Welcome to the Saudi Arabia focus edition of Law Update.
One of the key markets in the Middle East and North Africa (MENA) that continues to lead from the front is the Kingdom of Saudi Arabia (KSA). As the largest country in the Middle East and the 18th largest economy in the world, the progress KSA continues to make is underpinned by its Vision 2030 that envisions developing the country as an investment powerhouse and hub that ultimately connects Asia, Europe, and Africa. Given Saudi Arabia’s significance to the regional economy, our team of experts have prepared a range of pertinent articles that provide insights into new laws, regulations, and the legal landscape in the Kingdom.
This edition will provide you with an up-to-date guide on matters such as; the framework issued by the Saudi Central Bank on IT governance, the anti-corruption landscape under Vision 2030; we also provide practical tips for dispute avoidance. This is only a snapshot; there are many more articles within the KSA focus section for you to read, which we hope you will find valuable and enjoyable.Read the edition
Unkar Chanian - Senior Associate - Real Estate
Resolution 7 of 2018 Regulating the Owners’ Associations and Joint Properties came into force on 26 September 2018 (‘Resolution’).
The Resolution, which has been eagerly awaited follows previous resolutions that underpin Law 27 of 2017 Concerning the Promulgation of Real Estate Sector Regulation Law (‘Law 27 of 2017’). The Resolution governs the management of buildings that are sub-divided into units such as apartments for separate ownership and common areas being the areas used in common by the unit owners.
Such buildings are also referred to as ‘Joint Properties’ or ‘Common Properties’ or ‘Strata Properties’ The Resolution provides a new legal framework for such buildings and replaces the previous governing procedures under the Civil Code and Directions issued by the Ministry of Justice in 2004. Additional resolutions may apply to more complex arrangements such as master communities or large complex mixed use buildings however, the Resolution will form the basis for the management of most Joint Properties in Bahrain.
Under Article 62A of Law 27 of 2017, an owners’ association (‘OA’) is established upon the sale and registration of the first unit at the Survey Land and Registration Bureau (‘SLRB’), replacing the need for a notarised deed of incorporation and registration at the municipality.
An OA is constituted by all the unit owners and will have its own legal personality. Articles 19 to 24 of the Resolution prescribe a wide range of powers to the OA which include amongst others the ability to:
The Resolution imposes various registration obligations on developers which include:
The developer is required to call a general assembly of the OA within three months of its establishment. In cases where the Joint Property is a villa development, the general assembly may be called after the completion of 10 percent of the villas. The developer must also create the common seal/stamp of the OA and prepare the annual budgets of the OA’s operational and reserve accounts. The Resolution prescribes the general assembly requirements such as form of notice and quorum (which is 50 percent of the owners).
The OA may tender for service contracts for a maximum period of two years. The contract may be longer if the Joint Property is regulated by a RERA resolution for special management schemes. The developer is also disqualified from voting on any tenders for goods/services if the developer holds a stake in the service providers.
The developer must present all relevant documents at the OA’s first general assembly including (but not limited to) built drawings, list of assets and copies of all construction contracts. The developer is also liable for the annual payment to the OA for units owned by the developer.
An OA is required to establish an operations account and a reserve account. The developer may also collect up to two years of service charges upon the sale of a unit; proceeds of which must be deposited within the OA’s operations and reserve accounts.
Existing OAs created prior to the Resolution must rectify their status prior to 25 March 2019. Also, where the sale of the first unit has been registered with the SLRB prior to the date of the Resolution and whether or not an OA has been established, the owners shall call for a general assembly prior to 26 March 2019 and comply with the respective obligations within the Resolution. Where a developer is managing a Joint Property at the date of the Resolution, it must comply with its requirements within six months of the Resolution. In cases where it is unclear who is managing the Joint Property RERA may authorise a third party to call the general assembly.
An OA’s articles of association must be in the form provided by RERA and any deviation from the precedent form will require RERA’s consent. RERA has provided guidance with respect to the drafting of standard Joint Property by-laws, which include (amongst others) the operational rules of the common areas and any internal dispute resolution process.
After 25 March 2019, the SLRB will not register transfer agreements in Joint Properties where the initial sale and purchase contracts have been entered into after the Resolution coming into force, until it has a certificate from the OA confirming that there are no outstanding service charge amounts. This clearance certificate requirement shall be waived if the OA is inactive or the buyer and seller agree to pay any outstanding amount.
An OA must elect a governing board that must have at least three and a maximum of nine members. Where a Joint Property has less than nine units all the owners shall automatically constitute the OA’s board. The Resolution specifies the board’s obligations, length of tenure and the requirements of the OA’s secretary and treasurer.
RERA will provide certificates recognising that the OA is active, functioning, and further certificates that list the names of the board members and the OA manager or a transitional certificate for pre-Resolution OAs.
RERA has the ability to appoint an administrator to take control of an OA or where the OA refuses or fails to comply with the Law 27 of 2017 or its affairs are in disarray.
We await further resolutions from RERA in particular for special management schemes; however, Law 27 of 2017 and the Resolution now provide a clear framework for the creation and operation of an OA for Joint Properties, which align with international best practice.