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We are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.Read the full edition
Dana Abduljaleel - Partner - Banking and Finance
Over the past few years, there has been a noted surge in the development and construction of gated communities in Jordan, including in particular, the development of new urban areas on the peripheries of the cities of Jordan, and the further expansion of the Aqaba Special Economic Zone (Jordan’s main port).
In light of said developments, there has been a noted demand to modernise the existing real estate laws of Jordan, to better accommodate for large-scale development projects. One such initiative has been the proposal of a new draft bill, the Jordanian Buildings and Real Estate Communities and their Development Law (the “Proposed Real Estate Communities Law”) in 2015, and which is currently under review by the Jordanian Government. The Proposed Real Estate Communities Law aims to provide a governing framework that will regulate the rights and obligations of project developers and owners of real estate units respectively, in order to ensure the sustainability of an integrated real estate development project, the proper management and maintenance of its common parts and the provision of services to the projects.
This article will discuss certain aspects of the Proposed Real Estate Communities Law and its expected impact on the governance of gated communities and other large developments in Jordan. It is to be noted that, whilst the current legal framework serves a beneficial purpose of regulating general matters regarding ownership and control of flats and similar fixtures, attempting to deal with the regulation of gated communities under the umbrella of flats and apartments, as provided for under the current legal regime, is likely to continue to yield undesirable results. Therefore, a law specific to gated communities should be enacted to better accommodate for matters such as shared facilities and the provision of services.
Current Legal Framework
The Jordanian Ownership of Floors and Units Law No. 25 of 1968 (the “Apartments Law”) regulates the ownership and rental of units and floors within apartment buildings.
Importantly, the Apartments Law provides the following:
An interesting feature of the current Apartments Law is that it grants homeowners, through the Owners’ Association, complete autonomy to make decisions affecting their property. Whilst such autonomy is preferable in the context of a small, residential building, the current Apartments Law does not seem to take into account the interests of other stakeholders in gated communities, including developers and investors.
In addition, from a commercial standpoint, the services available (and the fees associated with such services) at a real estate community are an important asset that home buyers and owners look to when considering investing in real estate complex projects. Whilst the management of such services and the due allocation of service fees may be regulated fully at the Owners’ Association level in the context of a smaller building, the provision of such services in gated communities requires greater transparency, and which is only attainable through high regulation. Service fees should cover only actual expenses incurred in the maintenance of public and shared spaces and faculties, and be subject to periodic review.
In such a context, we will look at the main changes suggested to be introduced by the Proposed Real Estate Communities Law.
Establishment of Higher Board for Buildings and Real Estate Communities
The Proposed Real Estate Communities Law provides for the establishment of a Higher Board for Buildings and Real Estate Communities. The composition of the Higher Board shall be formed from representatives of the Ministry of Finance, the Land and Survey Department, the relevant municipality, the Ministry of Environment, the Ministry of Public Works and Housing, and private stakeholders to be nominated by the Council of Ministers, amongst others.
Once established, the Higher Board is granted authority to govern the real estate communities sector, with the purpose of protecting buyers and the national economy, as well as developing the real estate sector and promoting investments. As part of its activities, the Higher Board shall enter into development agreements with developers in connection with gated communities, as well as adopt templates for Promises to Sell, By-Laws for the Management of Real Estate Communities and other related documentation,
Regulation of Different Forms of Establishment
Under the Proposed Real Estate Communities Law, the legislature has recognised for the first time different types of establishments, including, buildings, towers, units, independent units and real estate complexes (gated communities); each deserving its own regulation in accordance with its unique characteristics.
In the context of gated communities, upon the recommendation of the Higher Board for Buildings and Real Estate Communities, the Council of Ministers shall designate certain establishments or projects as “real estate complexes (communities).”
If so designated, the Proposed Real Estate Communities Law provides for the establishment of two managerial bodies, the Owners’ Association and the Owners’ Union, who are responsible for the workings of the gated community of which they form a part, under the overreaching supervision of the Higher Board.
The Owners’ Association consists of all unit holders of a single building or tower (located within a real estate community), and are responsible for the common spaces of the said building or tower. The Owners’ Union, however, consists of all representatives of each respective Owners’ Association, as well as the owners of the independent units located within the same community.
The Owners’ Association is the sole legal owner of, and shall be granted full responsibility for, the entire infrastructure and superstructure of the real estate community. This includes streets, sidewalks, gates, public spaces, and gardens, as well as water, electricity and other facilities. The management and usage of the infrastructure and superstructures shall be fully tasked to the Owners’ Association, provided such infrastructure and superstructure is common to all unit holders having been established fully at the expense of the developer or the Owners (taken as a whole).
Article 15 of the Proposed Real Estate Communities Law will facilitate these tasks by providing that each of the Owners’ Association and the Owners’ Union shall have its own moral personality and an independent financial edifice to manage the real estate community.
Insurance Requirements, and Allocation of Risk
The Proposed Real Estate Communities Law requires the Owners’ Association and the Owners’ Union to insure their respective properties against all risks, including the risk of total or partial loss and fire hazards, and wherein, beneficiaries of the insurance policy shall be the Owners’ Association and the Owners’ Union (as applicable).
The mandatory insurance requirements aside, the Proposed Real Estate Communities Law places responsibility on the real estate developer or the real estate investor, jointly and severally with the contractor, for any partial destruction, structural defect or damage to any of the units they sell and all related areas, for a period of 10 years from the date of development. Such liability supplements any liability arising under contract, as well as the decennial liability already imposed on contractors and/or engineers by virtue of the Jordanian Civil Code.
The Proposed Real Estate Communities Law also introduces further changes to the current regime, including without limitation:
The current Apartments Law has been in force since the 1960s. And whilst it has adequately regulated the management of more traditional buildings; however, as times have changed, the scope and nature of real estate projects has expanded, requiring a new set of regulatory rules that will accommodate the evolving track of real estate projects in the 21st century.
The Proposed Real Estate Communities Law, if implemented, would introduce more structured regulation that would better appeal to foreign buyers, investors and developers alike. This is especially critical on account of the fact that the Jordanian market has faced economic difficulties in recent years. From the developers’ perspective, the Proposed Real Estate Communities Law recognises, for the first time, the developer or the investor as an independent stakeholder in its own right, whilst, granting home owners an established say, not only in the common parts of the building but also in the management of the wider gated community.
Al Tamimi & Company’s Real Estate team regularly advises on gated communities. For further information please contact Dana Abduljaleel at D.Abduljaleel@tamimi.com or Rama Za’tara at R.Zatara@tamimi.com.
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