By Elizabeth Broomhall
Unregistered OAs struggle to pay bills as developers relinquish responsibility for maintenance
Dubai homeowners are facing legal limbo as developers prematurely withdraw their maintenance services in anticipation of owners taking over the building’s upkeep, a property lawyer said.
Owner associations (OA) waiting for registration have been left unable to pay bills, collect service fees or manage maintenance contracts after developers relinquished responsibility for building upkeep, said Brent Baldwin, an associate at Dubai’s Hadef & Partners.
“It’s a no-man’s land. Some developers want to get out and they’re trying to leave the owners to it. But [until registered] owners don’t have the legal status to do it so they need the developer to be involved.”
A number of buildings have seen cooling and electricity services cut-off as confusion over bill payments and maintenance fee collection delays the settlement of outstanding invoices.
“What does an owner do?” Baldwin said. “There isn’t a lot they can do, apart from try to run it themselves and take on the personal risk or try and convince the developer to stay involved.”
Under strata law, owner associations (OA) are entitled to oversee the maintenance budgets and contracts of their properties, but must be registered with the emirate’s land department.
Dubai Land Department said earlier this month it had registered 218 OA in the emirate and expected a 70 percent rise in owner-managed properties by the end of the year.
Without DLD registration, OA’s have no legal standing, meaning they cannot open a bank account, pay bills or hire contractors to oversee building maintenance.
Baldwin said some developers had seen an opportunity to generate funds from OAs awaiting waiting to be licensed.
“Unless registered an OA cannot open a bank account because they are not a legal entity, so some have been asking developers if they can open one for them. The developer says yes… but we want a fee of AED4000 a month. It’s not illegal but it’s not a good faith relationship.”
Developers who once saw millions of dollars in profit during Dubai’s real estate boom have struggled to stay afloat after emirate’s property bubble burst in late 2008.
Service fees have been a particular bone of contention between developers and homeowners, with buyers accusing developers of charging inflated fees for building upkeep.
In projects such as Nakheel’s Discovery Gardens and the Palm Jumeirah, default rates on service charges among homeowners are estimated to be as high as 50 percent.
The shortfall in funding may spur a decline in maintenance quality, which raises questions over who has legal responsibility for the property’s upkeep, Baldwin said.
“[If] the building becomes substantially run down because people haven’t been paying their service charges…the developer could arguably say maintenance was the responsibility of the owners through payment of the service charges.”
While confusion remains over the scope of strata law regulations and their impact on developers, disputes over service charges are likely to continue. Frank Thompson, a resident of Nakheel’s Shoreline apartments and chairman of an OA waiting for registration, said tenants were suffering as maintenance standards declined.
“We had quite a good, secure parking system which broke down but because Nakheel hadn’t paid the contractors they wouldn’t service it,” he said. “Now anyone can park there and access the beach, which is meant to be for the exclusive use of residents. Everybody is upset about it.
“Nakheel openly said they just didn’t have the money.”
A report from Hadef & Partners last month found developers in Dubai were charging homeowners thousands of dirhams in illegal egistration fees in a bid to ramp up profits.
This mess shows again the governments inability to regulate. Why is something so simple so complicated. It is being efficiently done in multiple owners developments around the world. Let a professional maintenance company run the building from A to Z, have a board of elected representatives of the owners regularly check on this company, hold once a year a general assembly in order to vote on the main points and on the budget, or call a general assembly if there is a big decision to be made ( renovation of the facade etc.).
First question to the owners..
Q - Why did you invest without proper research and study..??
A - We were blinded with wishes of gains, blinded of the pains.
Moral of the story - Live with it..!!
If I read this, owning a premise in IC, I can only lean back happy and satisfied with the excellent first mover activities of Sheffield Real Estate - as a proper counter example for a developer doing things great and in the favor of the OA.
They incorporated a Maintenance Management Company, moved on-site and practice the business exactly as @JS suggested.
And its running well, without any disconnections and hassles.
Capt Saif, The time when investors 'invested' in Dubai propoerty was a time when the market was in its infancy. Sure people made money, but for a lot of investors the objective was also to own a home. The expectation was that as the market matured the govt would implement the right regulation to ensure a system based on global standards. The reality is that the developers capitalized on the sale of property but are doing nothing now to ensure upkeep of the same. Investors are left to fend for themselves after paying for the property. This is what the article addresses. Moral of the story: read before you comment
What you are really saying is that we shouldn't have believed in the future of Dubai as it was presented.
The core issue here is the lack of power of RERA to move quickly and provide a response and to assist owners. OA's have been trying to get registered for years and still RERA rejects the documentation which is highly onerous. It is time that RERA, which has been around for a relaltively long time, started to accept responsibility for the mess that it is causing through its inaction. There are buildings with empty swimming pools and uncollected rubbish such as Horizon Tower in the Marina where owners are seeing their investment become worthless due to the lack of amenities as a result of the non collections of fees. Until OA's can place a lien on a property and have it sold for non payment of the owed maintenance fees, this mess will continue and people will not invest their hard earned money in real estate. Empower OA's immediately to allow people to at least salvage some value from their real estate investment.
Personally speaking, I would have thought that allowing any developer to prematurely abdicate responsibility for the upkeep of a building or community before an Owners Association is formally approved by RERA without penalty represents a massive loophole in the Strata Law.
Also, does the Strata Law apply to state owned or government developers I thought there was some kind of demarcation line between them and third party developers. To be honest considering all the different aspects of the Dubai property market they handle, Dubai Land Department staffing is not that high.
Another problem is that given the loss in value of property across the emirate of between 64 and 70%, the ratio of service charges to value is rising all the time.
Also what happens when a building is handed over to owners but only partially sold i.e. a proportion of owner occupiers and the unsold units still belong to the developer with some rented. Average vacancy rate was 40% for residential at the last count?
Yes, that is what he is saying. And for better or worse he is right.
I am sure the new crop of potential investors will pay more attention to his advice than the current one did., but you never know.
I quite concur with Kaptain Saif. The fact that the Dubai property market was still in its infancy then that the investors should have been more calculating, careful and thoroughly made a "feasibility study" before plunging in. The developers did their fantastic job in ensuring that they would attract investors through their impressive marketing pitch and strategies, of which they did, but at the end of the day, the investors themselves had as much responsibility in ensuring that their investments were wise and timely. Going fast forward, these investors are now faced with the dilemma over property upkeep, but should this been the most basic issue that they could have clearly discussed with the developers prior to property acquisition? Now the strata law has been known, OA registration requirements to the Land Department identified, but these "requirements" should have been trasparently reviewed and discussed first...So my moral of the story is: "LOOK BEFORE YOU LEAP!"
What about contracts and the legal rights of investors. Does that mean nothing? It is tantamount to saying do not enter into any contract here.