Tenants threaten legal action against Nakheel

Monday, 22 June 2009 1:15 PM

LEGAL ACTION: Residents of Discovery Gardens demand Nakheel lower its service charge further.

Tenants and homeowners in Dubai’s Discovery Gardens have threatened legal action against Nakheel unless “exorbitant” service charge fees are further reduced.

The Dubai-based master developer announced on Monday it was lowering the service charge by AED5 per square foot.

The new rate, which has been formally agreed with the Real Estate Regulatory Agency (RERA), will also be backdated to January 1, 2009.

Despite this reduction residents say they are still paying far more than tenants in similar developments across the Emirate.

Michael Aldendorff, who is leading a petition signed by 68 residents, said: “We’re not going to accept and we won’t pay unless it’s under AED13. Nakheel is hoping this will go away but it’s not going to happen.”

Aldendorff, who bought a one-bedroom apartment iin Discovery Gardens in March 2007 and moved in in August last year, said he has consulted lawyers about suing Nakheel, a number of which said they are happy to take on the case.

“We’re all prepared to foot the legal bill, but first we want to give Nakheel the chance to come to the party,” he said.

Tenants in Discovery Gardens were originally paying between AED18-19 per square foot service charges, Aldendorff said.

With the new reduction the total comes down to between AED13-14. On top of that residents must pay cooling charges of about AED11.

Aldendorff said tenants in The Lakes typically pay about AED7 per square foot in charges, while those in The Greens pay between AED13-15 per square foot, but this includes maintenance and cooling charges.

Residents also complained they are paying for swimming pools which have yet to be finished.

In a statement on Monday Nakheel said service charges were set according to projected costs and all accounts were independently audited.

Any rebates will be credited against next year’s service charge, which begins on October 1, 2009.

Abdulrahman Kalantar, managing director of Nakheel Asset Management and Design (NAMAD), said: “When we first set the service charges for Discovery Gardens, they were based on our best estimates for this new Nakheel community.

“Following a lengthy review, we have been able to take advantage of recent reductions in the cost of goods and services, which has in turn reduced our overall service charge budgets.”

Tenants

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Posted by: AVH Tuesday, 23 June 2009 11:15 PM[UAE]

4 years ago, whenever I mentioned the possibility of being ripped off on service charges, chiller charges, visa charges, etc., people would look at me and shake their heads as if I was being excessively pessimistic though I was only being cautious. Today when I read about all this mess and the trouble you guys are in, I stand vindicated at having invested in property back home where at least nobody can say "leave if you don't like it"!! I really do feel sorry for you guys. Anyway, good luck and don't ever give up easily.

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Posted by: Mart Tuesday, 23 June 2009 8:26 PM[UAE]

So Mr "In the know"... You signed a contract for the purchase of a property where you were obligated to pay a management charge, but there was no protection at all to ensure that the charge wasn't controlled in any way? Did you really sign up to an obligation (management charge) without knowing what that obligation might be in the future? That's a little reckless don't you think? That doesn't really sound like the actions of someone "in the know". From my legal experience I know what contracts are for. They aren't there for when everything is going swimmingly. Contracts are there for when things go wrong, to protect one party from the other, to enforce limits on the actions of both parties. Personally I was staggered that people would sign a contract that obligated them to pay service charge on property they were paying hundreds of thousands of dirhams for, without any control on what that might be. Similarly we were told that the terms (to buy freehold office) was 15% in advance, and then 10% per month until we'd paid 85%, the 15% balance was then due when we moved in. These payments didn't become due when the developer hit certain landmarks - they just fell due each month... so we'd be faced with having paid 85% upfront, and perhaps still be looking at some wooden pegs and string marking out a plot in the desert. Not to mention no guarantee on what the service charge might be in the future. I wasn't prepared to sign on that basis - clearly many others did, and now they are whinging about how they've parted with lots of money and have nothing to show for it or how the service charge has risen above what they'd expected or what they consider fair. A fool and his money are easily parted. Dubai was full of fools, many of them thought they were geniuses however whilst freehold prices were rising, and now they've realised they are actually fools for signing silly contracts, and they want to point the finger at everyone else but themselves. I don't have much sympathy I'm afraid... if people are silly enough to sign such one-sided contracts they'll likely get suckered again and again wherever in the world they move.

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Posted by: in the know Tuesday, 23 June 2009 7:25 PM[UAE]

Dear Mart, Your comment is fair. Let me tell you something, I have refused to pay for exactly the same reason and I'm still here to tell you about it. That's the first thing. Secondly, if you don't have the courage for that, take a group action that proposes to pay only what equates to the service that you are in actual fact receiving. Calculate what that is in open discussion with your fellow residents, taking quotes from Nakheel, other management companies and so on, and follow that path. You have many options. Proposing to dump properties on to a market that where nothing is being bought and where owners prefer to owner-occupy rather than accept a capital value loss for the sake of 'teaching Dubai a lesson' as I believe you suggested, is not really a sensible course of action now is it? Good luck, you seem like the type of guy who doesn't know friend from foe, so I sincerely mean it.

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Posted by: Mart Tuesday, 23 June 2009 6:15 PM[UAE]

"REFUSE TO PAY - if your services aren't being provided, simply don't pay. Join a collective action like the one reported by the article, and together take a stance." Good advice - we know what happens to debtors in Dubai. They get sent to prison.

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Posted by: Mart Tuesday, 23 June 2009 6:02 PM[UAE]

"Mart, that is a very childish response and does not solve anything. You would have a very different opinion if you were one of the people that invested here but based on your immature response I am guessing you are too young to have had the capital to buy! Grow up Mart." But I wouldn't be one of the people who invested, because I'm not silly enough to buy under a contract that gives me no rights against the managing agent putting up the service charge. You are incorrect in your assumptions. I own a business in the freezone in Dubai and one in the UK. I looked seriously at buying property in Dubai - cash, no mortgage. But I came from a legal background, and when I looked into the provisions of purchases, they filled me with horror. Your managing agent can put up the service charge as much as they like, and there is nothing you can do about it. The managing agent isn't breaching any contractual terms because there are none that guarantee you that the managing agent won't do this. So if you signed a contract on that basis, more fool you. I wasn't prepared to buy on that basis. Obviously you were. There is a lesson to be learned - don't sign silly contracts just because the real estate man with the nice suit tells you you'll make a fortune and its all perfectly safe. When I opened my freezone business I *was* given guarantees - 50 year tax holiday, free uncensored internet. But I was given no guarantee as to fees and rents in the future. I know that if DIC suddenly put up the rent to silly levels, or charge crippling amounts for internet access I can just close up and run to the next low tax jurisdiction - so I decided it was worth the risk. I would however not tie up large amounts of capital in Dubai (eg in real estate) because as a foreigner here you have no protection - as you've just discovered. I'd happily buy in New York or London (subject to a good contract), because I know there the legal system will protect me. But Dubai doesn't offer those protections, so property should be priced accordingly to take account of the massive risk of owning in a market where the rules change at a whim, and where your managing agent can put up fees as much as he likes. And even if you do have protection in a Dubai contract - do you really fancy taking a state-run/owned company through the Dubai courts system? I wouldn't.

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