DUBAI // Hundreds of apartment buildings in Dubai are facing a shortage of maintenance cash because property owners have failed to pay service fees. The full extent of the default rate, which has reached 75 per cent in some developments, is only now coming to light as developers hand over building management responsibilities to homeowner associations under the recently enacted strata law.
It means that the new homeowner groups could be saddled with debt as soon as they start taking over the management of their buildings. For example, to replace a basic chiller in a tower building costs up to Dh3 million - and if there is no reserve fund in place because of service charge defaults, owners would have to foot the entire bill when the work was done. "Service fee arrears is a big issue in many buildings," said Gary Bugden, the executive chairman of PRDnationwide, a property services company. "A lot of people just aren't paying."
The amount paid in service fees has been a bone of contention for residents in some developments, where property prices have fallen by as much as half since the end of 2008. Service fees surged during the boom years, with some developers charging up to Dh21.85 a square foot in annual fees, or more than Dh20,000 for a typical one-bedroom flat. Property owners started refusing to pay, either for services they felt were not provided or shared amenities that were poorly maintained.
But those who have been paying are now concerned about the upkeep of their homes. Michael Aldendorff, who owns a one-bedroom apartments at Nakheel's Discovery Gardens, said: "Owners currently in the building need to pay only their share, nothing says we need to pick up the tab for those who don't pay, which means maintenance will fall by the wayside." Although the strata law was decreed in 2007, it was enacted only in May, so until then developers had full control over building management and collecting service fees.
Kareem Derbas, a partner and chief executive of Cayan Developments, said only 20 per cent of owners at the four residential towers the company built in Dubai Marina paid their fees within the first month of receiving a bill, and four months later only 50 per cent had paid. "The major problem has been with collecting service charges as we don't have direct legal recourse if someone does not pay," he said.
But homeowner associations, once they are set up, will have the power to recover service fee arrears. Under the Strata Law, they will have the right to seek an order from the Dubai Court to sell the properties of those who have defaulted. Developers have until November to hand over complete control to the associations. Jeremy Walter Scott, a senior associate at the law firm Al Tamimi and Company, said: "Part of the problem with people not paying service charges is that there's been no mandated process and it's been developers just serving notices with no accounts or anything on purchases.
"Once the association is in existence it will have the power to use enforcement procedures to issue the enforcement notices and recover service charges. There are quite clear procedures laid down which ultimately could lead to the sale of the defaulting unit." However, while property owners will now have control over how much they pay in service fees, their major concern is collecting arrears and subsequently being able to keep properties fully maintained.
Mr Aldendorff said: "How many owners have disappeared or are just not paying? And how viable is it to put a property on the market in an economy where nobody is buying? The legal process is so lengthy, we won't be able to immediately recover the money." He added that dealing with non-payers was still a grey area that would need to be addressed as the transition towards homeowner associations progresses.