Although the introduction of the Strata Law has received a reasonable amount of media attention, and many people are now aware of its importance with respect to apartment ownership, further education of owners and those in the development industry is necessary to ensure that the full benefit of the Strata Law is obtained.
The enactment of the Strata Law by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, is an extremely important step in the evolution of the emirate’s property market for a number of reasons. Dubai is currently leading the world with respect to constructing large mixed-use developments on a scale and sophistication rarely seen.
Whilst the Federal Law No 5 of 1985 (as amended) in respect of Civil Transactions for the UAE recognises co-ownership of apartments and establishes some rights and obligations on co-owners, this law has not been sufficient to deal with the nature and sophistication of the development that has occurred in Dubai over the past 15 years.
The introduction of Law No 7 of 2006 Concerning Real Property Registration in the Emirate of Dubai (the Registration Law) was the first step in attempting to bridge the gap between the growth in development and the sophistication of the property law system governing such development by introducing a system of ownership registration to bring it in line with other established world markets.
The introduction of the Strata Law is the next step in the growth of the property law system as it incorporates apartment ownership (and the ownership of other jointly-owned property) within the registration system.
While the Strata Law came into effect on April 1, 2008, the strata title regime is yet to become operational as the implementing regulations necessary to give direction as to the operation of the Strata Law (Regulations) are still to be finalised by the Lands Department and Rera.
Although industry experts recognise the necessity of having a fully operational Strata Law, there has been much lobbying of the Land Department and Rera by industry players seeking to influence the final form of the regulations in an attempt to minimise the impact of the Strata Law upon their current business model.
As such, developers, owners and their legal advisors eagerly await the finalisation and passing of the regulations to fully assess how the Strata Law is to operate and the procedures necessary to effect the registration of a strata scheme with the Land Department and formation of an owners’ association.
Strata title
In simple terms, strata title is a titling system that enables the subdivision of a building both horizontally and vertically allowing for the creation of separate titles for each defined area of cubic airspace. As such, under a strata title system, a building that has multiple-ownership may be subdivided into defined “units” and “common areas” and a title issued to the owner of each unit.
Importance for market
As stated above, the implementation of a fully operational strata regime is extremely important to the Dubai property market for a number of reasons. Perhaps the most important of these is that once the regulations are passed and the registration procedures finalised, the Strata Law will enable a building to be legally subdivided into units and common areas and for owners to register their apartment ownership with the Lands Department.
Currently in Dubai, generally an owner’s right to their apartment is only a contractual right arising from the sale and purchase agreement entered into with the developer. Provided the owner has satisfied their obligations under the sale and purchase agreement, the owner is considered to be the owner of the apartment on the basis of such contractual relationship.
In some instances, following the production of a no-objection letter from the developer, the Land Department has issued “titles” to owners that record the ownership interest in the apartment notwithstanding the developer still remaining the registered owner of the land upon which the building has been constructed. In practice the Middle Eastern market has accepted and afforded a level of comfort to such ownership structure, which has enabled the sale of apartments to be transacted and used as security by owners for borrowings.
The introduction of the Strata Law will provide a clear method for subdividing a building and for the granting of title to owners that is consistent with other leading world markets.
Owners’ association
A key feature of the Strata Law, is the formation of an “owners’ association” for the building upon the registration of the first transfer of a unit to a purchaser. The owners’ association is simply an association of all the owners within the strata scheme with each owner being a member of the association while they own a unit in the strata scheme. The role of the owners’ association will be to manage the operation, repair and maintenance of the common areas within the building (or part of the building covered by the strata scheme) to ensure that the building operates and is repaired and maintained to an appropriately high standard and that the owners’ collective interest is protected at all times.
It is expected that the owners’ association will be required to appoint a licensed “association manager” who will assist the association with day-to-day administration and management of the building including supervising the performance of the other service providers contracted by the association to provide services to the building.
It is expected that under the Strata Law the owners’ association will have “legal standing” in so far as it shall be considered to be an entity capable of suing and being sued. This is an important feature as it will assist the owners in being able to enforce their rights against third parties (including the developer) and against owners that are not complying with the constitutional documents or have not paid their service charges. If the majority of the owners agree to commence proceedings, it is expected that the owners’ association shall be able to do so on behalf of the owners. Similarly, however, it is expected that third parties will be able to commence proceedings against the owners’ association if they consider that it has breached its contractual obligations.
Mixed-use buildings
It is extremely common in Dubai that a building contains more than one use. Most prominent developments are considered to be “mixed-use” in so far as they contain more that one type of use. Often buildings contain both residential, retail and commercial uses within the same structure and in some instances also contain hotels and public areas.
Also, given Dubai’s low water table, many large developments are constructed on a “podium” base with a number of towers sitting on a shared podium structure (above and below ground level) that provides car parking and shared facilities for the towers. Although the various “components” within the development may share certain areas and facilities within the building structure, each component of the development may operate and be managed largely independently of the remaining components.
It is expected that the Strata Law shall allow for the volumetric subdivision of large building structures into components. This will allow for complicated mixed use developments to be subdivided in a manner so as to allow the various component owners (including owners’ associations if a component has been further strata subdivided into units) to manage their own components within the development. The operation and management (and cost allocation) of the shared areas and facilities within the development that are utilised by more than one component will be governed by a “building management statement” that shall be required to be registered with the Land Department together with the plan of volumetric subdivision.
Given the number of prominent mixed-use and podium style developments in Dubai, it is expected that volumetric subdivision will feature in many developments.
Summary
It is a new world for developers and owners. Owners should take comfort that the registration of their apartment ownership with the Lands Department is near and increased involvement in the management of their buildings in some form is expected.
Developers will need to take steps to comply with the Strata Law and may need to reassess how they structure their developments. Some developers may need to consider whether retaining such a high level of involvement with the management of their developments post-construction is desirable given the restrictions that may be imposed under the Strata Law.
It is an exciting and challenging time for the Dubai property market and a fully operational strata regime will assist in bringing the market more in line with other leading world markets and help restore and maintain consumer confidence.
- The author is a senior associate with the real estate group at Clyde and Company