Interim owners associations will be able to open and operate bank accounts in the next few months with the Real Estate Regulatory Agency (Rera) set to ink memorandum of understandings (MoUs) with three local banks, ‘Emirates24|7’ can reveal.

“We will soon be signing MoUs with three local banks. Since it is an entirely new service that the banks will have to provide, we have to give them time to fine tune themselves with our regulations. Hence, it will take some months for us to issue letters to IOAs which will allow them to open bank accounts,” Mohammed Khalifa bin Hammad, Senior Director, Rera, said.

“After we announce our MoUs with the three banks, we hope more banks will approach us and will offer this new service to IOAs.”

According to bin Hammad, the delay in IOAs getting legal status has been primarily due to the associations failing to submit the common area site plan, which is mandatory along with a Jointly Owned Property Declaration, a copy of annual general meeting and code of conduct certificate for IOA members from the local police.

He revealed that the IOAs, as and when they get to open the bank accounts, will not be allowed to do any transaction by cash or cheques — it will be a bank to bank transfer.

“It will be the responsibility of the banks to check and ensure whether the invoice raised by the owners association is to an authorized service provider for the building.”

In order to help the existing IOAs get legal status, the agency will help/grant exemptions, which will allow them to operate bank accounts.

“We plan to help IOAs fulfill certain conditions following which we may issue them a letter to open a bank account. However, we haven’t yet decided on how and when the plan will be implemented,” bin Hammad stated.

A decision to this effect was taken at a meeting of the Interim Owners’ Association (IOA) on February 2, XPRESS can reveal.

Property owners in Nakheel’s flagship project have been locked in a bitter row with the developer after it blocked their access to the beach club over unpaid building service charges and beach club fees. Residents were warned that they may be arrested if they tried to enter the pool and gym areas.

Matters came to a head in December last year when Nakheel locked the back doors to the seven apartment buildings that open onto the pool and beach. Angry residents called police on January 21, saying Nakheel had no business controlling the common areas.

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Major victory

But last week residents scored a major victory when property watchdog Real Estate Regulatory Authority (Rera) formally registered five Shoreline IOAs, giving residents full control of common areas. A formal certificate of registration was issued to IOA board members on February 2. It empowers IOAs to represent building owners and take charge of common area management from Nakheel. The remaining buildings are likely to be registered in the coming weeks.
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Nader Alizadeh, IOA chairman for Shoreline Buildings 1 and 2, said: “We can now break open the back doors locked by Nakheel and give residents direct access to the beach club. We are planning to invite bids for running the beach club. Now we can call our own general assembly meetings, review and approve budgets for service charges, appoint a Rera-approved Owners’ Association (OA) manager and hire an independent auditor.”

IOA board members are working with Rera to define the scope of the OA manager. “He will play a critical role in the management of buildings. He will invite tenders for beach club management because by the estimate of Nakheel’s own auditors, Baker Tilly Meralis, the fee from 2008 to 2010 is six times higher than the actual cost of running the clubhouse,” said Alizadeh.

There were no comments from Nakheel at this stage.

It has not opened the back doors either, much to the chagrin of residents, many of whom feel the locked doors have put them at increased risk in case of an emergency evacuation.

James Hartt, Chair, Al Habool Owners Association, who represents Shoreline Owners Associations on Palm Jumeirah, blamed Nakheel for not resolving the issue. “Nakheel is refusing to engage with the OAs in a positive and open manner to resolve these issues. Guest passes are still being charged for on a daily basis against the wishes of a clear and vast majority of tenants and owners. The owners have no visibility as to where the money paid for guest passes goes,” he said in an e-mail statement.

Property owners contend their sales and purchase agreements (SPAs) give them exclusive right over the beach. Understandably so, they are miffed that it has been thrown open to outsiders. “The beach is part of the Palm Jumeirah master community and is owned by all Palm Jumeirah owners, regulated by Trakhees,” said Alizadeh.

The Real Estate Regulatory Agency (Rera) said they have started contacting existing associations and new members to submit the certificate as early as possible.

Speaking to XPRESS, Mohammad Khalifa Bin Hammad, Head of Real Estate Relations Management, Rera, said: “Many OAs are asking for the right to control the finances of managing their buildings and communities. This means they will be doing transactions on the account themselves and for this we have made it mandatory for them to get a clearance from Dubai Police,” he said.

Bin Hammad said the agency was ready to register OAs as legal bodies. “This will give them legal rights to manage their buildings and communities.”

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Observers said the move will regulate the market and bring solace to property owners. Currently, all 271 OAs in Dubai are Interim Owners Associations with no legal right to sue or be sued. Once OAs become legal entities, they will function independently and wrest control of finances from developers to manage buildings and communities

“They have to submit a common area site-plan, a jointly-owned property declaration, good conduct police certificate and minutes of the annual general meeting (AGM),” said Bin Hammad. Once the papers are in order, Dubai Land Department (DLD) will issue a letter to the interim OA to open an account in one of their approved list of banks. Each OA will have a separate bank account.

Bin Hammad said they are in the process of signing Memorandums of Understanding (MOUs) with a number of UAE banks.

Welcome step

Various stakeholders of the realty sector have welcomed the move. Dr Hamid Mirlohi, Chairman, Interim Owners Association (IOA), Al Shera Tower, said: We have been waiting for the formalisation of IOAs as legal bodies. It is an extremely important step towards regulating the property sector. This will resolve many disputes between associations and developers.”

Ludmila Yamalova, Managing Partner of HPL Yamalova & Plewka JLT, a Dubai-based law firm, said: “Empowering the IOAs to become legal entities will mean they will have the power to sue and be sued in Dubai’s court of law. They will be able to open bank accounts and enter into contracts. They have all rights to govern and manage their buildings and communities. And, generally, they will have all the powers and rights that a corporation would have.”

Dubai: It is anything but a reconciliation process.

Many property owners in Dubai are finding that their efforts to mend fences with developers is leading the way to potential conflicts. The process is integral to developers ceding control of property management to owners associations.

As part of this, developers have to square the expenses incurred during the period they were in actual control of the property in a book of accounts. This relates to the funds collected from the property owners during this period. How these funds were deployed have to be accounted for by the developer prior to handing over their charge to the owners associations.

Unexpected shock

But, as many owners are belatedly finding out, the squaring up of expenses may not be all fair and square. Take for instance the recent experience of a residential high-rise in Jumeirah Lakes Towers.

“As against the Dh125,000 a year that we believed were the property management expenses that the developer was charging us, we were told all of a sudden that it was actually more than 200,000 a year,” said a member of the building’s owners association.

“No intimation was issued by the developer and the rationale they are giving — of the Dh125,000 being way below the market rate and that the higher charge reflected the need to bridge it — is just an excuse to hold on to our funds. We have got our own auditor looking into the expenses and if we find anything to be out of sync, we are going to approach the Real Estate Regulatory Agency [Rera].

“There are regulations governing property investor rights and it is time to exercise them.”

According to industry sources, this need not be an isolated incident. Once funds are vested with developers, it will be nothing short of impossible to get them to part with those on their own. A unilateral raising of fees in the account books and then brazening it out will be the operational mode of many developers to offset any investor move on these funds.

Long way to go

“There is some friction between groups especially in developments where transparency is lacking and access to financial information limited,” said Kent O’Brien, CEO of Strata Global.

“We are finding there are an increasing number of developers offering up the information, but the final reconciliation will be long winding path,” he said.

“It is also coupled with the fact that owners are refusing to accept anything put before them without an audit. In many cases, the owners association boards are now preparing the budgets in collaboration with the appointed OA [owners association] management company which gives some feeling of empowerment to the owners… albeit limited.

“Rera is insisting on financial and building audits which will settle many disputes.”

Transition plays are never bound to be smooth affairs. Even making allowance for that, the developer intransigence on the reconciling of accounts does smack of grandstanding. But how the market goes about resolving this will prove beneficial in the long term.

Precedents

“With every issue that is raised before the authorities and resolved by them, precedents will be set; and that is for the longer term benefit of the market,” said a lawyer specialising in jointly owned property regulations.

Again, looking at the wider picture, reports are coming in of property management contracts that have been put up for competitive bidding yielding the desired results for owners associations.

The leeway developers had of setting the management fees is no longer there for properties that have seen the transition to owners associations taking control.

“I feel the fees charged by developers managing their own developments may be the area of contention, but this is also limited inasmuch as Rera is reviewing all budgets,” said O’Brien.

In the long-term, the reconciliation of accounts could well have the desired for results for property owners…. even if the concerned developers are half-hearted about it.

Then again, their views do not count any longer, do they?

By Manoj Nair, Associate Editor, Published: 00:00 July 1, 2011

Majority of the Interim Owners’ Associations (IOAs) in Dubai are not legal entities as not many common area site plans have been registered with the Land Department, says a top legal firm.

“Law 27 of 2007 concerning ownership of jointly owned properties says the owner association (OA) comes into existence once the first title deed is issued, however, jointly owned property is not created until the common area site plan is registered. Not many common area site plans have been registered so technically we believe the majority of the IOA’s are not legal entities within the meaning of the law,” Michael Lunjevich, Partner, Hadef & Partners, told Emirates 24/7.

“Therefore they cannot open back accounts unless Real Estate Regulatory Agency (Rera) is able to qualify the law in a manner that enables an entity to come into existence without the common area site plan.”

Lunjevich cited a combination of lack of deadlines from Rera without punishments and lack of willingness from some developers to go through with the divorce that will hand over control to the owners as reasons for delay in registration of IOAs.

Earlier this month, Rera said it had registered 218 interim owners associations (IOAs) and expected the IOAs to manage nearly 70 per cent of the freehold properties by year-end. The agency had set an October 2010 deadline to complete all documentation process and register owners’ associations. Industry experts believe Dubai will have almost 2,000 IOAs.

According to the legal expert, interim board members who sign contracts on behalf of an unregistered owners’ association might be personally liable for claims under the contract since they are signing on behalf on a non-existent entity.

Asked if property owners despite having an IOA were still paying service charges to the developer, he said that in the majority of the cases developers were the only one holding a bank account.

“It is not ideal and it leaves developers and owners in an unwanted marriage in many cases.”

Finally, on the issue of recovering service charges by OAs, Lunjevich said: “There are many measures that can be taken that range from a friendly chat through to withholding access to facilities or liens over the property. Law 27 allows a fast track mechanism to serve a notice through the notary and then attach a lien to the property and this may allow sale by auction which is really the end game if someone is not paying their charges.”

By Parag Deulgaonkar, Published Wednesday, June 22, 2011

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.

By Elizabeth Broomhall, Monday, 20 June 2011 12:53 PM

Dubai Multi Commodities Centre (DMCC) has called upon developers and owner associations in Jumeirah Lakes Towers (JLT) to pay the community service charges on time to ensure quality service.

“JLT developers and Owners’ Associations understand that the master community service charges need to be paid on time to ensure our service providers are treated as partners with respect to accountability for the delivery of quality services to JLT,” Malcolm Wall Morris, Chief Executive Officer, DMCC, told Emirates 24|7.

The master developer of JLT insists they work on a zero cost budget and that they only pass the charges that has been spent on maintaining the community.

“The master development costs within JLT are based on a zero cost budget. Whatever charges are passed on via the master community service charge are only those which we have spent on maintaining the master community in line with community expectations.”

Emirates 24|7 had reported earlier that Nakheel had warned property owners in Discovery Gardens to pay their building service charge by June 24 or there could be utility and service disruption.

Asked if the issue of residents being charged twice by Dubai Municipality and the master developer had been solved, Morris said: “In terms of the Dubai Municipality housing fees, we are working closely with all government bodies to ensure that the residents of JLT are being treated fairly and in consistence with the level of services provided by both organizations.”

DMCC maintains it is working constantly with suppliers to ensure that service charges in JLT remain “competitively” priced.

“We are constantly working with suppliers to ensure that JLT receives competitively priced master community service charges. Although there are reductions in costs through improved operating efficiencies, this is always balanced with the cost arising from increasing services as demands increase due to the growing population and rapidly evolving community expectations.”

Asked how much is the total outstanding from developers and any legal action was planned against them, Morris said: “While it is true that DMCC has outstanding receivables with some developers, this does not adversely affect our ability to operate. We are in discussions to ensure that amicable solutions are found for any outstanding dues.”

By Parag Deulgaonkar, Published Thursday, June 16, 2011

Dubai-based master developer Nakheel has said it will not be able to pay utility and service providers if there are no funds in building accounts of Discovery Gardens, resulting in service disruption.

“As the letter is self explanatory that to continue the services and pay the utility provider, we need sufficient fund to keep the building up and running. If there is no fund in the building account we will not be able to pay the utility charges & service provider which may result in disruption. Service disruption will depend on the service providers,” a Nakheel spokesperson told Emirates 24|7.

Asked about the total outstanding from Discover Gardens owners, she said: “ The outstanding amount varied building by building as each building had a different rate of service charges. Each building has a different cost of operation so the utility and service provider’s charges differ building by building.”

On Sunday, this website reported that Nakheel had warned property owners in Discovery Gardens to pay their outstanding building service charges within 15 days, or else face disruption of utilities and services.

In a notice put across some of the buildings in Discovery Gardens, the master developer said due to accumulation of building service charges, payment has not been made to utilities and services for certain billing period(s), which may result in disruption of services as well as services provided by third party suppliers with no fault of Discovery Gardens Co.

The notice said owners are requested to pay the outstanding building service charges within 15 days from the date of the letter (June 9) and without further delay in order to avoid disruption of the above mentioned services.

On March 5, this website had reported that Nakheel was contemplating taking legal action against property owners who were not paying service charges.

Rajiv G, in his comment on this website, said he believed service charges and the chiller fees charged by Nakheel for Discovery Gardens was not in-sync with the services and amenities provided.

“I believe this is one major reason why owners dispute on paying these charges. Nakheel should revise their charges and be transparent about it,” he added.

By Parag Deulgaonkar, Published Tuesday, June 14, 2011

Nakheel, Dubai-based master developer, has warned property owners in Discovery Gardens to pay their outstanding building service charges within 15 days, or else face disruption of utilities and services.

In a notice put across some of the buildings in Discovery Gardens, the master developer said: “This is to inform you that a number of unit owners in your building have failed to pay building service charges and thus accumulating building service charges (covering the period up to September 30, 2010).”

“Payment for the building service charges made by unit owners who paid on time were paid to utility and service provider. However, due to accumulation of building service charges, payment has not been made to utilities and services for certain billing period(s), which may result in disruption of services as well as services provided by third party suppliers with no fault of Discovery Gardens Co Llc.”

The notice said owners are requested to pay the outstanding building service charges within 15 days from the date of the letter (June 9) and without further delay in order to avoid disruption of the above mentioned services.

It added that failure to pay building service charges on time is a violation of the law and the unit owner is fully liable for all the consequences.

Emirates 24|7 did not receive any response from Nakheel to its queries till the time of publication.

On March 5, this website had reported that Nakheel was contemplating taking legal action against property owners who were not paying service charges.

“We are following Rera’s guidelines and regulations through the owners’ association registration process – this is a process that embraces legal mechanisms to protect the interests of all property owners by dealing with defaulters,” a company spokesman had said.

Although the company earlier refused to divulge the total amount of unpaid service charges, industry sources said the figure is quite high.

DM, who owns two apartments in Discovery Gardens, said he has not got any notice from the developer although he admitted that he hasn’t paid service charges for quite some time.

“There has been no communication from them so far… my tenant has just informed me of the notice and I will look into the matter. I, as an owner, haven’t got any notice from them master developer.”

M Suresh, a resident of Discovery Gardens for past two years, said: “I just saw the notice yesterday and have informed my landlord. We are paying our rent and Dewa bills on time. If the water or power connection is disconnected, where do I go in this summer with my nine-month-old baby. I hope they find some solution.”

By Parag Deulgaonkar, Published Sunday, June 12, 2011

The availability of luxury apartments at half-price in 2011 show that either abnormal profits are being trimmed to make up for the high default rates of the initial set of buyers or a major correction of the much deflated real estate market is getting more realistic.

A Dh2 billion project had some 80 per cent of its units sold off-plan to European and Russian investors, as well as to the well-heeled from the Middle East, before the property crash.

As more investors pulled out, the developer reverted to the Real Estate Regulatory Agency (Rera) to cancel the original contracts and then resell at half-price to synchronise with prevailing market trends. It has another implication in that even the luxury-end has not been as crisis-resistant as previously thought. The irrational appetite of genuine homeowners and speculators alike has been curbed.

Strata law to the rescue

In the boom phase, checking laws on consumer protection seemed unnecessary — in the belief that the authorities will always do the right thing in the fullness of time — or nobody had the time to be cautious and miss out on the profit taking in off-plan sales.

With well-respected property developers, often state-owned as well, the comfort level of home buyers and investors alike seemed to match their confidence to buy big-ticket items.

As usually happens, regulations are a step or two behind the business generated; so is the Strata Law. The most difficult part of any law relating to properties, whether landed or high-rise condominiums, is the fact that the land is a birthright only for the nationals.

This is after both Abu Dhabi and Dubai passed and implemented their real estate laws which, inter alia, created a registry for proper registration and issuance of title deeds to nationals to buy properties, and the right to resell or secure mortgages for financing.

For foreigners, both investors looking for a second home and expatriates living and working here, home ownership is a new value proposition. The UAE government is wise to realize its demand and potential.

Even before the turmoil in Tunisia, Egypt and the neighboring countries, flow of capital into the UAE as a safe haven for real estate has been attractive.

Dubai was the first to have its Strata Law, but Abu Dhabi seems to have a solution for foreign ownership of the buildings above the land without being able to own the land itself.

In essence, Abu Dhabi’s Strata Law will be different from Dubai’s where non-UAE citizens are allowed to directly own a share of land in designated freehold areas.

Foreign ownership of real estate in Abu Dhabi essentially operates as 99-year leases rather than as freehold, as is universally defined and understood. Using the term as freehold in the UAE context can thus be different to what it means in other countries.

As always, reading the fine print in legal documents is never a strong suit of the common folk. If neither their developers nor lawyers care to do their due diligence, the misunderstanding — or misinterpretation — can be as disappointing, as it is costly.

To be truly exemplary and a convincing model for foreign buyers, the strata laws in Abu Dhabi or Dubai need to be properly and effectively enforced with all parties — from owners and tenants to developers — held accountable.

If the strata law can be the light at the end of the tunnel in the real estate market, it could be a booster for overall confidence in other UAE investments as well.

The writer is the head of valuations and research at Chesterton International.

By Robin Teh, Special to Gulf News, Published: 00:00 June 10, 20111