As the Emirate of Dubai and the Dubai International Financial Centre await the introduction of their respective strata title law, we thought it might be useful to share with our readers some of the potential benefits of having community and strata title law, from the perspective of New South Wales, Australia. This paper aims to discuss only the concepts of community and strata schemes and not other more complicated schemes that exist in Australia's property market.
Community and Strata Schemes
In Australia, a community scheme generally means a development that comprises of a combination of the following:
(a) "villa home", "town house", "duplex" and "terrace house" (where lots are not superimposed);
(b)mixed-used multi-storied development which includes blocks, flats, commercial premises, shopping complexes in the same building; and
(c) holiday resort type accommodation.
In Australia, a strata scheme generally means a development that comprises of lots that are superimposed on one another such as that described in above.
Estate
In Australia, it is now a common trend for property developers to develop a "residential estate" concept which is similar to the mixed-use communities in Dubai. Such estates generally encompass the following features:
(a) single houses;
(b)a few mixed-used multi-storied buildings (where the ground floor's lots are designated for commercial and retail use and the higher floors' lots are for residential use);
(c) outdoor swimming pool, outdoor tennis courts, outdoor barbeque area and a community hall for use by all the residents within the estate;
(d) a gym within each multi-storied buildings for use by the residents living within such building only.
Such estate concept means the residents do not have to travel a great distance to access recreational facilities and shops such as hairdresser, laundromat, video/DVD store, convenient store, supermarket and so forth.
In such estate, the strata scheme is within the community scheme and where such strata scheme is concerned, a two tiered management system will be in place. The strata scheme will have its own owners corporation and the strata scheme will also come under the management of the community association. Whereas the owners of the single houses within the community scheme will only come under the management of the community association.
It is possible for a strata scheme to exist by itself, eg, where a single multi-storied building is constructed on a plot of land.
Distinction between Community Scheme and Master Community
A community scheme concept in Australia is not the same as the concept of a "master community" (as generally referred to in Dubai). Where a master community exists in Dubai, the master developer generally remains the owner of the community property within the master community and manages and administers the community property through a "Master Community Declaration". In a community scheme, the community association (made up of all owners within the community scheme) is the owner of the community property.
In Australia, the Community and Strata Title Law is comprehensive and covers issues such as those below.
How do the Community Association and Owners Corporation commence?
Once the Department of Lands registers the:
(a) community plan together with other documents prescribed by law, the community association commences.
(b)strata plan together with other documents prescribed by law, the owners corporation commences.
If a strata scheme is to be created within a community scheme, the law provides that the community plan and its associated documents must be registered first before the strata plan and its associated documents can be registered.
What is the role of the Lands Department in regards to registration of documents?
The law provides comprehensive instructions to developers regarding documents that must be lodged at the Department of Lands before the department will review and register the development.
Documents that are generally required for a community scheme are:
(a) community plan showing the location (and exact measurements) of each lot within the community scheme including the community property;
(b)a unit entitlement schedule of each community lot (excluding the community property) within the community scheme;
(c) the community management agreement; and
(d) the easement instrument.
Documents that are generally required for a strata scheme are:
(e) strata plan showing the location (and exact measurements) of each lot within the strata scheme including the common property;
(f) a unit entitlement schedule of each strata lot (excluding the common property) within the strata scheme;
(g) the by-law agreement for the strata scheme; and
(h) the easement instrument.
Once the development is registered by the Department of Lands, these documents will be scanned into the department's computer records and are available to the public for a fee and new certificates of title for the community lots and strata lots will be issued to the developer. A certificate of title for the community property will also be issued to the community association and the certificate of title for the common property issued to the owners corporation.3. What are the responsibilities of the community association and the owners corporation?As the legal requirements for the community association and the owners corporation are similar, from here on, the community association and the owners corporation will be referred to simply as the "association".
The law sets out the basic responsibilities of an association and these responsibilities include:
(a) arranging an annual general meeting;
(b)recording all details of notices and orders served on the association and these records must be kept for at least 7 years;
(c) keeping a record of minutes of meetings including details of motions passed for at least 7 years;
(d) keeping accounting records and financial statements of the association for at least 7 years;
(e) keeping a roll of the owners including contact details, when a person became owner or ceased to become an owner within the scheme;
A managing agent (licensed by law) may carry out some of the functions, duties or powers of the association. For a large estate, it is common for the association to appoint a managing agent to carry out its functions, duties or powers. However the law prohibits certain power to be given to a managing agent, which includes:
(a) delegating the managing agent's functions to others; and setting levies.
How are services charges dealt with?
The law prescribes that the association must levy its members in the scheme to raise enough funds to carry out its duties. All levies must be worked out in proportion to the unit entitlement of the lots.
An "administrative fund" and a "sinking fund" must be set up. An administrative fund is a fund for day-to-day recurrent expenses and a sinking fund is a fund to cover future capital needs.
The amount in an administrative fund must be enough for the community association to pay its expenses for cost of maintaining the association's property (including personal property), for payment of insurance premiums and for any other recurrent expenses.
The amount in a sinking fund must be enough to cover the association's expenses for painting/re-painting structures that are part of the community association's property, for obtaining personal property (eg, mowers), for replacing personal property, for renewing or replacing any fixtures or fittings that are part of the association's property and for other capital expenses.
The association must prepare financial statements and present them at the annual general meeting. The statements must include income and expenditure for the administrative fund and sinking fund. At this annual general meeting, the following year's levies must also be decided by a majority vote. When the levies are to be decided at a meeting, a budget must be presented showing the exiting financial situation and an estimate of next year's receipts and payments.
After the decision is made on the following year's levies, the association must write to the members to advise them the amount to pay and the date to pay. The association may decide to allow payments by installments.
If the association has to pay other expenses that were not budgeted for in the administrative or sinking fund estimates, a special levy must be set at a general meeting and the amount collected paid to a fund to meet those extra expenses.
The law prescribes that unpaid levies will attract a penalty at the rate of 10% per annum if not paid within a month after it is due. Unpaid levies, including the penalty, can be recovered by the association as a debt in Court.
Who insures what?
Building Insurance
The law provides that the community association must insure buildings/ structures on the community association's property under a damage policy with an approved insurer. A damage policy must cover building/structure if damaged or destroyed by fire, lightning, explosion or any other thing in the policy:
(a) for the costs of rebuilding (where destroyed) or the replacement (where damaged but not destroyed) of the building/structure back to the same condition it was in when new;
(b)for the payment of removal of debris and others whose services are need for the replacement or reinstatement (eg architects and project managers); and
(c) for estimated increases in the above costs during the period of 18 months from the date of the policy.
The law further provides that the community association must arrange for the building/structures to be valued at least once every 5 years and insurance taken out for at least the valued amount.
Similar law applies to the owner's corporation. The owner's corporation must insure the building. The building includes the owner's fixtures and fittings such as carpets in the common areas, hot water systems, light fittings, toilet bowls, sinks and cupboards.
Public Liability Insurance
The association must insure against damage to property, death or injury for which the association may become responsible and the minimum amount of cover must be AUD$10million.
Workers Compensation Insurance
If required by law, the association must take out workers compensation insurance.
Voluntary Workers Insurance
The association must insure against any damage that it may become responsible for because of work done by a voluntary worker for the association and for accidental injury or accidental death of a voluntary worker.
What restrictions are placed on the developer?
In most cases, on registration of the community scheme or strata scheme by the Department of Lands, the developer will be the only member of the community association or owners corporation. As lots are sold, the membership increases.
For the protection of the consumer, the law prescribes that during the "initial period" the developer must not:
(a) incur a debt for more than is set aside in the administrative and sinking funds to repay it;
(b)borrow money or give securities;
(c) change or cancel the by-laws.
The initial period is generally the period which commences on the registration of the scheme and ends when one-third of the total unit entitlements have been sold.
If these restrictions are not obeyed, the developer is liable for any debt or loss of an association. Also the developer is liable for any loss suffered by a member of an association.
Further, the appointment of a licensed managing agent by the association during the initial period is limited to 2 years.
An association can enter into a contract with a person for services or recreational facilities. If the contract is made in the initial period, it will end at the first annual general meeting unless it is disclosed in the community management statement or the by-law agreement, before any lots are sold, or the contract is ratified at the first annual general meeting.
How to solve a dispute between owners of a community scheme or strata scheme?
The law sets out a process for resolving dispute. This includes for example, where an owner is satisfied an owner/occupier has breached a by-law, it can issue a notice requiring that person to comply with the by-law. If it is not complied with, the association may, within 12 months of serving a notice, ask the Tribunal to impose a monetary penalty.
Conclusion
In Dubai, developers have relied on Article 1188 of the Federal Civil Code for the development of mixed-used communities.
This Article provides in simple terms that if there are several owners of storeys in a building or of different apartments, these owners will be deemed to be co-owners of the land and of the parts of the building intended for common use by all of them.
The Australian concept of the community scheme is not legislated in the Federal Civil Code or anywhere else. Accordingly, in Dubai, where a master community exists, the master developer remains the owner of the community property.
Once the development of the master community is completed, the master developer may wish to withdraw from the on-going management and administration of the community property and hand such duties to the owners within the master community. At this stage, the transfer of such duties from the master developer to the owners within the master development is not possible in Dubai. Hopefully, the soon to be introduced strata title law in the Emirate of Dubai will make provisions similar to the Australian concept of the community scheme which will permit the formation of the community association to manage and administer the community property.
Further, for the sake of consistency in Dubai's property development, it would be useful for the strata title law to legislate on the issues of service charges and insurances or alternatively legislate that the Master Community Declaration and the Constitution of the Co-Owners Association must include prescribed information such as service charges and insurances.
By Louise Vun
© Al Tamimi & Company 2007
