16 Oct 2019

Dubai’s Jointly Owned Property Regime Overhauled

Authored by: Michael Lunjevich Ashraf Sayed and Jessica Lambert

In brief:

  • The new Jointly Owned Property Law comes into force next month.
  • Developers (including both master and subdevelopers), owners’ associations, and property management companies will need to act quickly to ensure they are compliant before the new law’s deadline.
  • Some of the previous, unimplemented principles of the 2007 law remain. However, key changes under this new law include:
  1. Different project and property categories:

 

Projects

Property

Category 1:

Major Projects being Master Communities. The Master Developer retains control.

Jointly Owned Amenities

Generally Master Community Areas made available for owners.

Category 2:  Hotel Projects. The hotel operator maintains control.

Jointly Owned Areas

Areas located with buildings for shared use.

Category 3:   All other Projects.

Limited Jointly Owned Areas

 Areas for Exclusive Use by certain owners.

 

Developer Owner Areas

Areas retained by the Developer.

 

  1. Owner associations (as legal entities) are no longer valid; instead owners’ committees (without separate legal personality) provide a voice for owners.
  1. Managing bodies are regulated by RERA and perform the legal functions required to maintain, manage and repair jointly owned amenities and jointly owned areas.
  1. RERA obtains more, codified powers to oversee jointly owned developments and to regulate stakeholders.
  1. The RDSC obtains exclusive jurisdiction over all disputes in respect of the new law.

Summary

After a decade, the new jointly owned property law (JOP Law) has arrived (Law No. 6 of 2019 Concerning the Ownership of Jointly Owned Real Estate in the Emirate of Dubai) and will be in force from 18 November 2019.  Repealing its predecessor (Law No. 27 of 2007 on the Ownership of Common Properties in Dubai), the JOP Law brings about a new era for jointly owned property in Dubai. It lays out clear rules for management of jointly owned property.

The overhaul is extensive and represents the evolution of jointly owned property regulation, which started 12 years ago under the direction of the real estate regulatory authority (RERA).  Developers (including master and subdevelopers), owners’ associations, and property management companies must be compliant with the new law by 17 May 2020.

The rental disputes settlement centre (RDSC) will handle jointly owned property disputes, avoiding the need for lengthy and expensive litigation. There are new, comprehensive registration requirements that now extend to details of owners’ committee members, managing bodies and their contracts, governance documents, plans, and more.

Key changes under the JOP Law include:

1. Management structure

The JOP Law defines three categories of jointly owned communities as discussed above,  each with their own unique management regulation.

The JOP Law moves far away from the concept of involving all owners in voting, meetings and assemblies. The concept of owners’ associations has been replaced by “owners’ committees”, who must be qualified by certain eligibility criteria. Existing owners’ associations must transition to owners’ committees by 17 May 2020.

Actual management of the jointly owned property, which was formally the remit of the owners’ associations, must now be delegated to managing bodies, being either developers or specialised property management companies appointed by the developer via RERA-approved contracts. This reflects the reality of local jointly owned property management on the ground in Dubai, where many developers have maintained control over property management. Given the scale and complexity of Dubai’s communities compared to those in other countries, this may be  a welcome relief to investors as their jointly owned property must now be managed by companies with specialist know-how and experience.

Managing bodies will be monitored by the owners’ committee and RERA will conduct inspections of jointly owned property to assess the efficiency of the managing bodies. RERA may, independently or in consideration of a request of an owners’ committee, replace inefficient managing bodies. Where the replacement involves a management company, RERA must:

  1. inform the owners’ committee of the managing company’s contraventions and seek its opinion;
  2. notify the managing company of its contraventions (the managing company may reply within 14 days);
  3. appoint a third party to audit the service charges account; and
  4. if RERA decides to replace the managing company, the existing managing company must hand over to the new management company within 30 days.

If the managing body is a developer or hotel management company, the director of RERA may appoint a specialised management company to perform its obligations.

2. Service charges

Service charge payment defaults are a major concern for jointly owned property stakeholders. The JOP Law now explicitly states:

  1. owners may not refuse to pay service charges that have RERA approval;
  2. the managing body has a lien over all units for unpaid service charges; and
  3. units cannot be disposed of with unpaid service charges.

Now, managing bodies can take serious action against defaulters in a few quick steps:

  1. RERA notifies the managing body that the service charges are unpaid;
  2. the managing body makes a claim within 30 days of RERA’s notification. The claim must be endorsed by RERA and served as RERA directs;
  3. if the service charges remain unpaid, the claim becomes enforceable at the RDSC; and
  4. the unit may then be sold at public auction “whenever necessary” to collect the unpaid service charges.  The owner is liable for court and legal fees determined by the judge.

Interestingly, the JOP Law expressly forbids managing bodies from restricting access to the unit or the jointly owned property so as to promote service charges payment.

Another comfort for investors is the comprehensive new rules providing accountability for service charges. Service charges may only be paid into RERA-approved accounts and used for jointly owned property expenses.

3. Area types

Reflecting the complexity of Dubai communities, the JOP Law defines multiple different jointly owned property types (as discussed above), who has rights and obligations over them, and how those properties are defined.

Key things to note here are that the JOP Law recognises different categories of property and there is a distinction between those traditional jointly owned areas within a building versus those areas of master communities that are retained under master developer’s control. In respect of the latter, the JOP Law has tried to strike a balance between the rights of the master developer in respect of its master communities and the oversight of RERA in respect of how those rights are implemented. The ultimate day to day effect of these changes will depend on how much influence RERA asserts over such master communities in practice.

4. Other Observations

It will be interesting to see how RERA implements its oversight powers and its ability to pass additional regulations governing owners’ committees operation.  The new JOP Law has gone a long way to ending the uncertainty in respect of the previous jointly owned property law. Most notably, it has ended the wait for owners’ associations to be treated as separate legal entities.

For example, owners’ committees will not have independent legal personality. Instead, committees’ chairpersons will represent the committee before the managing body and RERA, and the committee members will “enjoy full legal capacity”. It is not yet clear whether owners’ committee members are insulated from liability claims, and if not, whether owners will volunteer to be committee members if that potentially exposes them to personal liability.

The JOP Law appears to preserve “contractual agreements” between developers and owners predating the JOP Law’s enactment. This raises the question of whether master developers can continue to rely on onerous master community declarations even if those declarations contradict the JOP Law- if the provisions are included in the sales contracts and/or deeds of adherence, they may qualify as “contractual agreements” and therefore remain enforceable.

The JOP Law contemplates new regulations, which may clarify these questions.

What’s next?

Through enacting the JOP Law, RERA has removed much of the administration burden from owners by taking up substantial regulatory and oversight responsibilities. Although it repeals the original law, the JOP Law provides that directions and regulations made under the original law will survive (as far as they do not conflict with the JOP Law). Importantly, this means jointly-owned property declarations (JOPDs) are still required.

Existing developers, owners’ committees and community management companies will need to act quickly to ensure they are compliant. There is a lot to do, including:

  1. Existing owners’ associations need to transition to owners’ committees and register with RERA;
  2. JOPDs need to be updated to reflect this transition, and must be registered;
  3. If more than 10% of a development has been sold, an owners’ committee needs to be formed and registered;
  4. Managing bodies need to submit project plans (in addition to the original site plan requirement) to RERA;
  5. Management company contracts need to be approved and registered;
  6. Plans need to be updated to identify developer-owned areas and master community areas;
  7. Building management systems and completion certificates need to be submitted; and
  8. Service charges need to be approved by RERA.

As jointly owned communities are a substantial component of the real estate in Dubai, the JOP Law has a broad, far-reaching impact. These changes are designed to enhance the quality, transparency, and confidence in the Dubai property market.  Only time will reveal how far the new law is implemented and how each of a positive effect and boost these new rules will give to the sector.

Summary of other new laws

RERA has been brought into the Dubai Land Department’s structure and afforded a much wider regulatory scope pursuant to Law No. 4 of 2019 on the Real Estate Regulatory Agency, which repeals its predecessor, Law No. 16 of 2007 establishing the Real Estate Regulatory Agency.

RERA’s investigatory and decision-making powers and regulation scope are now broader, clearer, and stronger.

Where RERA previously oversaw brokers, owners’ association, and escrow accounts, RERA now regulates all “real estate business activities”, consolidating all such activities within RERA. Tenancy registration and regulation are now within the remit of the DLD.

RERA will prepare policies and studies regarding the real estate market’s supply and demand, which supports the objectives of another new law, Decree No. 33 of 2019 Forming the Supreme Committee for Real Estate Planning in the Emirate of Dubai. This Committee aims to enhance the competitiveness of the real estate market, avoid project duplication, and encourage private investors. This Decree extends to projects within the DIFC.

The Committee has a broad range of regulatory control to achieve its objectives. All government authorities are compelled to assist the committee by providing relevant information at the Committee’s request and implementing the Committee’s decisions.

New government owned (or partly-owned) projects must be approved by the Committee before any other government authority may approve such project.

Another new law, Law No. 7 of 2019 amending Certain Provisions of Law No. 7 of 2006 Concerning Real Estate Registration in the Emirate of Dubai, reaffirms:

  1. property rights are not enforceable until they are registered in the real estate register; and
  1. transactions performed with the intent to harm the third party creditors’ rights are deemed invalid. We believe that the onus of proving such harm and the transacting parties’ intentions rests with the third party creditor claiming the transaction was not performed in good faith with a bona fide purchaser.
 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.