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Sat 6 Oct 2007 04:00 AM

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Paving the way for the new Strata Law

Giving developers structures they need while adding consumer protection will lead to more mature Dubai property market.

It is fair to say that Dubai is currently experiencing development on an unprecedented scale with such a degree of complexity seldom seen anywhere else in the world.

While this presents an array of exciting opportunities, it also poses unique challenges for the regulatory authorities. Pivotal to the integrity of the Dubai property market will be the impending new jointly owned property.

Greater transparency is designed to ensure that in the future there will be no surprises.

Law, or ‘Strata Law'. The challenges in drafting this law include the need to deal with the complexity of Dubai's projects, to be sensitive to domestic, cultural, and economic interests while also being able to "retrofit" existing development within the new legislative regime. Truly a very tall order.

Industry expectation over the law is that it should provide developers with the flexibility required to structure and title their developments while at the same time ensuring the legal basis for management of their completed projects. As a trade-off to such flexibility and certainty for developers, however, there is also the expectation that developers will be obliged to provide greater transparency to investors. The kinds of properties that will be affected by the new law will predominantly be apartments in buildings where there are common services and infrastructure, such as district cooling, lifts, passages to shared pools and landscaping. However, it can also extend to freehold villas where the seller has intended that shared infrastructure and facilities are to be jointly owned by home owners. Most importantly for both developers and home owners the law will encompass the regulatory regime for home owners' associations and levying and enforcement of service charges.

It might be fair to say that previously developers had given insufficient attention to explanation of arrangements for management and operation of their projects post completion. Most sale and purchase agreements issued to purchasers contained few (if any) details or indication of costs associated with service charges, utility services, leisure facilities and related matters. This is expected to change under the new law, with the requirement of much greater information in the marketing and sale of properties designed to bring greater consumer protection.

The Strata Law could require developers to disclose a wide range of information in their sales contracts, including: 1) building and community service charge budgets for both operational and capital expenses (including a breakdown on a per unit basis), 2) utility supply agreements containing a schedule of rates and charges, 3) copies of intended contracts of all pre-committed service contractors, 4) copies of constitution or association rules for future owners associations, 5) details of the intended titling structure for a project as well as staging of development and approximations of numbers of dwellings, 6) copies of survey plans showing unit boundaries, car park and storage allocation, and 7) details of other arrangements materially affecting an owner's interest. Greater transparency is designed to ensure that there will be no future surprises to investors or buyers. All the information will be there in front of them prior to signing. The question is how the new disclosure obligations will impact the pace of current development in Dubai. There is no doubt that the new disclosure obligations will require developers to carry out substantial pre-contract consultancy. This in turn may cause delays in the development lead time and is also likely to increase developers' costs prior to launching new products. The law seeks to promote a balance between giving developers the additional structures they need while at the same time adding consumer protection on the way to a further maturing Dubai property market.

David Nicholson is general counsel for Nakheel.

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