Non-payment of Service charges in Dubai and Abu Dhabi
The Real Estate Regulatory Agency ("RERA") issued a notice in April 2020, stating that the homeowners in Dubai who defaulted on 2019 service charge payments will have their fines waived. But did this mean that the waiver would extend to 2020 payments? Well, that is at least what many homeowners believed which has been the prime reason why there has been a delay in the payments.
“What is a service charge?” holds no link to the rent or the occupation of part of an area of land, but instead is used for the maintenance and upkeep of the property and the services offered to cover up the expenses for security staff, cleaning services, landscaping etc. Service charges can also fund luxury facilities for residents, such as communal leisure facilities.
A tenant might come across in their lease or tenancy agreement the way in which a service charge is organized and details of what the landlord can and can’t charge and the proportion of the charge which is to be paid by the individual leaseholder. The landlord (or sometimes a management company that is a party to the lease) provides the services, while the leaseholders pay for them.
Typically, the old leases still provide services at a fixed rate, regardless of the actual costs incurred by the landlord. However, most service charges are calculated on the actual or estimated cost of the services and thus vary from year to year. These are known as variable service charges.
Law Number 6 of 2019 on Ownership of Jointly Owned Property in the Emirate of Dubai (the "Dubai Law") clearly lays down that the Owner shall pay the Service Charge and Master Community Service Charge unless the Unit lease stipulates otherwise. In all cases, the Owner shall remain liable to pay the Service Charge and Master Community Service Charge if the tenant fails to pay them as prescribed by the Dubai Law.
Article 25 of the Dubai Law lays down that the Owner shall pay the share of the Service Charge to the Management to cover the expenses of the Management, operation, maintenance and repair of the Common Areas. Services Charge for unsold Units, as well as for Units sold in which the Developer is obliged to pay the Service Charge for the buyer in the contract of sale or attachment in accordance with the provisions agreed in the contract. The area of the Unit registered in the Land Registry shall be relied upon when calculating the Owner's share of the Service Charge.
It is forbidden for the Management to impose or collect any amount whatsoever from the Owner for the operation, management, maintenance and repair of common areas or common facilities except after obtaining the prior approval of the RERA, and in accordance with the directions issued by the Directors General. Moreover, the Developer or the Management cannot take action against the Owner which prevents him from benefiting from the Unit or the Common Areas or Common Facilities, solely to oblige him to pay the Service Charge or Master Community Service Charge in contravention of the procedures stipulated in the Dubai Law.
Article 32 of the Dubai Law states that the Management has a lien on each Unit in respect of unpaid Service Charge. The Unit shall not be disposed of until after the paying of allowance to the Management. However, if the Owner fails to pay their share of the Service Charge or any part thereof, the Management shall demand them to pay this charge within thirty days from the date of notifying them thereof by a written notice approved by the RERA. If this time limit elapses, the financial claim issued by the Management to the Owner shall be enforceable before the execution judge in the Centre, in accordance with the rules and procedures in force in this regard. The competent execution judge may when necessary, sell the Unit whose Owner has not paid his share of the Service Charge, through public auction to recover the due Service Charge. The Owner who fails to pay his share of the Service Charge shall pay the legal fees, expenses and attorneys' fees determined by the competent execution judge.
RERA has recently issued a "Need to pay up" notice insisting the homeowners need to come up with their share. To upkeep the properties, it is important that the payments towards the community’s service fees are paid on time and in full. As the Owner Association Management Companies are required to get prior RERA approval as per the Dubai Law to send legal notices to homeowners who have repeatedly defaulted on service charge payments, the latest notice to pay up has cleared the possible legal option to pursue the defaulters.
Law Number 3 of 2015 concerning the Regulation of the Real Estate Sector in the Emirate of Abu Dhabi (the "Abu Dhabi Law") applies to real property within the Emirate of Abu Dhabi with the exception of the Abu Dhabi Global Market. The Abu Dhabi Law covers a wide range of subjects including the development and regulation of strata title, the registration and enforcement of mortgages and the licensing of real estate agents, brokers and other entities.
As per Article 68 of the Abu Dhabi Law, the Owners' Union may collect the service fees from the owners to finance its activities, as per the contribution percentage of each real estate unit. The service fees shall be paid by the Owner of each real estate unit to the Owners’ Union on the due date, provided that the Developer pays his share in the fees with respect to unsold units. The Union’s Articles of Association shall mention the type of service fees, how to collect them, and the records that should be kept.
Upon the failure of the Owner to settle its service fees, a preferential right for the Owners’ Union shall arise on the respective real estate unit. The Owners’ Union shall, according to the resolution of its Board of Directors, notify the Owner of the real estate unit by the registered mail with acknowledgment receipt to settle the overdue service fees within three months from the date of notification. Should the Owner of the real estate unit fail to pay within the specified period of the notification, without expressing an acceptable excuse, the Owners’ Union may submit an application before the judge of urgent matters to issue an order to sell the real estate unit for the settlement of the due service fees according to the provisions of the Civil Procedure Law.