Dubai homeowners face legal limbo over building upkeep

Unregistered OAs struggle to pay bills as developers relinquish responsibility for maintenance  
Dubai homeowners face legal limbo over building upkeep
Dubai office space, buildings
By Elizabeth Broomhall
Mon 20 Jun 2011 12:53 PM

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.

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