02 October 2023, Gulf News
Property owners in Dubai who regularly default on their service charge payments could run the risk of having these homes placed on auction to recover the funds owed. This measure will only be used as a ‘last resort’ when the arrears have piled up and all other options to get the owner to pay up has been exhausted, according to a senior industry source.
“The Courts have become more inclined to grant such requests to place such properties under auction,” said Saeed Al Fahim, CEO of Stratum Owners Association Management.
“Our company has now successfully auctioned properties in cases of severe necessity. But we firmly believe that every effort should be made to accommodate property owners’ needs while also preserving the integrity of the building.”
So, effectively, there is now a three-tier system when it comes to recovering funds from property owners.
Level 1 will be when the property management companies issue legal notices to the errant property owner.
Level 2 will mean that with the concerned approval of the authorities, the properties that have fallen back on payments will not be issued with ‘Ejari’ rental contracts, nor can they be sold until the dues are paid.
Level 3, which is what’s been initiated now, means once the court sanctions it, the property management company can take possession of the unit and place it for auction.
Property management company sources say such the Level 3 move will be considered on a case-to-case basis. This year, service charge collections – which freehold property owners are expected to pay annually – has improved to around 60 percent of what’s owed. That compares with the 30-40 percent collections in 2020-21.
It was felt that not allowing a property to be rented or sold would itself prove a big deterrent to non-service charge-paying home owners. In the last year or so, there had been improvements in collections, though even then, property management companies say it was only ‘adequate’ to carry on all their operational tasks. Their own costs as well as those on the property management have swelled, especially that related to manpower recruitment.
Compelling reasons to auction off
All through the years, there was the legal option to place such units on auction. But it had not been used because the impression was that preventing the property owner from renting or selling was compelling enough to make him pay.
But there have been increasing instances of end-user owners not paying up, and this was leading up to be a major problem in the upkeep of the building/community. Plus, it would be an unfair on all those property owners who are regular on their payments.
“The shift towards allowing auction occurred perhaps because there was a realization that landlords were using lower rents of 2018-20 as an excuse not to pay,” said Al Fahim.
“The subsequent conditions where rents have increased allowed judges to be more strict in enforcement. This has been welcome news for the owner association industry, and we are confident that with these measures – aligned with other judicial norms – collections will further rise.”