Q: Are the developers authorized to charge ANY rate for the maintenance charges, before the Owner’s Association is formed? Are they not required to take any approval from the land department or RERA?
A: At least as of September 2010, all service charges must be approved by RERA. This is mandated by the RERA Circular of 2010, which states that all “annual service charges must be approved by RERA.” Furthermore, prior to collecting services charges, all developers are required to: 1) register the project and all units with the Land Department, 2) call owners to a General Assembly meeting to elect the Board and 3) register the Owner’s Association with RERA. Therefore, legally speaking, only those developers, who have registered Owners Associations and obtained RERA approvals, are allowed to issue service charges.
In reality, however, most developers continue to issue service charges without having complied with the RERA requirements. In such situations, it is advisable that the owners communicate developer’s non-compliance to RERA, be it through the Interim Board or by individual owners.
Q: The developer has refused to pay the 1% title deed registration as per the Law # 21 of 2006, and says that it has to be paid by the buyer (as it was part of the T&C of SPA). Is the developer liable to pay the share of the title registration fee as per law?
A: Under the law, the seller and buyer are each responsible for paying 1% of the sale price to register the property. In particular, under Article 4 of Law No. 21 of 2006, “the purchaser shall be charged a fee equal to 1% of the sale price and the seller shall be charged 1% of the same amount.” Many sales and purchase agreements and reservation forms, however, contain a clause requiring the buyer to pay the seller’s 1%, thereby holding the buyer responsible for the full 2% of the sale price. Legally speaking, such contractual provisions should be invalid as they contradict the express language of the law. Parties should not be allowed to contract around the law.
In practice, developers are holding buyers responsible for the full 2% of the sale price, relying on the contract. RERA’s position on the matter is that it will enforce the parties’ agreement, thereby requiring the buyer to pay the full 2% registration fee. RERA’s rationale is that since buyers agreed to that condition, they should honor it.
From the legal standpoint, RERA should enforce developers’ compliance with the law and not endorse the practice of contracting around it. From the practical standpoint, however, RERA’s decision may motivated by the urge to get the market moving. Many developers do not have the money to pay the 1% for every unit that is being registered, which would amount to a rather significant sum given the number of units in each development. If the developers do not have the money, whatever the reasons may be, then requiring them to pay their share will simply stall the registration. Many registrations have been held back because of this already. Therefore, RERA’s approach may just be a practical one.
Some may argue, however, that, as the regulatory authority, RERA should be regulating precisely these sorts of matters. And if the developer does not have the money to pay to RERA, then the penalty should lie on the developer and the matter be left between the developer and RERA. RERA’s justification is that it is simply holding the buyer to its side of the bargain.
Q: Can the above maintenance fee be adjusted against the rent loss/developer’s share of title deed registration fee etc. in case there is no recourse w.r.t. reduction of the maintenance fee for year 1?
A: Many owners’ reluctance to pay service charges stems from the fact that the quality of maintenance, which is supposed to be covered by the service charges, does not correspond with the amount of the services charges. Even more frustrating for many owners are numerous construction defects in their individual units. Depending on the extent of the construction defects, the expense of repairing them can be significant. In many cases, it even exceeds the amount of the annual service charges. As a result, the owners feel aggrieved for having to pay the developer, what may some consider, exorbitant services charges, while at the same time having to pay additional expenses for repairing the defects, which should have been covered by the purchase price.
Developer’s liability for construction defects is governed by the UAE law. Developers’ warranty for installation defects is one year and structural defects ten years. Most of the issues experienced by many home owners today should be the responsibility of the developer, as they relate to construction defects. The practical advice is to negotiate with the developer to offset the cost of the repair of such defects against the service charges. But this will only apply as long as the developers are still the ones collecting the services charges. Once the Owners Associations take control, along with the authority to issue service charges, such offset will not be possible. Then, the only recourse will be to bring a legal action against the developer in court.