Indigo Tower's service charges slashed by 20%

The Interim Owners' Association (IOA) of the Indigo Tower building in Jumeirah Lake Towers has brought down service charges by 20 per cent from the developer's proposed budget of Dh13.47 per square foot to Dh10.77 per square foot, a committee member of the association told Emirates Business.

"For the year 2010, we managed to reduce service charges for apartment owners to Dh10.77 per square foot, excluding the sinking fund, from an initial proposed budget set at around Dh13.47 per square foot by the developer. The drop in service is a result of hard negotiations with the facilities management provider. When we compare with other parts of Dubai, we think the current service charges are still high," said Declan McCrohan, a committee member of the Indigo Tower's IOA.

According to the IOA 2010 budget, facilities management fees dropped almost halved to Dh1.3 million (Dh3.76 per square foot) from the previous year's budget of Dh2.482m (Dh7.29 per square foot) approved by the Real Estate Regulatory Agency (Rera).

Building insurance almost halved to Dh45,000 from the previous year's budget of Dh84,375 (Dh0.25 per square foot). Dewa costs have reduced to Dh600,000 from Dh775,000, while the Palm District Cooling (PDC) charges fell to Dh1m (Dh2.94 per square foot) from Dh1.3 million (Dh3.66 per square foot).

Towards the end of last year, Indigo Properties, developer of Indigo Tower, called for the setting up of the IOA to take over the management of the tower.

According to McCrohan, the IOA currently has around seven committee members. "Although we are not a legal entity, Indigo Properties indicated that they have given us full control and power to manage the building. We have committee members that need to sign off on cheques right now."

Indigo Properties' General Manager Ajit Lamba said: "We have been ready to hand over the reins of Indigo Tower to the IOA since a long time. However, the lack of Strata regulations had delayed this move. Nonetheless, we were advised by Rera to start the process and form the IOA despite the absence of these regulations, as it would provide a healthy relationship and transparency between the owners and the developer.

"The complete management and operations have been handed over to the IOA, effective January 2010. Currently, we are assisting in operating the service charge account since the IOA is still not a legal entity. Hopefully, with the release of the much-awaited Strata regulations, this too should change shortly."

Lamba added that the IOA members adopted a thorough scrutiny and exercised due diligence when taking over the financials and operations of the building. "Our actual expenses for the first year [2008-2009] of operations were Dh10.65 per square foot. Since the building had entered into its second year of operations [2009-2010] and the defects liability period was over, it was obvious costs would be higher as annual maintenance contracts with essential service providers would need to be signed. Following instructions issued by Rera, we obtained prior approval from them for a revised budget at Dh13.5 per square foot. The IOA decided to review this budget and finally announced a budget of Dh12 per square foot which includdes sinking fund."

McCrohan said the IOA of Indigo Tower negotiated significantly on the new facilities management contract to bring it down to Dh1.3m. "Further, we have also implemented a quarterly payment of service charges from the previous yearly service charges which the owners are happy about."

According to him, previously, Indigo Properties had set the service charges for Indigo Tower at Dh7 per square foot. "However, it turned out that we had to pay Dh10.5 per square foot for the first two years which caused difficulties with some of the owners." This, he said, was the trigger for establishing the IOA towards the end of last year.

According to Lamba, the cost of service charges depends on the level and quality of service that one wishes to provide, which is a subjective matter and a variable. "We, as the developer, had decided on a certain level of service wherein the quality was paramount in order to maintain the excellence of the building, a fact that cannot be disputed. The IOA decided to reduce certain services, which have resulted in lowering of the service charges. We appreciate that, as it was their decision. Our offices are also located in Indigo Tower so this relates to some savings for us too. We would like to point out that since the beginning our policy on service charges has been based on a no profit no loss basis. Neither have we charged any management fees till date for managing the tower for two years."

According to McCrohan, with respect to PDC, there are two issues – consumption charge and capacity charge. The consumption charge is the actual consumption what the owner pays, which is fine. "However, the capacity charge is what an owner pays whether he is living in it or not, which is currently very exorbitant.

"We have been working with our facilities management provider to do something about changing temperature setting at different times in the day. We have effected that into our facilities management contract where we have added a bonus clause where the more they reduce our power consumption and PDC consumption, the more money they will be awarded. These issues are helping in bringing down our service costs a bit," he said.

Meanwhile, McCrohan said one of the immediate concerns of the IOA is to ensure 100 per cent service charge collection and to try set the service charge for the next year to below Dh10 per square foot.

"For 2008 and 2009, there was 100 per cent service charge collection. However, after Indigo Properties asked owners to pay up the additional service charges, there is still some outstanding amount on that."

McCrohan clarified that the first two years of service charges prior to the formation of the IOA will be payable to Indigo Properties who were managing the building while the service charges from 2010 onwards will be payable by the owners to the IOA. "For 2010 Indigo Properties has said they will help establish a new account for us since we are still not a legal entity as per the law. We are in negotiations with Indigo Properties to open a separate account for our service charges. Once the law is implemented, it would have been so much easier," McCrohan said.

"For 2010 at the moment we currently have a stack of cheques amounting to nearly Dh1m waiting to be deposited into the new account which Indigo Properties will help open for us. Certainly our committee's objective is to have a single digit service charge for the following year and to try and get it under Dh10 per square foot which is still achievable" he said.

Law facilitates owners' association

Article 17 of Law No27 regarding the Strata Law and Ownership of Joint Properties in Dubai states that an owners' association shall be established upon the registration of the first sale of a unit within a joint property. Such associations shall consist of joint property owners, including the main developer or sub-developer.

Article 18 states that the owners' association is a non-profit organisation and shall have a legal personality independent of its members. In addition, the association shall have the right to litigate in such capacity.

Article 21 states that the unit owners' association shall be in charge of administering, managing, maintaining and repairing the joint parts and shall, for such purposes, obtain the necessary licence from the department. The unit owners' association may authorise some of the powers vested therein to any person or company in return for fixed fees.

Article 22 states that each owner shall pay to the owners' association his/her fixed share of annual service fees to cover the expenses and charges incurred on administering, managing, maintaining and repairing the building or the community.

Article 25 states that the owner association has a franchise over each unit in connection with unpaid service fees and other liabilities as may be imposed on an owner under the provisions of this Law or the Articles of Association of the Owners' Association. Such right shall remain even in case the title to the unit is transferred to another party. In case an owner does not settle his/ her share of fees and defaults, the resolution made by the Head of the Owner Association against the defaulting owner upon the elapse of three months from being notified through the notary public can be deemed enforceable by the execution judge at any competent court. In all cases, the party affected by such resolution may challenge it within such period before the competent court and execution shall be ceased until a decision is made on the challenge filed.

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