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Q&A – IOAs

Q&A – IOAs

Emirates 24/7

29 November 2011

Q: Have IOAs been successful in bringing down service charges and renegotiating service contracts signed by developers on renewal?

A: In some developments, the service charges have been reduced.  It is not, however, due to the IOAs renegotiating the supply and service contracts.  Rather, any reductions in services charges have been mandated by RERA, undoubtedly in response to public outcry regarding exorbitant fees.

Q: What are the main reasons hindering the success of IOAs?

A: The main reason hindering the success of IOA is that they are not legal entities.  This is because they have not yet been licensed and registered under the DED.  As such, in essence the IOAs have no legal existence and therefore right to take any actions.  All of their efforts thus far, be it with developers, government agencies or other owners have very limited legal effect as they are not enforceable.

Q: Are IOAs legal entities and are they being allowed to open bank accounts?

A: No, IOAs are not legal entities, until they become licensed under the Department of Economic Development (DED).  In the U.A.E. for a corporate entity to be able to open a bank account, it must have a trade license.  For OAs to have a trade license, they must be licensed by the DED under the appropriate license category.  As of a few months ago, there is now a license category called “owners’ association.”  Yet, no OA appears to be registered under the DED as of today.  Until such time, no OA will be allowed to open a bank account in its own name.  Some developers (e.g. Concorde Tower by 32Group) have offered IOAs to open specialized bank accounts in the name of the developer (32Group), but for the benefit of the IOA.  This arrangement is extended to the IOAs at a fee.  Such bank account is still the developer’s bank account and not IOA’s.

Q: Do property owners still pay their service charges to the developer?

A: Yes, of today, property owners still pay their service charges directly to the developer.  In some cases, issuance and collection of the service charges is done through owner’s association management companies.  This is the case, for example, with the Concorde Tower, developed by 32Group, and managed by Novus Property Management Company.

Q: Do IOAs have power to take action against owners who are not paying service charges?

A:  No, until IOAs are registered under the DED trade license, they are not legal entities.  Until they become legal entities, they cannot bring action against either owners or even developers or any third parties.

Q: Do property owners now take NoC while selling their apartment from IOAs or the developer?

A: Yes, surprising enough, property owners are still required to obtain NOCs from developers to sell their properties off to third parties, even if the title deed is in the name of the owner.  This contradicts the very idea of a title deed being an unnumbered, unrestricted, exclusive, evidence of freehold ownership.

Q: Finally, are developers really looking to give up control of their towers and are they still making money from FM?

A: From experience, developers continue to resist giving up control of the buildings.  It is difficult to predict how much money they are making off of managing buildings, as they do not disclose such information.  But presumably, the only reason they would continue to want to control buildings is for financial gain.