India Vision: |Venad| The Role of RERA as a Mature Regulator

The Role of RERA as a Mature Regulator

The Real Estate Regulatory Agency of Dubai (better known as 'RERA') was constituted by Law No. 16 of 2007 issued on 30th July 2007. Since that time RERA in conjunction with the Dubai Land Department has presided over changes in the legal framework of one of the fastest growing and dynamic real estate markets in the World.

In this article we review RERA's constitutional make up and accordingly its obligations and powers.

We also review the changes in the law and regulatory framework brought about with RERA's involvement and the role RERA has played in balancing the interests of all parties in the real estate industry, increasing transparency and creating a platform for sustainable development.

We discuss the role of RERA as a mature regulator. In particular we comment on how RERA is exploring the creation of a fully regulated and cohesive real estate industry through the use of professional associations and other industry associations over whom RERA has jurisdiction.

Finally we include Al Tamimi & Company's views on the regulatory changes being explored and those that may assist RERA in discharging its duties and completing a comprehensive regulatory framework.

The Legislative Background

RERA was constituted by Dubai Law No.. 16 of 2007 which was issued on 30th July 2007. Article 3 establishes:

• A public corporation called the Real Estate Regulatory [Agency].

• RERA has legal personality and an independent financial and administrative structure.

• RERA has full authority to perform legal acts in accordance with its stated objectives including the capacity to contract and may, in its own name, sue and be sued and appoint others to represent it for this purpose.

• RERA is attached to the Dubai Land Department.

The objectives of RERA are set down in Article 5. They are stated as 'the regulation of the real estate sector in the Emirate of Dubai, anticipating and devising strategies for the real estate sector and developing and executing the necessary work plans.

' The objectives include those items in Articles 5(1) to (13) set out in full below:

• Proposing the necessary legislation to regulate the work of real estate brokers and owners associations;

• Issuing regulations for the training and certification of real estate brokers;

• Licensing all activities relating to the real estate sector in Dubai;

• Accrediting banking and finance institutions to manage guarantee accounts on behalf of real estate developers in accordance with applicable legislation;

• Monitoring and overseeing real estate brokerage activities;

• Licensing and regulating companies and establishments that manage real estate and residential developments and monitoring and overseeing their activities;

• Registering and attesting leases for various real estate units in Dubai in accordance with such legislation as may be issued in this regard;

• Monitoring and overseeing the activities of owners associations and auditing their accounts and records;

• Keeping track of property advertisements that are published in the various media operating in Dubai including the free zones;

• Providing support and advice on property valuation in accordance with the latest accredited standards;

• Issuing statistical reports and specialised research and studies on the property market including any publications and information that aid such studies and offer insight into the property market in Dubai;

• Preparing and executing programs and projects that enhance the role of Nationals in the real estate sector and encourage their involvement in that sector;

• Developing and implementing education and awareness programs on the rights and obligations of parties involved in the real estate sector.

By Article 8 of Law No. 16 of 2007 the following functions of the Dubai Land Department were transferred into RERA's jurisdiction:

• Regulating the work of real estate brokers;

• Preparing studies and research on real estate;

• Managing and regulating guarantee accounts of real estate developments;

• Regulating and overseeing owners associations.

The role of the Dubai Land Department set out below may be contrasted with the above. The Land Department's role is set down in Law No 7 of 2006 and is to:

• Determine areas for survey and resurvey and approve maps prepared;

• Determine the rules in connection with the survey, inspection and issue of maps related to real property units;

• Prepare standard contracts in relation to real property transactions;

• Lay down the rules in connection with the organising, maintaining and destroying of documents;

• Lay down the rules in connection with the use of computers for saving and registering data;

• Lay down the rules in connection with the evaluation of real property;

• Lay down the rules in connection with the sale of real property at optional public auction and the supervision thereof;

• Determine the charges payable for services provided by the department;

• Establish branches for the department as the manager may deem fit.

RERA's Obligations and Powers

In this section we consider the role of RERA as opposed to that of the Dubai Land Department. We also discuss briefly those real estate related matters excluded from RERA and the Dubai Land Department's jurisdiction. Finally we discuss in more detail the scope of RERA's powers and responsibilities.

RERA and the Dubai Land Department compared

It is clear that RERA shares responsibility for a number of matters with the Dubai Land Department. In particular, both will be responsible for proposing necessary legislation. The Land Department's jurisdiction (with some exceptions) is related to maintaining the register and real property issues such as the rights and obligations of the parties as owners of property.

RERA's jurisdiction in contrast extends towards the regulation of the relevant stakeholders in the real estate industry. RERA's role could more particularly be seen as balancing the interests of stakeholders such as developers and brokers against the need for protection of consumers and investors.

Exceptions - Property Related matters outside of the jurisdiction of the Dubai Land Department and RERA

With only two real exceptions the Land Department and RERA exercise an administrative jurisdiction over the full range of real estate matters in Dubai.

The first exception relates to the ability for RERA or the Land Department to preside over some Landlord and Tenant matters. Landlord and Tenant disputes are resolved through the Rent Committee, a judicial committee set up to hear tenancy disputes pursuant to Decree No 2 of 1993. The Executive Council of the Government of Dubai also plays a substantial role in determining Dubai rent cap policy which is enforced by the Rent Committee.

The second exception relates to the courts' jurisdiction. RERA or the Land Department will not be able to adjudicate in legal matters but may as part of their administrative powers give guidance or settle matters within their jurisdiction. RERA and the Land Department will also not be able to exclude the jurisdiction of the courts to review the basis for any of their administrative decisions though it would also be typical for the courts to show a measure of deference towards the decisions of an administrative entity specifically charged with presiding over such matters.

The Scope of RERA's powers and responsibilities

The two exceptions aside, it is clear that RERA's jurisdiction and discretionary administrative powers are broad.

RERA's broad powers are established by virtue of Article 3 of Law No 16 of 2007 giving RERA 'legal personality and an independent financial and administrative structure' combined with having 'full authority to perform legal acts in accordance with its stated objectives.

' The objectives of RERA are set out in Articles 5 (1) to (13) and Article 8 as listed above. We emphasise the following:

• The opening wording of Article 5 which states 'The objective of the [Agency] is to regulate the real estate sector in the Emirate of Dubai by participating in devising strategies in this sector and developing and executing necessary work plans.'

• Article 5 (3) concerning the licensing of all activities relating to real estate development in Dubai.

RERA's powers are not limited to only those 'objectives' set down in Article 5 (1) to (13), as Article 5 states that these are 'include[ed]' as objectives. The use of the word 'include' establishes that the listed items are not intended to be exhaustive and are simply to assist in establishing that which RERA must exercise jurisdiction over.

The exercise of any discretionary power however must be 'in accordance with [RERA's] stated objectives' as required in Article 3. As this is defined as the 'regulat[ing] of the real estate sector in Dubai,' RERA's jurisdiction and discretionary administrative powers are broad.

A complete analysis of RERA's powers as an administrative entity is outside of the scope of this article and is best considered on a case by case basis having regard to the decision under review. The importance however of such an analysis can be illustrated by having regard to recent administrative decisions of RERA and the Land Department.

The most prevalent of these administrative decisions is the controversial Administrative Circular of 10th November 2008 interpreting the provisions of Law No 13 of 2008 as these relate to termination of contracts. Another example has been an administrative decision preventing developers from selling off plan unless they have paid for their plot and have completed at least 20% of works. More recently the well received Administrative Circular of 2nd February 2009 has been implemented restricting developers from collecting more than 30% of the value of the unit if the developer has not commenced construction works.

In simple terms we consider the role of RERA could be broken down into four broad categories as follows:

• Recommending legislative changes and promulgation of regulations.

• Enforcement and measures to increase accountability.

• The collection and analysis of data.

• Social objectives, including increasing education and awareness in the wider community and promoting Emirati involvement in the real estate industry.

Below under each of the four categories above we consider RERA's role and the significant steps taken by RERA towards performing its obligations since July 2007.

Recommending legislative changes and promulgation of regulations

• Recommending legislative changes

Since the creation of RERA the following legislative changes have been made:

- Law No 8 of 2007 Concerning Guarantee Accounts of Real Estate Developments in the Emirate of Dubai.

- Law No. 26 of 2007 Regulating the Relationship between Landlords and Tenants in Dubai.

- Law No. 27 of 2007 Concerning Strata and Community Title in Dubai.

- Law No. 13 of 2008 Concerning Interim Registry of Real Estate in the Emirate of Dubai.

- Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai.

- Law No. 33 of 2008 Amending Provisions of Law No. 26 of 2007 Regulating the Relationship between Landlords and Tenants in the Emirate of Dubai.

Promulgation of Regulations

In addition to the laws listed above, we understand that the following regulations are drafted and shortly to be implemented pursuant to Law No 27 of 2007:

• The Jointly Owned Property Regulations.

• The Survey Regulations.

• Forms and Guidelines.

Enforcement and measures to increase accountability

Implicit in the existence of the above laws and regulations is the requirement that these are enforced. In general terms, RERA's obligations relating to enforcement could fall into two categories. The first is a direct responsibility to supervise, investigate and ensure compliance. The second is a supervisory role over various industry groups or professional bodies who could, in conjunction with RERA agree upon their own professional and ethical standards and disciplinary procedures. We consider below these two means in which RERA could exercise its regulatory obligations and give examples where available:

Direct jurisdiction in order to ensure compliance

Contrary to public perception there are very few direct obligations on RERA to enforce the Property Laws. RERA has in a commendable way chosen to engage as a watchdog and mediator on the many issues in its administrative capacity. Some examples of RERA having a direct jurisdiction are set out below.

The best example of RERA having a direct jurisdiction in order to ensure compliance arises out of Law No. 8 of 2007 (Escrow Law) and Law No. 13 of 2008 (Pre-Registration Law). The Escrow Law places an obligation upon developers to open escrow accounts and for these to be supervised by an account trustee being a bank or financial institution certified by the Land Department as suitable for managing the escrow account.

Article 16 of the Escrow Law specifies penalties of incarceration or a fine of not less than AED 100,000 or both should any person conduct any of the listed, restricted practices. By Article 8 of Law No 16 of 2007 RERA is responsible for 'managing and regulating the Escrow Accounts of real estate developers.' The reference to 'managing' these accounts strongly suggests that RERA must also be responsible for any necessary enforcement. We understand that RERA does as a matter of fact undertake this task.

The Pre-registration Law provides another example of RERA exercising a direct jurisdiction. Article 10 states that developers who do not comply with the pre-registration regime may have their contracts avoided by purchasers where they have not obtained the approval of the 'Competent Authorities.' Competent Authority is defined as the authority 'concerned with licensing and registering real estate projects in the Emirate.' This reference is therefore to RERA due to Article 5(3) of Law No 16 of 2007.

A third example arises out of Article 5 (9) of Law No 16 of 2007 which requires RERA to 'keep track of property advertisements that are published in the various media operating in Dubai including the Free Zones.' The Escrow Law, Brokers Law and Pre-Registration Law all place restrictions on the marketing of projects unless certain regulatory provisions are complied with. As RERA is required to monitor property advertisements it is contended that RERA is also required to ensure compliance with the relevant provisions of these Laws.

In addition to the existing legislation it is understood the jointly owned property regulations will create additional disclosure requirements upon developers in order that purchasers buying units within developments are better informed as to what common facilities, common areas, fittings, fixtures and finishes may be employed or used. Purchasers must also be informed of other costs and liabilities associated with ownership in any particular development.

In this instance failure to comply by developers may once again cause contracts to be avoided by purchasers. In this regard we anticipate RERA's direct involvement will be in assisting developers conducting their own checks to ensure compliance.

Whilst the above are some specific examples where RERA is required to involve itself directly, our view is that RERA may, as part of its discretionary powers, enforce the Property Laws and Regulations notwithstanding that the Legislation may not expressly impose upon RERA an obligation to do so.

Supervisory Jurisdiction

There are no current examples of RERA having a supervisory jurisdiction. It has been proposed that a Committee and Council be set up pursuant to Law No. 85 of 2006 (Brokers Law) but we understand that the Committee and Council are yet to be constituted. The framework to do so is however in place.

Once constituted RERA could supervise these delegated bodies being the Council and the Committee to ensure professional standards are maintained and appropriate disciplinary measures taken. RERA in exercising this jurisdiction may consult with the Council and Committee to ensure that Code of Ethics set down in the Brokers Law and other laws and regulations are adequate. To the extent that changes may be required, RERA may recommend to the Land Department that these changes be adopted.

We understand that RERA is considering indirectly regulating a range of professional and industry groups through the use of associations and the requirement of mandatory membership. These professional associations would engage in a measure of self regulation but remain subject to regulatory overview by RERA in a manner similar to that proprosed for brokers.

We understand there are a variety of industry and professional groups that RERA is considering regulating in this manner. In particular valuers, surveyors, strata managers and possibly conveyance professionals.

The collection and analysis of data

Clearly the Land Department and RERA are in the best position to collect data that may be pertinent to the real estate industry and many statistics are now published by RERA through its magazine, Dubai Real Times and on its website. Another very visible use of such data has been to publish the rental index creating a more dynamic means of determining fair rentals for any given area and resolving disputes.. The index also formed the basis for the range of acceptable rents per defined area used in the current rent cap, Decree No 1 of 2009.

We see very real benefits arising out of the easy access to the raw data by professionals. In particular, this being made available to professional and accredited and valuers may play an important role in stabilising the market and giving banks the confidence to lend on the strength of this objective data. Valuers can also assist in a range of disputes and arbitrations and can give certainty to contractual matters such as rent reviews.

To have an accurate picture of demand and supply of real estate stock also enables developers and other stakeholders to better predict their business requirements. This ensures sustainability and efficiency. In this category we consider RERA has once again greatly contributed to the overall transparency of the Dubai real estate sector.

Social objectives including increasing education and awareness in the wider community and promoting Emirati involvement in the industry

Commenting on the social objectives in depth goes beyond the scope of a legal article as it falls more within the realms of policy rather than legal principle.

We do note that significant advancements have been made in terms of the objective of increasing public awareness and the overall transparency of the industry due to RERA's preparedness to work with the media and through the use of the internet and RERA's website..

In terms of increasing education we understand that RERA currently requires brokers to undertake courses through RERA as part of obtaining their brokers license.

We consider that requiring mandatory membership of professional associations may also facilitate more organised and structured professional involvement in the real estate industry. This could be achieved by requiring these associations to have social objectives as part of their constitutional framework. These objectives could be achieved through requiring these organisations to offer accredited courses and training and disseminate information to the wider public.

We consider it likely that all professional associations would welcome increasing education in the wider community and Emirati involvement in the real estate industry amongst their constitutional objectives and would work collaboratively with RERA to achieve these objectives.

In this way we may see the vision for Dubai as a place of great endeavour and achievement within real estate development, architecture and engineering fields to also become a centre of learning in relation to such fields and take advantage of the local and international talent that will continue to involve itself in the Dubai real estate sector.

Scope for reform

The importance of regulation and transparency is now well recognised. In order to cope with the challenges increased regulation may bring we make the following observations.

Firstly, we support moves towards establishing mandatory membership of professional associations by those working in certain industries.

We see a pivotal role in a mature real estate market for the regulation of some industries. In many cases regulation will be the best means of ensuring a level playing field whereby the diligent and professional organisations are not prejudiced by the less scrupulous offering similar services. Such regulation also ensures consistency in the delivery of services and boosts public confidence. The profession of valuers is a good example and would benefit significantly from a mandatory regulatory framework incorporating standards and ethics and backed up by disciplinary procedures.

It is also considered that in order for such associations to enjoy the mandate of their members each industry should (within limits) be involved in settling their constitutive structure and setting the standards which their members will be required to meet.

We emphasise here that it is not the suggestion of Al Tamimi & Company that RERA surrender any of its jurisdiction over such matters but rather that the legwork and associated costs be the responsibility of the relevant association and industry. RERA would need to maintain a watching brief and control over any fundamental changes to any rules and bylaws of any association. RERA will also need to ensure that each association meets the standards jointly agreed.

We consider nonetheless that a measure of self regulation is justified as most industries are focused on the long term fundamentals and are well placed and motivated to direct their industries in a sustainable way, including disciplining individuals who may damage their industry as a whole.

The use of professional associations has been shown to be effective. Well known examples of industries regulated in such a manner are valuers and surveyors who are members of the Royal Institute of Chartered Surveyors and practicing Solicitors in the United Kingdom who are required to be members of the Law Society of England and Wales. Many other examples exist as it is a very widely employed regulatory model.

Having an association as a focal point for each industry will also enable greater and more immediate take up of any directive RERA may implement through requiring these associations to offer their members 'Continuing Professional Development' courses and training.

Having associations as a focal point also ensures RERA will receive focused and mandated feedback from the associations themselves as to the issues and challenges they may face. Such interfaces will likely assist in the creation of regulations where required.

Requirements could be put on associations to set up fidelity funds in order to fairly compensate the public where no compensation would otherwise be available. Mandatory audit requirements on members can also be included (where necessary) and be overseen by RERA and accounting or other professionals further safeguarding the public interest.

The second observation we make relates to RERA exercising its direct jurisdiction.

In exercising RERA's direct jurisdiction it would be useful for RERA to have a range of tools to assist it in carrying out any investigations and disciplinary proceedings and making industry players accountable.

Such tools may be the ability to require any industry player to account to RERA. In the event of non-compliance RERA should also have a range of discretionary penalties which they may apply. We consider having a range of discretionary remedies will actually protect the developers and other stakeholders from what could be very harsh penalties due to contracts being avoided or the developer being removed from the register (to use current examples). RERA will in fact be able to tailor the penalty to fit the infringement thereby ensuring that minor technical defaults do not result in unjust harm.

Our final observation relates to fine tuning RERA's role once the full regulatory framework is settled. Clearly RERA having very broad powers remains necessary whilst the supporting regulatory framework is put in place. Once the full regulatory framework is in place some revision of RERA's constitutive laws and the Property Laws should take place in order that it is clear which matters RERA will exercise direct jurisdiction over and which matters shall be subject to RERA's less direct supervisory role or left to the market to decide. It may also be useful to clarify (where the confining of a discretion is useful) when and how discretions may be exercised and to what extent the courts may supervise the use of any such discretion. This fine tuning and clarification will provide greater commercial certainty whilst the process of review or appeal ensures accountability and safeguards the stakeholders in the unlikely event that RERA oversteps its jurisdiction.

Conclusions

In our view RERA in conjunction with the Land Department has, over a very brief period, implemented a modern real estate regulatory framework in relation to developers and brokers.

In the absence of a comprehensive regulatory framework RERA has also shown itself prepared to act as issues arise and RERA has accordingly mitigated some of the problems brought about by the international difficulties in the credit markets.

We consider that RERA is justified in exploring the constituting of professional associations and other industry associations and allowing these industries to engage in a measure of self regulation. The establishment of such regulated bodies, when combined with some revision of the Property Laws and RERA's constituting laws will see a cohesive and comprehensively regulated real estate industry and round out RERA as a mature institution.
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MERRISON STEPHEN

LOCATION INCHARGE

INTERCAT HOSPITALITY L L C

POST BOX # 52044

DUBAI, U A E

Email : merrisonstephen@yahoo.com

website : www.intercat.ae

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The region south of Cochin centered around Quilion came to be known as Venad. It was an autonomous kingdom within the Chera empire. The port was visited by Nestorian Christians, Chinese and Arabs. A new calendar was established called 'Kolla Varsham' (Quilion year) starting in AD 825.The Kulasekara empire lasted for three centuries. }