari certificates will not be an issue for them. Since the start of the year, there are more such end-users falling behind on the payments. It’s reached an alarming situation.”

And which could convince RERA to step in - again.

OA companies are hit from both sides
OA companies have their hands 'shackled' because on the one hand they are getting sued for non-payment to facilities management companies. And on the other, homeowners who are looking for a reduction in their annual service charge obligations.

"Non-payment of dues by some homeowners renders them helpless to take effective action against those who don’t pay," said a property analyst. "More stringent measures are required such that the asset can be maintained, especially in an environment where inflation is leading to higher expenses across the board."