10 Feb 2010

STRATA LAW AND REGULATIONS AND REGISTRATION OF HOME OWNERS' ASSOCIATIONS

Authored by: Brent Baldwin

STRATA LAW AND REGULATIONS AND REGISTRATION OF HOME OWNERS' ASSOCIATIONS

What legal capacity will home owners’ associations take, how will they be registered and when are owners required to commence paying service charges to the home owners’ association? Brent Baldwin provides the detail.

In brief:

  • The Strata Law and the Regulations (once fully implemented) aim to level the playing field in respect of service charges and to put in place a statutory regime to govern among other things, service charges.
  • As the Regulations have not yet been issued, any purported attempt to register an owners’ association and to require a developer to pay service charges to that association pursuant to Article 22(1) of the Strata Law is arguably subject to legal challenge.
  • If an owners’ association cannot yet be fully registered, there is no entity to pay service charges to, with the outcome that owners in the relevant development are likely to remain bound to the contractual scheme the developer has in place.

Historically developers of multiple owned residential developments in Dubai have had discretion to manage service charges based on their own internal policies through contractual schemes, and there has been little external oversight of such matters. This has led to some complaints from owners that developers are profiting from service charges which is something Law No.27 of 2007 (Strata Law) and its yet to be issued implementing regulations (Regulations) sought to prevent.
 
The Strata Law and the Regulations (once fully implemented) aim to level the playing field in respect of service charges and to put in place a statutory regime to govern such matters. One way this is achieved is by requiring an owners’ association to be established. Article 17(2) of the Strata Law states that:
 
The Property Owners’ Association shall be composed of the Owners of the Strata Property Units including the Main or Subsidiary Developers as regards the unsold Units.
 
The Strata Law then provides in Article 22(1) that:
 
“Every Unit Owner shall pay to the Property Owners' Association his share of the annual service charges to cover the expenses of managing, operating, maintaining and repairing the Common Parts. That share shall be determined on the basis of the area of the Unit in proportion to the total area of the Strata Property; provided that the developer, whether main or subsidiary, shall pay his share of the charges as far as the unsold Units are concerned.”
 
Given the Regulations have not yet been implemented, it is not clear when the obligation to commence payment takes effect.
 
Article 17(1) of the Strata Law, states that the owners’ association “shall, by operation of law, be incorporated upon registration of the first Strata Property Unit in” the register at the Dubai Lands Department (DLD). A Strata Property Unit is defined as “the whole building or any part of it or the land or both of them, where a part is divided into Units designated for absolute ownership and a part of the building or land is designated as Common Parts”. Common Parts are then defined as “the common parts of Real Property that are designated for the common use by owners and occupants of a Unit that is shown in the Site Plan”.
 
The Site Plan referred to above is the plan registered at the DLD which illustrates the units and the common parts of the relevant development. On the basis of the provisions of the Strata Law set out above, the owners’ association cannot be registered until the registration of the first Strata Property Unit, and this cannot occur until a Site Plan has been registered that identifies the relevant unit and the common parts.
 
It is generally anticipated that the manner of measuring, surveying and registering a Site Plan will be addressed under certain survey regulations to be issued along with the Regulations. As the Regulations have not been issued yet, any purported attempt to register an owners’ association and to require a developer to pay service charges to that association pursuant to Article 22(1) above is arguably subject to legal challenge.
 
We are anecdotally aware that despite the lack of the implementing Regulations some developers are preparing site plans, but the risk with this approach is that not only may this still not be enough to legally create an owners’ association but also when and if any survey regulations are issued, those developers may have to amend their site plans at considerable cost as they may not be prepared in accordance with the Regulations.
 
Notwithstanding the above points, we are aware that RERA is still purporting to register owners’ associations, based on registration of the relevant development under Law No.(13) of 2008 Concerning Regulating the Initial Real Estate Register (Pre-registration Law) and under the Mollak system. This does not however in our view create a legal entity in its own right and does not appear to us to be legally justified.
 
Although the Pre-registration Law does have provision for the registration of off-plan sales contracts and the developments to which they relate, the Pre-registration Law does not make provision for the transfer of ownership of common areas to an owners association or override the provisions of the Strata Law discussed above. If an owners’ association cannot yet be legally registered, there is no entity to pay service charges to, with the outcome that owners in the relevant development remain bound to whatever contractual scheme the developer has put in place.
 
In addition to the above, Article 21 of the Constitution of the United Arab Emirates states that:
 
Private property shall be protected. Restrictions relating thereto shall be laid down by law. No one shall be deprived of his property except in circumstances dictated by public benefit in accordance with the provisions of the law and in consideration of a just compensation.
 
If RERA was to seek to oblige a developer to hand over common areas in a jointly owned property development without further compensation, then such action could be subject to challenge pursuant to Article 21 of the Constitution. This is because registration of an owners association implies that ownership of common areas in a particular development is being transferred from developers to owners. Given that neither the Strata Law (at this stage) nor the Pre-registration Law give RERA the right to register an owners’ association, such an action may be open to challenge by reference to the said Article 21. The outcome of any legal challenge to RERA on this issue may however be uncertain due to the strategic importance of the Strata Law and its philosophies.