Developers say transparency on service charges in place

In light of the economic downturn, some developers are looking at quarterly and half yearly payment options.

Dubai-based property developers said they set service charges only after consulting owners, who also have the right to inspect books and accounts of the association.

"Our service charges are based on projected costs with the accounts independently audited by a company to ensure accuracy and transparency," Abdulrahman Kalantar, Managing Director, Nakheel Asset Management Design and Developments, told Emirates Business.

Lesley Sayle, Director, Properties Investments (PI), which owns and developed Green Community and Green Community West, said there has been a minor increase in maintenance charges this year, which was achieved through contract negotiations and energy management strategies.

But ETA Star Properties said they have not increased the maintenance charges in its Belvedere project.

"We have kept the maintenance charge of Dh8 per square foot, which was levied for the year 2008," said Mohammed Ali, General Manager - Marketing, ETA Star Properties.

Peter Walichnowski, CEO, Omniyat Properties, said the company is in the process of finalising the budgets.

Hesham Al Qassim, Chief Executive Officer of Wasl and Dubai Real Estate Corporation, believes governing agencies, including the Real Estate Regulatory Agency (Rera), should represent the interests of people and apply laws to enhance daily operations.

"Laws should be enacted to protect public interest by promoting a gradual development of the market. Rera has a key mandate in the planning and implementation of structured regulations within our market," he added.

Excerpts

Have you increased or decreased your maintenance charges this year compared to 2008?

Kalantar: In Nakheel's communities, service charges are budgeted each year based on projected costs with the accounts independently audited by a company to ensure accuracy and transparency. How the service charge is calculated is set out in each sales contract for the benefit of the buyer prior to purchase. We engage with owners' association representatives prior to the implementation of budgets to ensure that the service charge rates are understood and accepted. Where possible we limit the increases by carefully scooping services to ensure money is spent where it is best needed after consulting with our representatives.

Al Qassim: As the asset management group owned by Dubai Real Estate Corporation (DREC), Wasl owns and manages all assets registered under the name of Dubai Government. Our mandate also includes developing, investing in and utilising commercial and industrial lands, as well as other assets situated within the emirate.

Since the formation of DREC in 2007, we have undertaken strategic measures to retain competitive leasing prices across all our properties. Maintenance charges for our properties are incorporated into the leasing fee. Our goal is to develop asset support services that provide value to our tenants: effective delivery at a cost that reflects the benefits of those services. Depending on the property, this can be more than just maintenance services and may include, for example, security services.

We are constantly reviewing our service delivery, and how it can be enhanced and widened. Concierge and handyman services are an example of where we can provide an additional service to particular buildings or developments, dependent upon customer needs. These services would be available for an additional charge, upon Rera's approval.

Ali: There has not been any increase in the maintenance charges in our project, The Belvedere. We have managed to maintain to the charge of Dh8 per square foot, which was levied for the year 2008. However, we have additionally made provision of Dh2 per sq ft towards putting funds to take care of the capital expenditure that may be required in the current year. No signification variation has been observed compared to the year 2008

Sayle: There is a minor increase this year on maintenance charges compared to 2008, which was achieved through contract negotiations and energy management strategies. Expected contract increases, but these were kept to a minimum and a revision of Dewa rates in early 2007 is the main factors.

Walichnowski: These are new buildings, therefore, there is nothing to compare to. However, we are currently in the process of finalising our budgets for the first year of operation. During the first year costs are generally lower because the builder maintains plant and equipment for the first 12 months. That is why there is usually a jump in service charges in the second year. Also, we have invested money in an Intelligent Building Management System (IBMS), which is the technological platform for maintaining the building more efficiently. We will pass the savings from this IBMS back to the owners.

High inflation in the UAE during the past few years has definitely increased the cost of all goods and services. This increase has to be passed through to the owners. If inflation comes down, which is the current indication, then owners can expect annual service charges to come down as well.

In the absence of regulations on implementation of Strata Law, on what basis do you charge the owners/ tenants?

Kalantar: Service charges have been apportioned across all units on the same basis as the current Strata Law, i.e. on the basis of the area of the unit in proportion to the total area of all units. There are two kinds of service charges: a building service charge that is levied for the maintenance, repair and services levied in connection with the common use parts of a building and the master community service charge levied for the common use infrastructure and facilities of the community. This includes equity and finance costs, maintenance and repairs; refuse collection, street lighting, landscaping and security.

The service charges are dependant on the individual development. All details concerning our fees are either included in the sales and purchase agreement or issued through Nakheel Asset Management upon hand over of the property. Moreover, any revisions to these fees are communicated via Nakheel Customer Services, Community Newsletters or through the Owners Association communication forums.

Al Qassim: As mentioned earlier, Wasl specialises in managing and leasing assets and properties. Owners' associations are concerned with jointly owned properties, serving as a link between the owners and property management companies. We believe such associations will only strengthen the relationship, communication and service delivery processes between the client and the service providers.

In terms of our operations, Wasl is a customer-focused company and we will continue to provide transparent and client-centered services that enhance our brand and how we are valued by our stakeholders. At present, we offer more than 20,000 properties on lease and will continue to develop services and leasing solutions to both residential and commercial clients, that meet their requirements.

It is important for owners to be empowered so they have the option to choose the property management companies as well as control the budgets of facilities management services. This will not only ensure competitive market dynamics, but client-centered service provision as well. It is up to the service provider to manage the properties at an optimum level and ensure that customers' requirements are met.

Ali: The ETA administers and collects fees on behalf of the facility management company from the owner/tenant based on the total expenditure done for the buildings in proportionate to the respective areas owned by the independent owners.

Walichnowski: Once again, we have not yet charged any owners. However, the maintenance fees will be based on a square foot basis, as determined by the building surveyors. A unit of entitlement will be determined for each unit and the maintenance and reserve fund fees will be charged according to this entitlement.

Are the charges collected on a yearly basis, or do you offer monthly/quarterly payment options for owners?

Kalantar: This all depends on the development. Historically the charges have always been yearly, however, in light of the economic climate we are currently looking into alternative quarterly and six monthly payment options. For example, the Shoreline Apartments on Palm Jumeirah have been changed to six monthly payments.

Al Qassim: No answer.

Ali: The maintenance charges are collected on annual basis in advance.

Sayle: Payment is requested in four post-dated cheques annually, in advance.

Walichnowski: The first fees collected will be for the first year of running. From the second year onwards, fees will be collected on a quarterly basis, with at least one-month notice being provided to clients prior to payment. (This is to ensure required items such as insurance are covered for the first year of operation).

Do you believe the formation of owners' association will in fact affect your business as owners' will get the right to negotiate and choose their facilities providers?

Kalantar: Nakheel Asset Management (Nam) will be assisting each owners' association as the appointed general manager and caretaker. This involves utilising expert knowledge and resources and ensuring the proper management of the common areas for, and on behalf of, each owners' association. Many of our existing associations have already been given the opportunity to appoint committee members to provide input on management and oversee the tender process for service providers. We provide an open and transparent approach to this tender process working with owner representatives to choose service providers.

Al Qassim: Owners' associations are concerned with jointly owned properties, serving as a link between the owners and property management companies. We believe such associations will strengthen the relationship, communication and service delivery processes between the client and providers.

In terms of our operations, we will continue to provide transparent and client-centered services that enhance our brand and how we are valued by our stakeholders. We offer more than 20,000 properties on lease and will continue to develop services and leasing solutions to both residential and commercial clients that meet their requirements.

It is important for property owners to be empowered so they have the option to choose the property management companies as well as control the budgets of facilities management services. This will not only ensure competitive market dynamics, but client-centered service provision as well. It is up to the service provider to manage the properties at an optimum level and ensure that customers' requirements are met.

Ali: The formation of owners' association will increase the involvement of independent owners in the maintenance of the building and will help in improving customer satisfaction and competitiveness in the business.

Sayle: PI developments are leasehold, which does not currently place us in this position, so we cannot judge.

Walichnowski: The total asset management services package we provide will introduce ways of monitoring costs and ensuring our owners are receiving the best possible services for their money. With the integrated facilities we are putting in place, we will offer the ability to not only cut costs but will also be able to use our economies of scale shared amongst our buildings to keep costs down. Therefore, with the introduction of Strata Law, we are not worried about our business. In fact, we believe we can grow our business beyond just managing Omniyat buildings.

What new regulations do you feel are necessary to protect companies/owners during the time of financial crisis?

Kalantar: The Strata Law and Regulations will afford significant protection and transparency to strata property owners and will boost the integrity of the Dubai property market as a whole.

Al Qassim: We believe companies and governing bodies should be prepared to deal with and manage unique challenges, regardless of economic conditions. It is essential for both to have a feasible contingency plan and applicable strategies to overcome hardships and ensure steady progress. At the same time, the governing policies should protect the consumers and the businesses as both parties act as the driving force of any economy.

Ali: There needs to be a clear system in collection of maintenance fees and this could be achieved once the Strata Law is in place.

Sayle: No answer

Walichnowski: We believe the new Strata Law and the laws that Rera have already introduced are adequate to protect developers and owners.

Do you believe Rera needs to set uniform laws or should they leave it for market forces to decide the charges?

Kalantar: No answer

Al Qassim: We strongly believe that the governing agencies/bodies, including Rera, should represent the interests of the public and apply laws to enhance day-to-day operations in providing a level of service delivery that gives value and reflects the costs incurred in providing that service. The laws should be established to protect public interest by promoting a gradual development of the market. Rera has a key mandate in the planning and implementation of structured regulations within our market.

Ali: We understand that the draft Strata Law is already been in consideration for implementation and once it is implemented, it will pave way for regulated approach in the formation and operations of the property owners association.

Walichnowski: It would be impossible to regulate actual service charges because the cost will vary from building to building. For example a 60-storey building is more expensive to run than a four-storey building. Also, the quality of services will vary from building to building. For example, some buildings will be run like five-star hotels whereas others will be run on a tighter budget. The only thing that regulation can do is to define what costs should be charged to the owners and which ones we cannot. In the end, the owners are protected because they have the right to approve or reject the proposed service charge budget for the following year.

Sayle: No answer

How are you collecting maintenance fees from flats that have not been sold by the developer? Is the developer liable to pay for its maintenance fee?

Kalantar: Once the association has been established, the developer is a unit owner just as if the unit had been on-sold and as such is legally liable to contribute for that unit's service charges.

Al Qassim: No answer

Ali: we pay Maintenance charges for the units owned by ETA Star in our developments in full to the facility management company.

Sayle: Service charges are calculated on the occupied areas only.

Walichnowski: Yes. If a unit has not been sold then the developer will pay its share of the service charge as though they were the owner in the Owners' Association. It is not fair to charge other owner's for the developer's unsold units.

How much transparency is there in terms of maintaining the accounts books? Are owners allowed to check the books and do they have rights to question any misappropriation?

Kalantar: Owners and interested parties will have the right to inspect books and accounts of the association. As clients of Nam they also will receive audited financial statements and have the opportunity to vote on the budget annually and to elect committee representatives at the annual general assembly. If they are on the committee they receive interim financial statements and regular updates on expenditure and other relevant matters.

Al Qassim: Proper accounting procedures and practical operations should be the top priority of any organisation. As a leading property leasing company in Dubai, Wasl has ensured that all accounts and accounting practices are up to date and managed by professional service providers.

Ali: All our accounts are audited by certified auditors, and the same is circulated to the owners on yearly basis.

Sayle: Our accounts are annually audited by external and government auditors. The owners are given access to the audited statements on completion, as per the contract they hold.

Walichnowski: Omniyat Strata Management will maintain all owners' association records as is required by law. Owners' association funds will be kept in a bank account in the name of the owners' association with a bank approved by the Lands Department. Owners have the right to come and check our records. We will also encourage an independent audit of the owners' association bank account each year for each building we manage. We will also be providing financial statements to board members on a regular basis, so they have the opportunity to go through income and expenditure data. We want to encourage active participation on behalf of our owners and ensure transparency is key to our Strata Management business.

How do you settle any disputes with owners?

Kalantar: We are always available to and regularly engage with our owners. They can visit our various owner association offices and discuss issues and queries face to face or through our call centre. We also communicate issues and disputes to our owner association representatives who regularly interact with their building owners to enable all points of view to be aired.

Al Qassim: As part of our customer service programme, we offer a dedicated customer care team to handle enquiries and complaints. All our call centre enquiries are addressed within 24 hours, while urgent cases are handled within an hour. Concurrently, all our properties are managed by professional staff and service providers who offer seamless solutions. We also ensure that comprehensive insurance is provided across all its properties for the timely and effective redressal of property related issues.

Ali: Most disputes require clarification and once the clarification is provided by mutual dialogue, the resolution is seen.

Sayle: Normally amicably, as this is our first choice, but failing this, it depends on the legal jurisdiction of the contract.

Walichnowski: There will be a dispute resolution process put into place by the Lands Department and we will be following this process. Basically parties to resolve the dispute by referring it to mediation or conciliation; if not resolved by mediation or conciliation, the parties may agree to refer the dispute to private arbitration and if the parties cannot agree to referring the dispute to private arbitration, then either disputing party may make application for resolution under the dispute resolution process established to resolve disputes relating to jointly owned property.



DISPUTE RESOLUTION SERVICE

Rera is likely to establish a dispute resolution service for owners' association, according to an industry expert. "There will be a formal process for lodging disputes and possible mandatory mediation may form part of that process," Peter Crogan, Chief Executive Officer, BCS Strata Management Services, told Emirates Business.

Excerpts

Have you seen developers increasing maintenance charges this year compared to 2008?

Crogan
: Yes, I believe that some developers have been proactive and in anticipation of the impending Strata Law have included charges that will ensure compliance with the new law. For example, the introduction of Reserve Funds for long-term asset replacement and maintenance. In some instances developers have also realised that their previous estimates of service charges as disclosed in the sales and purchase agreements were unrealistic and that the real costs of running these communities needed to be recovered in full.

What do you think has prompted the increase? Do you believe the increase is justified?

Crogan
: The reason for the increases forms part of the above answer. However, I cannot comment generally regarding justification as each case has to be investigated in relation to the range of services delivered and whether those costs are comparable and competitive to similar size plans.

What are the payment options offered by the developers?

Crogan
: Currently, service charges are collected by a range of payment installments – annually, bi-annually or quarterly. If developers reverted to monthly service charge payments then the administrative costs to issue, recover and reconcile these payments would increase considerably. The new owners' association (OA) will select the service charge payment schedules. However, quarterly are the most common method adopted back in Australia.

Do you believe the formation of owners' association will in fact impact FM companies, as owners' will get the right to negotiate and choose their facilities' providers?

Crogan: Initially depending upon how the Strata Law is introduced existing FM contracts may be allowed to run the full contracted term as previously signed with the developer. There is an argument that the new OA is a new legal entity and therefore these contracts may need to renegotiated with that new body. On termination or at contract end, the OA will definitely have the right to select their service providers. The developer disclosure requirements of the Strata Law actually increases business opportunities for FM companies and requires their input at the design phase of projects. Professional well run FM companies will find many new business opportunities and provided that their pricing is competitive then their relationship with owners will strengthen.

What new regulations do you feel are necessary to protect companies/ owners during this crisis time?

Crogan : At a time when many owners are facing restricted access to bank loans and are finding it difficult to meet mortgage installments the day-to-day operation of the OA must be guaranteed. The new strata law puts in place management requirements whereby the owner's assets are protected. By the same token the new law provides strict debt recovery measures that will protect the cash flow and funding of the OAs.

Do you believe Rera needs to set uniform laws or should they leave it for market forces to decide the charges?

Crogan: Under the impending Strata Law and in line with international best practice, it is critical that the level of maintenance at properties be significantly enhanced and made uniform across the country.

By making the appropriate investment in maintaining their communities, homeowners and developers are able to ensure that the long-term value of their assets is sustained and made secure.

For those communities that are not currently providing the appropriate level of maintenance, this may mean an increase in maintenance charges. But I firmly believe that everyone will benefit from making such an investment in the future upkeep, safety and general well being of their community.

Is there any competent authority to settle disputes between owners and service provider?

Cogan: I understand that Rera will establish a Dispute Resolution Service as the process for dispute resolution is outlined in the new regulations. There will be a formal process for lodging disputes and possible mandatory mediation may form part of that process.

 

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