Dubai's Jointly Owned Property Law (Law No. 27 of 2007) (Strata Law) provides a framework for the development and subdivision of land and buildings into units and common areas designated for common use by unit owners and occupiers. Such a subdivision is known as Jointly Owned Property (Jop). An association of all the unit owners (owners association) is responsible for the management, operation and maintenance of the common areas.
The regulations and decisions the direction to enforce the Strata Law are effective from April 13 2010. These directions deal with rights and obligations regarding the sale and purchase of units and the management of common areas.
In the past some developers in Dubai tried to retain management rights over common areas by (i) requiring unit owners to appoint the developer as the manager of the owners association and (ii) delegating all owners association powers to the manager for a specified term.
Whilst during Dubai's "boom years", purchasers may have had little or no intention of being the "end user" of the units, but now that projects are being completed and the sale of units is becoming more difficult, increasing numbers of purchasers are deciding to occupy their units. Those purchasers are keen to have control over how the common areas are maintained and how service charges are recovered. The directions set out to address those issues.
Timetable for compliance
Under the directions, in respect of each project, the developer must:
1. File a Jointly Owned Property Declaration (Jop Declaration) at the Dubai Land Department. The Jop Declaration sets out all the property information relating to the Jop, including a site plan, a list of all unit numbers and the community rules which will apply to the project.
2. Apply for the formation of the owners association at the Dubai Land Department
For all projects constructed and occupied as at April 13 2010, these tasks must be completed by the earlier of October 13 2010 and the date which is 30 days after receipt of a notice from three or more Unit owners. For all other projects, the tasks must be completed upon application for registration of the first sale of a unit in the Jop.
If the developer breaches this timetable, the unit owners are entitled to take action to have the owners association registered, and the developer would be responsible for the unit owners' costs.
Any agreement entered into by the owners association (or by the developer on behalf of the owners association) can be set aside by a majority vote of unit owners provided that the agreement was entered into whilst the owners (excluding the developer) held less than two-thirds of the "entitlement" to the common areas. (A unit's "entitlement" is based on total unit area and the extent to which the unit uses the resources of the owners association.)
Some developers are concerned that passing common areas maintenance to owners associations could lead to lower standards being applied which could have an adverse impact on the developers' brands.
Owners in arrears
If a unit owner fails to pay service charges, and fails to remedy this following notice from the owners association, the association may impose a penalty at the rate of 12% per annum calculated daily. The owners association has the right to sue non-paying Unit owners for such debts.
The directions suggest that a dispute resolution process will be implemented however there is uncertainty as to whether disputes can be brought to the Dubai Courts pending the implementation of such process.
The owners association has a lien on every unit for unpaid service fees however the effects of such lien are not certain, for example, it is not clear whether the lien would prevent the unit from being sold until the arrears are paid.
The sale of a unit entered into after April 13 2010 may be void unless the developer (or the seller where the sale is on the secondary market) complies with the disclosure requirements of the directions. The developer must provide the purchaser comprehensive details of the project, including an anticipated budget for the owners association, such that the purchaser is fully aware (i) what he is buying and (ii) of the implications of the purchase. The developer is deemed to have warranted the information for two years following the sale.
A tight timetable as been set for compliance with the directions and the level of observance (by developers, owners and owners associations) remains to be seen.
Andrew Yule (firstname.lastname@example.org) is an associate at the law firm of Afridi & Angell.