Service charges in a Dubai building: how they are set

A service charge invoice in Dubai is a levy on the registered owner of a unit. It is set annually, cannot be collected until the Real Estate Regulatory Agency has approved the budget behind it, and sits in an account the management company may not draw on outside a fixed list. The framework is Law No. (6) of 2019 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai, issued on 4 September 2019, which repealed Law No. (27) of 2007. The system that administers it is Mollak.

Most disputes are settled inside three articles. Article 25 says how an owner's share is worked out. Article 27 says nobody may charge anything without RERA approval, and that RERA may not approve unless a certified audit firm recognised by RERA has signed off the budget first. Article 30 lists the ten purposes the money may be spent on.

How a share becomes a rate per square foot

Article 25(a) sets the principle. An owner pays a share of the annual service charges calculated on the ratio of the area of his unit to the total area of the jointly owned real property, using the method approved by the Director General of the Dubai Land Department. Article 25(b) fixes the input. The area used is the area recorded in the Real Property Register, not the figure on a sales brochure. A developer pays the same way on units he has not sold.

The published output is a rate in dirhams per square foot. The Dubai Land Department's Service Charge Index returns it split into a general fund rate, a reserve fund rate, additional charges where any apply, and a total, each labelled Rate (AED/Sq.Ft). Usage charges sit separately. Under Article 26 a master developer levies those for the common facilities of the master project, on finished buildings, buildings still under construction and vacant land alike.

One honest gap. The law delegates the division method to a resolution of the Director General, and that resolution is not published on the Dubai legislation portal alongside the law. The principle is public. The arithmetic behind a given building's split is not. Where an owner disputes the area he is charged on, the register entry is the reference. Pull the title deed before arguing about the rate.

What RERA sees before a budget is approved

Approval runs through Mollak as an application to the Dubai Land Department, and the published requirements are specific. A detailed statement of the annual budget. Tender proposals and evaluations covering no fewer than three tenders for each service provider. Copies of the service, maintenance, management and insurance contracts, with the bills for water, electricity, central air conditioning and master community fees. An external audit report from an auditor accredited by RERA. The department lists the service as free, delivered in 25 minutes.

Article 27(c) lets RERA approve a temporary budget until the audited one is ready. That is the basis for interim invoices early in a year.

What the money may be spent on

Article 30(e) is a closed list. Funds in the service charges account may only be used for:

• cleaning of the common parts
• security and safety services in the property
• operation, maintenance, repair and improvement of the common parts and their fixtures, fittings and installations
• insurance premiums for the jointly owned property
• audit fees for the service charge accounts and budgets
• management company fees, in the amount and by the method RERA determines
• the developer's administrative expenses on major projects, as approved by RERA
• a cash reserve for emergencies and equipment replacement, held in a separate account
• RERA's fees or costs for inspection and oversight
• any other cost set out in the master community declaration and approved by RERA

A cost fitting none of those heads has no basis in the account. Collections must reach it within seven working days under Article 30(b), and under Article 30(c) the balance cannot be attached by the management entity's own creditors. If RERA serves notice that the common parts are not properly maintained and nothing is done, Article 35(c) lets it appoint someone else and debit the cost to that account.

The reserve fund

The reserve is the line owners query most, because it funds work nobody can see yet. Article 30(e)(8) requires it to sit in a separate account, and it may not be drawn on for anything short of a critical emergency without RERA's prior approval. If it runs dry, Article 30(f) allows the Dubai Land Department, with RERA's prior approval, to ask owners to cover the emergency expense. That exposure does not appear on the index.

Owners associations, owners committees, and who actually levies

Owners associations are no longer the levying body in Dubai. Article 49 transferred all rights and obligations of owners associations, arising before the law took effect, to management entities. The term survives in older contracts. It has no standing as the body that sets or collects a charge.

Who the management entity is depends on the category under Article 18(a). In a major project the developer is responsible for managing the common parts. In a hotel project the developer must outsource that management to a hotel project management company. In every other real property project, management is undertaken by a specialised management company selected and contracted by RERA, not by the developer and not by the owners.

An owners committee cannot levy anything. It has at most nine members appointed by RERA, and it is constituted once at least ten per cent of the total units are registered in owners' names. It meets every three months. Under Article 24 it verifies that the management entity is doing its job, reviews the annual budgets and makes recommendations, and escalates owner complaints to RERA if they go unaddressed for fourteen days. In category three projects it may ask RERA to replace the management entity. Recommend, not decide. Members must be owners resident in the building and current on their own charges.

Where to look a building up

The Service Charge Index on the Dubai Land Department website takes three routes in. By title deed, entering the certificate number, certificate year, property type (land, building or unit) and budget year. By project, selecting project, usage and year. Or by picking an area on the map. The result gives the managing entity, the budget start and end dates and the rate breakdown, and exports as a PDF. The same lookup sits in the Dubai REST app under Services.

The page carries an explicit note that the figure excludes arrears, so a unit with unpaid charges behind it costs more to take on than the published rate suggests. It gives a rate, not an invoice. The Mollak portal separately lists the approved management companies, the approved auditors and the banks holding these accounts. Its call centre is 800 44 88 within the UAE.

Service charges generally carry VAT. The Federal Tax Authority's real estate guide states that where an owners association or management entity is conducting an economic activity and is able to register for VAT, its service charges should be subject to VAT at five per cent.

Non-payment, and what follows it

Liability sits with the owner. Article 16(b) makes the owner liable unless the lease says otherwise, and he is not discharged if his tenant fails to pay. The Dubai Land Department restated that publicly on 6 January 2020. Article 28 goes further. An owner may not refrain from paying approved charges, and may not waive his interest in the common parts to escape them.

Enforcement is quick on paper. The management entity has a lien on every unit, and under Article 32(a) the unit may not be disposed of until the charges are paid. After a written notice in the form RERA approves, Article 32(b) gives the owner thirty days. Then the claim becomes enforceable by the execution judge at the Rental Disputes Settlement Centre, which may order the unit sold at public auction. Court fees and advocates' fees fall on the defaulter. What a management entity may not do is lock an owner out. Article 29 prohibits any action preventing an owner from using his unit or the common parts, to force payment.

That Centre has exclusive jurisdiction over disputes under this law. Anyone affected by a decision taken under it may instead file a written grievance with the Director General, determined by a committee he forms. That window is thirty days from notification, and it is the one most often missed.