By Deepthi Nair, Sub editor, Property Monthly

With the October deadline to register Jointly Owned Property (JOP) Declarations looming, a vast majority of developers seem ill-prepared for this colossal task.

    *  Emaar will be required to hand over management of the entire Downtown Burj Khalifa area to home owners. However, Baldwin reckons that it may not be practical for owners to manage such a large mixed-use master community on their own     * Image Credit: Silvia Baron
* Emaar will be required to hand over management of the entire Downtown Burj Khalifa area to home owners. However, Baldwin reckons that it may not be practical for owners to manage such a large mixed-use master community on their own * Image Credit: Silvia Baron

While the bigger government developers seem to have braced themselves to comply with the regulations, the smaller ones seem to be unaware of their obligations. In fact, it appears many of them haven’t even noticed that the JOP Directions have been issued. Although there has been some publicity about the JOP Declarations, a lot of developers still lack a practical understanding of how it’s going to affect them. It is therefore of little help that summer also falls within the six-month compliance period.

“Rera (Real Estate Regulatory Agency) appears to have the power to take whatever appropriate action it considers necessary to enforce the obligation to register a JOP Declaration. This is a very wide discretion and it will be interesting to see how it will be exercised, given the impending October deadline for registration of JOP Declarations. There is a possibility that Rera may extend the October deadline, but that hasn’t happened yet,” explains Brent Baldwin, associate at law firm Hadef & Partners.

What constitutes a JOP Declaration?

A JOP Declaration covers general information for the day-to-day management of the building or community. A developer is saddled with the obligations of preparing the JOP Declaration, getting it approved by Rera, registering with the Dubai Land Department and then setting up the first meeting of the OA. The onus of arranging for an audit of the service charge accounts, issuing an agenda for the first OA meeting and assisting the OA in electing the first board is also on the developer.

As things stand now, the deadline to register the JOP Declaration is October 13 for existing and occupied property. However, the proper procedure as per guidelines is to register the JOP Declaration on the date that the first unit sale is registered at the Land Department. Developers are also required to provide unit buyers with disclosure statements, which must include information pertaining to the development, service charges, and so on. A sale and purchase agreement (SPA) may be deemed to be void if the developer fails to attach a disclosure statement.

“There are some differing opinions on whether pre-existing SPAs attract disclosure and there is a lack of clarity on this point to date. We’ve suggested to developers that out of an abundance of caution, it would be better to comply with the disclosure requirements. Until this is actually tested through Rera or the courts, we can’t say how this will work. So, it’s better to be cautious and our recommendation is to give limited disclosure to all purchasers,” Baldwin adds.

Developers need to take control

If a developer fails to register a JOP Declaration within the statutory period (October 13), any three or more owners can serve a notice, requiring it to do so. If the developer fails to comply, the owners may initiate the process themselves. “But, developers still have to pay all the associated costs, and therefore cannot hope to save money. It makes sense for developers to take the initiative and retain control of that process,” he suggests. Meanwhile, the developer can also on-charge costs to an OA for administrative matters such as issuing notices to all owners, running the first meeting and helping owners vote forthe OA.

“There is still some confusion as to whether the directions are properly constituted law or whether the published documents are final. Developers should, however, be approaching these as though the obligations are real and will be enforced in order to be on the safe side,” Baldwin cautions.

Choosing the right management structure can make a huge difference in running a mixed-use development. “Different components (eg residential, retail and commercial) may have different aims and objectives. So, the way the management of these components interrelates is probably one of the key issues for a developer to consider. If the developer gets this wrong, it can make for some unhappy owners in the future which can be bad for the development, the developer and the owners,” the legal expert points out.

For instance, under the volumetric subdivision method, a mixed-use building can be divided into three components, with each being assigned a different volumetric title. A Building Management Statement will then govern how each component uses property that belongs to other components and costs can be shared that way.

“However, Rera’s current position seems to be that such an arrangement would go against the principles of equity between different owners, and currently Rera favours tiered developments with various OAs. The problem with this approach is that if, for example, the group of residential owners is much bigger than say, the commercial owners, the latter could be overruled in a way that is disadvantageous to them,” Baldwin says. The challenge in implementing the JOP Law depends on how an evolving market like Dubai copes with legislation taken from well-developed legal jurisdictions such as Australia and New Zealand.

Special dispute panel needed

“The system itself is a good idea, however, the unique elements of the UAE being a civil law jurisdiction with Sharia elements make it hard to know how some elements of the JOP Law borrowed from other places will play out in practice,” he warns. With instances of service fee arrears expected to crop up in abundance, the need of the hour is a special dispute committee with jurisdiction over matters such as service charge disputes. “Without a cost-effective dispute process, many of the service charge rows risk never being resolved. There also needs to be more clearly defined ways for OAs to force an owner to pay service charges, for instance by denying them access to services,” Baldwin explains.

Before the JOP Law came into effect, a developer was not obliged to put a sinking fund in place. However, developers in some well-run projects may have been invoicing owners for a sinking fund component of service charges. But owing to the high number of service fee defaulters, this money could have been spent on other costs. This practice cannot continue under the JOP Directions.

“Developers who have spent sinking funds on service charges may have a problem as this will show up in the service charge audit which is required to be done within the three months after registration of the JOP Declaration. There is a lot of potential for this issue to get quite messy and we predict it will,” Baldwin predicts.

Concerns of brand dilution

Besides concerns of diluting their brand value, some developers may be loathe to hand over control of units to OAs, especially so in master communities. “For example, in Downtown Burj Khalifa, by law, Emaar could ultimately be required to hand over management of the entire Downtown area, including, roads and landscaped areas to owners. However, it may not be practical for owners to manage this type of development, even with the assistance of an association manager. I don’t think the law was designed to work that way. It’s in such cases where developers are likely to resist handover. The JOP Law has the potential to work well in a small community of villas with a common garden or swimming pool or in say, two buildings with shared facilities,” Baldwin explains.

Ultimately, those developers who set up facilities management divisions in a bid to improve their profit margins, are likely to return to their core business of building. Also, given the undercurrent of mistrust many owners have for developers at the moment and considering the lack of transparency regarding service charges, most OAs are unlikely to choose service providers set up by developers. “I think there are many developers who aren’t really interested in managing a building long-term and will welcome the opportunity to step out of involvement. Many developers only want to get their financials correct in the beginning and sell the development out,” he adds.