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Recent media reports on significant fees or levies charged by developers on homeowners who want to renovate or expand their properties have further highlighted the challenges in implementing Dubai Law No. 27 of 2007 or the Jointly Owned Property (JOP) Law.
Prior to the JOP Law, it was common for developers to retain management responsibility and oblige purchasers to pay fees without a significant degree of transparency. The law sought to redress this lack of transparency by transferring management rights to the owners associations (OAs). According to the JOP Law, a purchaser of a unit in a jointly owned property automatically becomes a member of the OA upon registration and the owner of an undivided share in the common areas of the building or community.
In practice, however, it has not been possible to establish OAs that are separate corporate bodies with their own corporate identities. The practice has been to form interim OAs, which are effectively unincorporated committees that oversee the management of buildings without any legal function. Developers, therefore, remain the legal owners of the common areas pending full implementation of the JOP Law. Consequently, many developers have retained management responsibility.
The recent hike in application fees for improvement works or extensions to villas has put the spotlight on the JOP Law and the legality of such increases.
There is a distinction to be drawn here: when the developer or OA charges for approvals to minor works that will not impact the property’s value, and when the developer or OA seeks to share in the value added to a property by an improvement such as the addition of a new wing. The former should be nothing more than a cost recovery exercise, whereas the latter is known as a betterment levy and is pertinent to recent headlines over the cost of a developer’s approval for extending villas on undeveloped land forming part of an owner’s plot.
There are no statutory controls on the approval fees or betterment levies that a developer or OA could charge. The intended safeguards against high levies or fees are those under the JOP Law, which states in Article 18 (1) that an OA is “an establishment not for profit” and the make-up of the OA should mean that its interest aligns with the collective community interest.
However, in the absence of incorporated and licensed OAs, developers maintain an ownership interest in the community and influence over the rules. Developers will also often hold the bank accounts of the OA. This has precluded the full operation of the JOP Law and facilitated a circumstance where developers can essentially make their consent subject to the right price.
The Real Estate Regulatory Agency can intervene in the event of disputes between interim OAs and developers and recommend a reduction in fees.
Developers are required to provide prospective unit owners with a written disclosure statement signed by their representatives prior to finalising a sale and purchase agreement. The statement must disclose certain information about the property, including copies of the JOP declaration and building management statement setting out the community rules among other things.
If within two years of the date the unit was transferred it turns out there is material discrepancy in the disclosure statement, the developer will be liable to the purchaser for damages. The legislation does not specify how the damages should be assessed, which is a matter for the courts to decide.
For new developments and off-plan purchases, the rules will ordinarily be subject to change. Of course, developers or OAs can legitimately introduce changes to community rules at any stage. The sale and purchase agreement will usually contain a purchaser warranty regarding compliance with the community rules and an acknowledgment that the rules may be amended from time to time.
Unit owners of the JOP are subject to the terms and conditions governing its operation set out in the master community declaration (MCD) and, in so far as there is one, the jointly owned property declaration (JOPD) for their individual plot or building. Each unit owner has an obligation in favour of other unit owners, occupiers and the OA to comply with the MCD and JOPD.
A unit owner who makes alterations or modifications without the developer’s or OA’s consent and is in breach of the MCD or JOPD, is liable to repair the resulting damage at his or her own expense. The developer or OA can carry out the repair works and recover the costs if the unit owner fails to make the repairs in the manner requested by the developer or OA (Article 23 of the JOP Law). The developer or OA shall have a lien on the owner’s unit until the owner complies with his or her obligations under Article 25 of the JOP Law. There is uncertainty, however, over whether an interim OA has a legal standing to hold a lienand bring action against an owner in breach of the MCD or JOPD.
Better for whom?
The JOP Lawhas achieved some success in transferring certain management rights to owners, but its limited implementation has bred uncertainty and facilitated the retention of developer control over management of jointly owned property.
While the interests of communities are well served by ensuring that modifications or extensions to units are in keeping with the architectural standards of the community and the built environment, developer-controlled and profit-oriented betterment levies are further evidence of why the limited implementation of the JOP Law is not sustainable.
Source: Sean Cope, Special to Property Weekly
Sean Cope is a Legal Consultant at DLA Piper. He specialises in acquisition and disposal of freehold and leasehold property, mixed-use developments, real estate joint ventures, and landlord and tenant matters.