ARE DEVELOPERS AND FACILITY MANAGEMENT COMPANIES READY TO COMPLY WITH THE NEW LAW NO. (6) OF 2019?
Joint ownership of property has always been a tricky subject due to the involvement of multiple parties in connection with the rights and duties attached to them.
In Dubai, Joint Ownership of Property was until recently regulated by Law No. (27) of 2007 which provided the framework for the formation of Owners Association and also described the responsibilities of the Developer, Unit Owners, the Owners Association, Annual budget for funds and Service Charges relating to the same.
The responsibility of the management, control, operation, repair etc. of the jointly owned areas generally are assigned to Facilities Management Companies but when the Unit Owners do not pay the Annual Service Fees regularly, the Developer/ Management companies find themselves helpless.
They cannot stop providing their services but they find it hard to cover the expenses without the fund, which also includes insurance premiums for the whole property. This in turn affects the quality of services provided. It is a vicious circle wherein the lack of fund leads to poor performance and quality of services provided, which leads to further reluctance by the Unit Owners in paying the service charges even though the law requires the Unit Owners to pay the same.
It becomes particularly difficult to collect funds from the Unit Owners who are not residents of UAE and are not readily available when required. Further since these Unit Owners do not directly and regularly avail the services in the common areas, they may feel that they are being overcharged.
But, fact usually is that the expenses of maintaining common areas in a Jointly Owned Property remain the same whether the Unit Owner resides or uses the Unit or not.
Even though the Developer or the Facilities Management Company cannot deny access or take any action to stop the nonpaying Unit Owner from enjoying his property, but the Old Law provided a specific mechanism to proceed against the Unit Owners for unpaid service charges by sending notice and filing claims as the Owners Association has a lien over the property. The old law also mentioned that the Execution Judge can even sell the property to cover the unpaid service fees.
Another strategy to retrieve the unpaid service charges was that the Unit Owners could be cornered to pay the outstanding service charges as a lump sum if they wanted to transfer the ownership of their properties as per the Law. If you are facing difficulty in collecting service charges from the Unit Owners then a Legal Expert like Allegiance International may be able to assist you with an amicable negotiation or other legal actions.
Further, negligence in following the rules related to registration and authorization of Owners Association and the Facilities Management Companies may also affect their capacity to enter into contracts. This could put the rights of parties to the contracts in danger, creating issues as big as loss of insurance coverage. Consequences may include host of liabilities to be shifted on the Developer or the Management Companies when a potential risk arises.
If you want an expert review regarding how well your interests are protected as a Developer/ Facilities Management Company, we can assist you with thorough contract reviews and recommend the best strategy ahead as “prevention is always better than cure”.
THE NEW LAW
Law No. (6) of 2019 has been introduced recently pertaining to the joint ownership of real estate in Dubai which will be effective within 60 days of its publication in the Official Gazette. This Law annuls the Old Law or any other contradicting law from the date it comes into effect.
The Law describes in detail among others the concept of Common Areas, Developer Owned Areas, Components of the Unit and Rights and Conditions of the usage and rental of the Units which are some of the features of the New Law apart from the below:
The law has distributed the responsibilities relating to the Jointly Owned Property among the Land Department, Developer, Ownership Committees and Facility Management Companies and has also introduced heavy penalties for violation of the Law.
WHO IS RESPONSIBLE?
Basically the Dubai Land Department is in charge for preparing and maintaining the registration of the Jointly Owned Property including detailed and specific information related to all the parties.
But it is primarily the Developer who is required to take steps to register the properties and submit the related documents. In case of omission by the Developer, third parties may submit the same, subject to the approval of the Land Department but the expenses shall be borne by the Developer. Developer further is liable to represent the Unsold Units and his responsibilities regarding the damage to the structure of the Property within 10 years and replacement of the faulty items within 1 year are also detailed in the Law.
Further the Law categorizes Jointly Owned Property and specifies if the responsibilities are assigned to the Developer including functions of the Owners Committee (1st category), or the Hotels Project Management Company and the related owners committee (2nd category) or specialized facility management companies and the related committees (3rd category).
Owners Association is replaced by Owners Committees and their membership will be overseen by Real Estate Regulatory Authority (RERA) with specifications included in the law relating to the number, functions and conditions of inclusion in the committee.
It is very clear that a lot of responsibilities and conditions have to be shouldered by the Developer and the Management Companies for the protection of the interest of the Unit Owner and this could lead to unforeseen liabilities in future.
To avoid conflicts in future the Developer and the Management Companies need to ensure compliance with the new Law and for this, retaining a Legal Expert who can review the situation regularly can be an added protection.
ANNUAL FEES – SERVICE AND USAGE – What needs to be paid?
The law basically prescribes two kinds of fees - the Service Fee collected for the maintenance and management of common areas and the Usage Fee collected for facilities or utilities in the common areas.
Separate Bank Accounts with banks licensed to operate in the Emirate and approved by RERA are mandatory for collection of both kinds of Fees. The fees can only be used for the purpose it was collected for and as specifically prescribed by the law. The Developer may also need to add a percentage of the profits earned by using the common areas with the approval of the Department in the Usage Fees bank account.
Even though the Law requires the Owner to pay his share of the Annual Fees if it’s approved by the authorities, but no fees can be charged from the owner without the approval from RERA. Also the annual budget relating to the fees has to be approved by accredited auditors. Again, the Unit Owner cannot be compelled to pay the fees by any actions of the Developer or Management Company whereby he is prevented from receiving or benefiting from the unit or the common parts or facilities.
The Budgeting, collection and management of the Fees collected from the Unit Owner will now be scrutinized in detail by the authorities and any misappropriation intentional or not may attract huge penalties.
MANAGEMENT COMPANIES – To what extent you are Protected?
Management Companies can only undertake the operation, management, repairs etc. of the common areas and assign annual budgets and expenses for the same, provided they are authorized and certified as per the Law. As an added protection RERA (Real Estate Regulatory Authority) is involved in multiple stages like budgeting, ensuring that the Management Companies are approved, by requiring reports every 6 months from the Management Companies and review of the expenses and services provided by them.
Management Companies cannot charge service charges for operating and management of common areas without the Approval of RERA and replacement of incompetent Management Companies by RERA is an option. Introduction of Bank Guarantees from Management Companies is another feature which apparently can be used against them after due notice, if they fail to repair the damage to the joint property or its parts or facilities when damaged was caused due to their action, negligence or inaction. The law further has provisions to replace them if they are incompetent.
Many checking points and conditions are laid down to regulate the functioning and competence of the Management Companies who are not necessarily at fault every time there is a default in service.
Avoiding disputes begin from signing clear contracts which should include all the necessary clauses to protect and indemnify the Companies. Contracts drafted and reviewed by Legal Experts like Allegiance International, can help avoid the hassle of dispute resolution and if any claims arise, you know whom to approach for a possible way out.
PENALTIES, DISPUTES AND REMEDIES
The law prescribes for penalties up to AED 1 million and AED 2 million for repeated violations and the disputes arising are to be reviewed by the Rental Dispute Centre (RDC) in Dubai. The acts that shall be defined as violation for inviting such penalties shall be decided by the Chairman of the Executive Council. The decision or action taken against any party under this law can be appealed before the Director General by any interested person, within (30) thirty days from notification of the same and the decision on the Appeal will be final but without prejudice to the right to approach the RDC.
NON PAYMENT OF ANNUAL FEES – Legal Action against Unit Owners
In case of nonpayment of the fees by the Unit Owner, the law prescribes guidelines to proceed against them through issue of 30 days’ notice, raising a claim, and finally execution by Execution Judge before the RDC. The Judge can also sell the Unit through Auction to cover the unpaid service charges and the Unit Owner may also have to pay the costs for such claim.
Whether the nonpayment of service charges will invite penalty is a question that may be answered when the list of violations as mentioned above are issued by the competent authority.
We can assist you in taking legal action against the Unit Owners or entering into an amicable settlement with them.
TIME IS SHORT!!!
Adjustment time of 6 months from the date of the new law coming into force or as extended by the Director General is granted to the concerned parties to adjust their status as per the law. But the law will not prejudice the contracts concluded between the Developer and the Owner before this law comes in force, except for the formation of owners' committees.
There is no dispute that the Unit Owners should pay the applicable Annual Fees for ensuring that the expenses for the maintenance of the common areas are met. But are you as the Developer or Management Company ready to comply with the applicable Laws?
In most cases when a potential risk comes into existence, the parties try to wash their hands of the case by finding reasons to deny their liabilities. The only way to protect your interest is to have in-depth knowledge and expertise in the laws, regulations and the procedures before the Government Authorities which is not always possible. So in the alternative seek advice from an Expert like Allegiance International who may be able to assist you and save your money by protecting you from huge liabilities and penalties in future.
Plus we charge reasonably and so you will be paying a lot less to save a lot more! We believe each case is different but if you let us help, we can assure you that the protection of your interest will be our first priority!
For more information and any queries kindly contact us:
firstname.lastname@example.org www.allegianceinternational.com +971 - 4 - 3695542