Sunday, October 23, 2005

Freehold law 'need of the hour' :: Gulf News
Buyer beware

Dubai : Absence of freehold law and formal regulations are likely to discourage buyers of freehold properties in the coming days, following a dispute between Emaar Properties and some customers living in Dubai Marina.

A dispute over service charges is forcing potential buyers to reconsider their decision or wait until the laws are in place. Most developers do not declare service charges at the time of sale, but fix them later at a higher-than-expected price, to the dismay of the homeowners.

"This is happening due to the absence of transparent legislation and lack of regulation in the market," said an eminent lawyer, requesting anonymity.

"Further delay in issuing property laws to regulate the growing freehold market will create more confusion and uncertainty among new investors; also it will allow certain developers to take the customers for a ride.

"This is a wake-up call to homeowners and a lesson for new investors to force the developers to mention this in the contract."
I agree that there is ambiguity surrounding freeholds. With ambiguity comes a responsibility for buyers to look for hidden costs that have not been spelled out by the seller.

It sounds as if contracts did state that service charges would apply for services for the upkeep of common property, but did not spell out the level of those charges. And it was left open how those charges would be set - and, equally important, how it would be determined that promised services were delivered. These are issues that are difficult to deal with in any legal setting.

Would a freehold law be a sufficient remedy? Law is not a magic wand. Isn't a well-developed independent judiciary as important? A freehold law might have some benefit in simplifying enforcement by bringing standardization to contracts. But it would not itself develop a judiciary that could enforce contracts, and it would not necessarily address the question of enforcement when there is substantial government ownership in companies such as Emaar.

Emaar is a large company with many properties. It has an interest in maintaining a reputation for honest dealing. (And Dubai's reputation is linked to Emaar's.) Thus, it is not necessarily the case that there is a need for a law or for a judiciary. Rather what is necessary is that Emaar can build and maintain that reputation. To do so it needs to demonstrate that it is carrying out the spirit of the contracts it enters into. And it needs to monitor the claims and promises of its sales agents.

Emaar may be doing all those things. It also has an interest in making contracts straightforward to external interpretation. Otherwise, it risks losing its reputation when buyers' complaints about high service charges have more to do with every buyer's preference for a low price than with a failure on Emaar's part.

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