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Sun 18 Dec 2011 07:46 AM

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Homeowners take tough line on service fee defaulters

Buyers in Dubai Marina’s Horizon Tower threaten non-payers with air-con cut-off, fines

Homeowners take tough line on service fee defaulters
Default rates on service fees are estimated to be as high as 50% in some Dubai developments
Homeowners take tough line on service fee defaulters

Owner associations that have taken control of some of Dubai’s residential buildings are threatening to cut off essential services to buyers that default on their annual service fees.

Horizon Tower in Dubai Marina has warned owners it will disconnect air-conditioning to flats with unpaid maintenance fees in a bid to force payment of the AED900,000 it estimates it is owed in service charges from 2006.

It also posted a list of names of all 34 non-payers in the main reception, who individually owe amounts ranging from AED7,151.50 up to AED144,596.

“There are still unit owners who persist in not paying their service and chiller charges, even though they continue to enjoy access to the lifts and other parts of the building,” the homeowners association said in a notice posted in one of the building’s elevators. “This is wrong and unfair to other unit owners. Why should we have to subsidize people who are simply freeloading?”

The board would consider introducing late payment penalties in addition to other legal remedies in accordance with RERA’s advice, the notice said.

A property manager for some Horizon tower apartments, Vip Patel, said service fees had already increased given the vast amount of building maintenance needed, in part because of defaulters.

“[In recent months] they hiked up their charges a lot,” he told Arabian Business. “I presume it was because of all the non payments. And plus there were a lot of things that still needed sorting out. The pool for example was a year out of commission and hadn’t been fixed. And there was a major problem with the chiller which needed fixing. But I think they’re doing this to force these people to pay what they owe.”

Dubai has seen a spate of disputes over service fees in the wake of Dubai’s property crash, with many homeowners accusing developers of charging inflated fees for building upkeep.

Buyers have also blamed developers for delaying the paperwork for homeowners associations in a bid to retain the revenue stream of service fees in a tough economic climate.

In projects such as Nakheel’s Discovery Gardens and the Palm Jumeirah, default rates on service charges are estimated to be as high as 50 percent, leaving buildings drastically short of maintenance cash.

Lawyers said many homeowner associations had opted for tactics such as naming and shaming non-payers and cutting off access to essential services to force owners to pay up.

“The issue of non-payment of service fees is not unique to [Horizon Tower],” said Nick Clayson, partner and head of real estate at the Dubai branch of international law firm Norton Rose.

“The legal remedies currently may not be cost effective and as such, some are taking a different approach to procure payment. One such example is naming and shaming by public notice, others include the restriction of access to particular services such car parking. 

“Both of these present a risk. There are strict laws relating to defamation in the UAE, and cutting essential services may be unlawful.”

Fees may also go unpaid due to apartments being empty or because owners are not residents in the UAE, under which circumstances, the restriction of services is relatively toothless, he said.

Owner associations could rely on payment when the owner comes to sell the apartment, as units cannot typically be sold when in arrears of service fees, but in a relatively illiquid market, this could be a long way off.

“The intention of the strata law is that the service fees cover the cost of maintenance. However, this only works if all owners make their payments. If they don't there will be a shortfall and compliant owners will be the ones that suffer if service standards and maintenance cannot be sustained,” Clayson said.

Chris 8 years ago

I own a 1 bedroom apartment in Discovery Gardens Mediterranean Cluster and have always paid service charge invoices on time. Does Nakheel simply pass on the cost of service fee defaulters to paying owners? We do not have an Owners Association in Building 89 as far as I know.

His Excellency Dr Paul 8 years ago

Many of the apartments for which SC has not been paid are rented out. When I renewed my lease this year, I specifically asked for the LL to provide proof the SC was paid (it was, he provided a copy of the receipt).

All tenants should be encouraged to do the same before signing or renewing a lease. If the receptions of all buildings could confirm to any prospective tenant whether SC on their apartment was paid or not, then you wouldn't even need to ask the LL. If this became a standard check every tenant did, then it would get much harder for LLs to rent out apartments without paying the SC, and so they'd be forced to pay.

It seems rather unfair that tenants could face loss of services because the LL isn't paying SC; in such cases, the municipality should allow tenants to cancel cheques to the LL and pay the SC themselves.

Chris 8 years ago

Contrary to popular belief, no Owners Associtions have been formed at this stage. There are only Interim comittiees due to the intransigence of RERA to formalise agreements. All power to the folks in Horizon Tower who have been through a very tough time and who at one stage had the lowest payment rate from owners in the Marina. Owners Associations need to be empowered to claim properties from owners where the full service fee has not been paid for two or more years and be enabled to sell the property and rcalim fees.At this stage RERA is not supporting the claiming of fees to ensure that owners assets are preserved appropriately. Surely fees owing of two years is equal to a bounced cheque!

Red Snappa 8 years ago

I think you'll find a second recession in the service fee industry, it's for sure that many of these so called defaulters will be unable to pay and made need refinancing/restructuring of their service fee debts.

Repaying the mortgage has proved to be a tough ask in its own right, never mind the service fees, existing mortgages up to 2008 are high interest 8 or 9% and based on top dollar purchase price in many cases.

Consumers are hurting, despite all the spin on recovery, and the warnings on another spate of bad loans imminent up to 2013, seems to be borne out by a number of different financial services sources. Therefore, unpaid service fees becomes an even bigger issue across Dubai.

H-o associations turning airconditioning off in summer may be effective, in winter, I suspect not.

One burning question - if the service charge payment default is as high as 50% why are developers considered so keen to hang on to the building maintenance revenue stream, is it still profitable??

islandgirl 8 years ago

Chris - I don't know Nakheel's policy, but I am on the board of the Arabian Ranches interim HOA and Emaar line items defaults as "deficit" every year. Needless to say, it's a formidable sum that the rest of us who pay our service fees bear the burden of. That said, if I remember correctly, the developers are not allowed to pass defaults prior to the HOA being legalized on to us. You may wish to contact Nakheel to see what they have to say...

George 8 years ago

Sadly, this is one of so many problems with Dubai real estate these days. One of the worst is that ongoing problems with Nakeel on the Palm Jmeirah shoreline apartments. Here we are still getting tremendous problems with being blocked form access to the beach, gym and pools, even the kids playground. I was just thinking of buying an apartment here rather than continuing renting, but all these problems have convinced me that I will remain a renting tenant forever here in Dubai, or at least until someday when foreign property owners have real rights and legal security against arbitrary decisions by the likes of Nakeel.