Homeowners face $4,000 charges to pay service fees

Dubai owner associations say forced to pay developer fees while they await legal approval
Homeowners face $4,000 charges to pay service fees
Under strata law, registered OAs are entitled to oversee the maintenance budgets and contracts of their properties
By Claire Ferris-Lay
Tue 23 Aug 2011 11:36 AM

Interim owner associations (OA) in Dubai are facing charges
of up to AED15,000 ($4,038) a month from developers as they await approval from
the emirate’s land department.

Some developers are asking unregistered OAs, which are unable
to legally open bank accounts, to pay flat rate fees in exchange for the
company paying bills on their behalf.

A member
of the OA for Concorde Tower in Jumeirah Lakes Towers said it was charged AED15,000
a month by developer 32 Group Properties to use its account to pay for maintenance
costs.  The OA is waiting for approval from Dubai Land Department.

“At the
minute we are paying AED15,000 a month to the developer of the tower where we
live just to have money paid into that account. It is a cost to all of the
owners in the building for the pleasure of transferring funds into their [the
developer’s] account,” the owner said. 

“We said
to the developer that we needed to collect the service charges [because] there
was a lot of money outstanding and they control the money that is paid into
their account… meanwhile there is essential maintenance work that needs to be
done.”

32 Group
Properties told Arabian Business the fee was to pay the full-time accountant they
had employed to oversee the Concorde Tower account. 

“We have
offered this [deal] because of the delay [in RERA approval] and said this is
what we would be willing to do to solve this issue right now. They could have
said ‘no, we don’t want to pay this, we’ll follow up with RERA’,” said a
spokesperson for the developer.

“We are
a group company and we have other accounts, we don’t have a policy [that allows
an unregistered OA] to check our accounts or even give the responsibility of
the account.”

Under
strata law, OAs are entitled to oversee the maintenance budgets and contracts
of their properties, but must be registered with the emirate’s land department.
Without  Dubai Land Department registration, OA’s have no legal standing,
meaning they cannot open a bank account, pay bills or hire contractors to
oversee building maintenance.

Developers
are seizing the opportunity to charge interim OAs waiting for license, said

Michael
Ryall, director of Place Community Managers.

“In some
buildings the developer maintains the bank account on behalf of the owners
association [but] I am aware of some developer’s which do charge for that,” he
said.

“In
other buildings the manager will work out a financial control procedure with
the boards who will operate the account on the board’s behalf.”

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.

OAs
still waiting for Dubai Land Department approval are stuck in a legal limbo,
said Brent Baldwin, associate at Hadef & Partners. “The issue is that for
someone to be able to open a bank account they have got to have some sort of
legal personality; you have to be an individual or a properly incorporated company
or a registered partnership,” he said.

“A bank
obviously wouldn’t want to open a bank account for an entity that wasn’t
properly legal constituted because then you get into issues over who owns the money
and who has the right to sign for various things. That leads to the wider
issue, which is if OAs aren’t acceptable to banks yet to open a bank account,
then do they actually have that legal personality?”

RERA
last week said it had given approval to 78 homeowners associations in the
emirate since January. A total of 228 associations have been registered, said
Marwan bin Ghalaita, CEO of RERA told Arabian Business, reflecting a small
proportion of the number of properties in Dubai.

Dubai
Land Department said in June it expected a 70 percent rise in owner-managed properties
by the end of the year, but analysts said the overall figure remained low.

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