Declarations must be filed at Land Department

Directions on Strata Law seek to clarify regulation of jointly-owned developments used by owners or occupiers

There has been much speculation in recent years about the introduction of the Strata Law, which aims to remove the legal ambiguity with respect to jointly-owned property that currently exists for both homeowners and developers alike.

In May, directions were issued by Dubai's Land Department in relation to the Strata Law (therwise known as Law No. 27 concerning ‘Ownership of Jointly Owned Properties in the Emirate of Dubai') to provide further clarity.

The directions seek to clarify the regulation of developments in Dubai comprising land or buildings made up of units and areas designated for common use by the owners/occupiers. These developments are classified as ‘jointly-owned property' and the directions from the Land Department prescribe many solutions matters involving such property, in addition to presenting many challenges for developers.

Jointly-owned properties are required to have a declaration filed at the Land Department, which should set out all the property information relating to them, including a site plan, a list of all unit numbers and the community rules which will apply to the development.

For all projects constructed and occupied as at April 13, such a Declaration must be filed at the Land Department by Oct-ober 13 or the date which is 30 days after receipt of a notice from three or more owners, whichever is later.

For all other projects, the declaration must be filed upon application for registration of the first sale of a unit in the jointly-owned property. The application to file the declaration must be accompanied by an application from the homeowners association. Such an entity must be established in accordance with a prescribed constitution and sets out the rules in respect of voting at general assemblies called by the homeowners association, its finances, insurance and other matters.

Once a homeowners association is up and running, there will be significant implications relating to the management of the common parts pursuant to the new directions. Currently it is customary for developers of most projects to manage the common areas, typically imposing a service charge or other fees on the owners to meet such expenses (where the Real Estate Regulatory Agency's approval has been obtained). However, following the formation of a homeowners Association, the developer will be required to hand over the management of the common areas to it.

The directions from the Land Department set out the procedure for the handover of the management of the common areas to the homeowners association. Within 21 days of the formation of the grouping, any funds collected and held by the developer by way of service charges must be paid to it.

An audit of such funds collected and expended by the developer must also be carried out within three months of the formation of the homeowners grouping. On receipt of the audit, any reconciled balance must be paid by the developer to the latter.

In addition, any amount determined by the Land Department as not having been properly expended (as service charges) by the developer must be reimbursed to the homeowners association within 21 days of being directed to do so.

Furthermore, any agreements entered into with contractors for services relating to the operation of the homeowners association and management of the common areas are also required to be regulated following the directions.

An agreement for the appointment of a homeowners association manager can be for a period of up to three years and can include an option to renew.

All other agreements must not exceed a term of three years (including renewal terms) and any agreements with a term of more than 12 months must meet strict requirements with respect to both content and form.

Any sales of units in a jointly owned property entered after April 13 may be void and of no effect if the disclosure requirements set out in the Land Department directions are not met. These include giving the purchaser a prescribed notice and a disclosure statement setting out all information which must be provided to a purchaser before entering into a binding agreement (‘disclosure statement'). Transitional provisions apply for a period of nine months after April 13.

The disclosure statement must include, in addition to other items, information such as comprehensive details of the project, a copy of the proposed Jointly Owned Property Declaration, draft land plans and an anticipated budget for homeowner's association.

The developer is deemed to have warranted the information contained in the disclosure statement for two years after the date of transfer to the owner. Developers can expect that the information required to be disclosed will be voluminous and must be prepared carefully after proper consultation with the contractors and project consultants.

Author: Shahram Sfai, Law Frim of Afridi & Angell, July 9, 2010