Dubai's Strata Law: Still Coming

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Apart from the impact on developers, there is also likely to be an impact on the broader facilities management sector. One aspect of this impact is likely to be positive. As developer related facilities management services come under pressure from owners, there will be opportunities for new business for this broader sector.

However, the owners will be looking for a leaner, more focused and transparent solution than many of the current arrangements. While some owners’ associations will be content with engaging an FM company to arrange and supervise (i.e. sub-contract) building and community services, others will want to contract direct with suppliers of goods and services to avoid the mark-up that applies to the more co-ordinated approach. The direct-contract approach will see owners’ associations having separate contracts with such suppliers as pool cleaners, landscape contractors, security services and fire-safety services.

Sub-contracting arrangements are likely to come under scrutiny from both RERA and owners’ associations. Arrangements where one related company supplies to another related company while making a margin or profit are likely to disappear over time. The content of FM contracts is also at risk of being regulated, if not in the short term, then certainly in the medium term.

One may well ask: Why will all this happen? The answer lies partly in the inherent distrust that usually exists between owners and developers, and partly in the commercial practices that have evolved in Dubai over the preceding decade.

Under these practices, some developers have sought, directly or indirectly, to use their ongoing role in the maintenance and management of projects as a means of making unreasonable profits at the expense of owners who had no prior notice of the arrangements being put in place. This has motivated, and will further motivate, owners to try to dismantle uncommercial or unfair contractual arrangements.

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In Dubai there is an emerging owners’ association management services sector, largely led by industry professionals from Australia. In foreign jurisdictions this sector provides accounting, compliance and administrative services to owners’ associations. In some jurisdictions it also provides quasi-FM services in the form of FM services contract administration. It is relatively unusual for owners’ association managers to provide mainstream FM services to owners’ associations.

These services are usually outsourced, and the owners’ association manager administers, on behalf of the board, the FM contract.

In Dubai it is unlikely that owners’ association management and FM services will be undertaken by the same entity. This is because:
• The facilities manager reports to the owners’ association manager and, if they are the same entity, there will be conflict;
• The skill sets of each manager is different (e.g. the owners’ association manager has to deal on a daily basis with owners and a board, thus requiring good political, people and communication skills);
• Owners will likely demand independence and transparency between the two roles;
• The contract maximum terms are different (3 and 5 years); and
• The licensing requirements will be different.

The exception is likely to be a company with separate divisions staffed and operating independently from each other, or two related companies, each specialising in an aspect.

Apartment and villa owners are likely to greet the law with relief and enthusiasm. Developers are likely to be more cautious. However, given time, developers will also see the benefits that the law offers not only to them, but more importantly, to the future of the Dubai real-estate market.

About the author

Gary Bugden is an Australian lawyer and strata law specialist. He is also the executive chairman of PRDnationwide Middle East Real Estate LLC. He was the consultant to the Dubai Land Department on the formulation of the Jointly Owned Property Law and its draft implementing regulations.