Dubai strata compliance deadline passed - but what now?
Source: Clyde & Co , Author: Stephen Kelly
Posted: Tue November 9, 2010 4:15 pm

UAE. Wednesday 13 October 2010 was the deadline for developers to comply with certain Strata Law requirements. The deadline has passed but what does this mean for developers and owners?

Law No 27 of 2007 concerning Ownership of Jointly Owned Properties in the Emirate of Dubai (the "Strata Law") was introduced in 2007 to regulate jointly owned properties. A jointly owned property is land or a building divided into units owned individually (such as an apartment or villa) and common areas, being those parts of the property designated for common use by all the owners and occupiers (the "Jointly Owned Property").

The Strata Law anticipated the issuance of regulations and decisions required to implement the Strata Law. In May 2010, the Land Department issued directions pursuant to the Strata Law (the "Directions") effective from 13 April 2010.

The Directions imposed an obligation on developers to register a Jointly Owned Property Declaration (a "Declaration") with respect to every Jointly Owned Property within six months which expired on 13 October 2010. The Declaration is a legal document that sets out relevant information regarding the jointly owned property and the rights and obligations of the owners.

A well prepared Declaration embodying all such information will benefit the preservation and standard of the building or community and the investment in the Jointly Owned Property. In addition, it will be an excellent reference tool for the owners going forward in the day to day operation and management of the Jointly Owned Property leading to efficiency and reduced expenses.

Upon registration of the Declaration and associated survey plans, an association will be formed made up of all owners in the Jointly Owned Property (the "Owners Association"). Once formed, developers can take steps to hand over the operation and management of the Jointly Owned Property to the Owners Association.

The Directions provide that a Declaration must be lodged by 13 October 2010. The majority our developer clients have invested significantly in this process and either have, or are in the process of, meeting this target, with the assistance of RERA.

Although the process of making some of the single use towers (such as stand alone residential buildings) strata compliant may be relatively straight forward, the process for the more complex mixed-use developments that contain a variety of different uses (such as hotel developments) can be more difficult, costly and time consuming.

Also, the manner in which the development has been designed and is intended to operate and be managed does not often accord with strata title principles and it is necessary to formulate a structure that overcomes the design inadequacies and best protects the interests of the different owners and occupiers in the development.

Consultation with lawyers, surveyors and association managers experienced in Strata Law plays an integral part in the compliance process. Such consultants can assist in developing the appropriate titling strategy and identifying the issues relating to a Jointly Owned Property which must be specifically addressed. Armed with this information, a Declaration tailor made for a particular Jointly Owned Property can be prepared that is appropriate for the building or community.

With respect to developers who are not in a position to lodge their Declaration, the Directions provide that any three or more owners in the Jointly Owned Property may serve a notice on the developer requiring the developer to submit a Declaration.

If the developer refuses or fails to take "substantive steps" to submit a Declaration, the Owners may themselves submit a Declaration to the Land Department and claim the cost of doing so from the developer. In addition, the Director General of the Land Department may take such action that he considers appropriate to enforce the developer's obligations including preventing the transfer of any unit in a Jointly Owned Property where a Declaration has not been registered.

Whether a developer is considered to have taken "substantive steps" in the implementation process will depend on the particular circumstances, however, the following actions may be considered favourably:

•calling a meeting of the Owners to elect an Interim Board to consult with the Developer with respect to service charges and the handover of affairs to the Owners Association and has communicated this process to RERA;
•the appointment of a lawyer to assist in structuring the development and to prepare the Declaration and any other contractual or constitutional documents; the appointment of a surveyor to commence the drawing of survey plans; and
•the appointment of an association manager to assist in the registration process and transitioning of the building to the Owners Association.

The Directions grant the Land Department extensive discretion with respect to non-compliance. Developers who are not taking substantive steps to progress compliance will likely test the tolerance of the Land Department with respect to such discretion.

Finally, developers should also be aware of the extensive disclosure requirements now required to be met pursuant to the Directions when selling units in Jointly Owned Property especially when selling units off plan.

Interim provisions currently in force provide that an Interim Disclosure Statement must be attached to any contract for the sale of a unit within a Jointly Owned Property where the title to the unit has not been issued by the Land Department and the seller is the developer.

The Interim Disclosure Statement must include extensive detail of the project and the unit as prescribed by the Directions.

The interim disclosure provisions will expire on 13 January 2011, from which date a full Disclosure Statement must be attached to any contract for sale. The Disclosure Statement must include a copy of the proposed Jointly Owned Property Declaration for the project as well as extensive detail of the project and the unit as prescribed by the Directions.

It is important that the Interim Disclosure Statement and Disclosure Statement are prepared properly and accurately, as the developer is deemed to have warranted the information contained in the statements and the developer will be liable to pay the purchaser compensation if the disclosure statement is incomplete or inaccurate in a material way.

Failure to attach an Interim Disclosure Statement, or from 13 January 2011, failure to attach a full Disclosure Statement to a contract for sale of a unit will result in issues with enforceability of the contract.

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