01 May 2012


Authored by: Michael Lunjevich


In the heady days of the property boom in Dubai many developers forced investors to sign one sided sales agreements. These agreements were usually very onerous on the investor as far as payment is concerned whilst being light on the developer as far as delivery is concerned. In addition, the sales agreements generally required owners to allow the developer to control common areas and collect service charges after delivery of the unit, and such arrangements might be for terms of up to 15 years.
Such post delivery management agreements provided developers with unreasonable levels of power and may have effectively removed owners’ rights of freedom of choice as to who managed their communities and how they were maintained. This issue also opened the community management industry to threats of profit taking in an area that is generally world-wide considered to be a not for profit area as far as owners are concerned.
The above issue was recognised with the implementation of Dubai’s Jointly Owned Property Law in 2007. Homeowners however had to wait for the full implementation of the Law which occurred when RERA issued the associated Regulations. The general thrust of the Jointly Owned Property Law and its Regulations is that common areas within projects of Dubai that are intended for joint ownership by all owners must be registered as “jointly owned property”. Further, control of the management over such areas must be handed to the owners who will mange and administer such areas through an Owners’ Association in a “not for profit” capacity.
Unfortunately very few (if any) Owners’ Associations have been registered in the five years since the implementation of the Jointly Owned Property Law. Despite this, many owners have devoted thousands of hours, without compensation, working towards wrestling control of common areas from developers who have thus far resisted or dragged their feet in handing over control.
Owners have been waiting for the registration of their Owners’ Association through RERA so they can review in detail the way in which their communities have been managed by developers. Confidence was generated in their ability to do this through Articles 15 and 16 of the General Regulation issued under the Jointly Owned Property Law in 2010. These Articles stipulated that service agreements (which include agreements with developers for the management of common areas) cannot be longer than three years, and most importantly, that the owners, may by majority resolution, terminate any historical agreements at their first annual general meeting.

Hadef & Partners has reviewed the English and Arabic versions of the recently released draft Investor Protection Law. The Law has many positive protections for investors, however, these are focused on addressing the balance on disclosure requirements and delivery requirements in favour of investors for off-plan property. Nevertheless, one of the articles of the draft Dubai Investor Protection Law may contain an ominous sign for the ability of owners to control their common areas after delivery.
Article 11 of the draft Investor Protection Law states:
“……If the developer retains the right of management of the common parts of the common building in the contract of sale of the unit, he shall provide buyers or beneficiaries of the property with estimated information of the value of the facilities’ services and an indication of the entity that shall manage such facilities…..”
This has obvious implications as in our view, it may contradict the Jointly Owned Property Law and in particular Articles 15 and 16 of the General Regulation. Coincidentally, it has also been noticed that the 2010 regulations issued under the Jointly Owned Property have been removed or become very hard to locate on the RERA website.
Whilst the Investor Protection Law contains several aspects that would help investors for off-plan property acquisitions, these provisions are not stated to be retroactive and therefore may be of little benefit to existing investors, particularly those who have invested in projects which have since stalled or which have been cancelled. The proposed Investor Protection Law may therefore be of limited value to the market unless off-plan property sales suddenly experience another boom in the near future.
In contrast, the market for completed properties is experiencing a revival and it is recognised by commentators that management of jointly owned property is a developing market with real potential. Therefore, whilst the Investor Protection Law appears to give a lot to investors it may also destabilise some of the most lucrative and sought after benefits of the Jointly Owned Property Law.
The most concerning thing is that Article 11 appears to be very wide in its application, appears to support previous arrangements in onerous sales agreements, and does not provide any clarifications as to the terms of or length that such arrangements can be enforced. If there has been a rethink on the issue of common area management then the Investor Protection Law may not have the intended effect of strengthening the market and may threaten to undermine the modest recovery the completed property market has enjoyed recently. This issue requires clarification as soon as possible.