Top 10 Tips to Reduce Service Charges of Owners’ Associations/Jointly Owners Real Properties and Owners’ Unions
Owners’ Associations and Service Charges
The Owners’ Association (OA) is the integral component of a Jointly Owned Real Property. Its main responsibility is to manage, run and ensure the maintenance of the property’s common areas. In addition, it is also responsible for enforcing the laws and regulations that are applicable to the property. An Owners’ Association, by using the Owners Association Manager, fulfills its duty of running a property by collecting service charges from the unit owners. However, the collection of service charges is not an easy task. Some owners do not fully understand how important is to pay the charges and others just simply do not have enough funds to pay the charges on time. In simple words, service charges collected in a timely manner are integral with regards to enabling an OA in running a jointly owned property in an efficient manner. In case, an owner does fail or refuses to pay the service charges due to any reason then in such a scenario a lawsuit can be filed against the owner on the grounds of non-payment of the service charges.
The service charges usually help in covering costs related to insurance, repairs, the general maintenance of the building along with other services. Normally, other services include air-conditioning or central heating, porters, lifts, shared spaces, cleaning and sanitation, laundry, and much more. In simple words, the service charges are paid by unit owners in a jointly owned property against maintenance and well-being of the common areas. The said charges should be authorized by a regulatory agency such as Real Estate Regulatory Agency (RERA) in Dubai
The Decline in Collection of Service Charges
Property owners in the United Arab Emirates (UAE) are demanding a reduction in the property/ building service charges mainly due to the increasing impact of the Covid-19 on businesses, pay scale, and the job market in general. Already, there is a huge backlog with regards to the payment of the service charges. Owner association management firms that are experiencing non-payment of service charges are looking at a number of ways and methods to bring the situation under control.
Reporting by Media and Opinion of Residents
Many media outlets are reporting that since February 2020, the collection of the service charges has declined by almost 75 percent with the majority holding the pandemic responsible for them not being able to pay these charges. According to the notice issued by Real Estate Regulatory Agency – RERA (Real Estate Regulator in DUBAI), the payment of all such charges should be made by the tenants to ensure the well-being and upkeep of the community.
However, several people living in jointly owned properties, when interviewed by the media, stated that there should be a decrease in service charges as most of the services and facilities they pay for under these charges such as pool, gym, clubs, sauna, squash or tennis courts, etc. have been closed because of the COVID-19 and have not been used by them at all. Therefore, they should not be forced for paying for the services they didn’t use. Other residents/ tenants said that these charges should be reduced as there has been an exponential decline in the value of properties.
Can Associations Afford a Decrease in the Service Charges?
Many Associations feel that currently, they are not in a position to waive or reduce the service charges as they are in financial distress as the payment backlog of the service charges continues to pile up. These charges are basically meant for covering the operational cost of running a property and have nothing to do with the changes in the value of properties or rentals. The top management of OA management firms believes that it is impossible for them to waive or reduce the service charges as the amount gathered from the collection of aforementioned charges goes directly towards the well-being of the properties and therefore cannot be avoided. For example, the cost for ensuring the maintenance of a swimming pool will remain the same as the price of labor cost, chemicals, daily maintenance, cleaning, and sanitation, etc. will remain standard. The same is the case with other services and facilities. In fact, the COVID-19 pandemic has caused an increase in the operational costs of properties in the past year and a half as utility bills increased significantly because many residents demanded increased cleaning, disinfection, and sanitization in their buildings.
Therefore, OA firms believe that they are entitled to the right of collecting these charges even if the facilities and services against which they are collecting the charges are not being used by the tenants/residents as operational and maintenance cost for them remains fixed.
Best Practices OAs Can Adopt for Reducing Service Charges
Being one of the RERA approved audit firms, Push Digits Global has listed down the top 10 best strategies to reduce service charges without the quality of buildings being negatively affected. We will discuss the best practices which a property owner or an Owners’ Association Management Company can adopt to reduce their cost which would ultimately cause the service charges to be received from owners to be reduced as well:
1. Use the Latest Technology for Automating and Streamlining Different Facility Management Processes
OA management firms should make most of the latest technology and software options that are available in the market with regards to organizing, streamlining, and accelerating day-to-day tasks and operations. This ranges from software designed to help in managing all maintenance activities to logging as well as tracking visitors for security purposes. For example, many OA management firms are using Artificial Intelligence (AI) for automating tedious tasks and to eliminate the need for doing repetitive tasks such as preparing schedules, timesheets, and maintaining paperwork in connection to the aforementioned tasks.
2. Focus on Sustainability and Energy Efficient Initiatives
The OA firms must start investing significantly in introducing new sustainability projects as well as energy efficiency initiatives to curtail the overall cost of running jointly owned properties. For example, replacing light bulbs with LEDs in your building as energy-efficient products like these will help you in saving your utility costs big time which will eventually have an impact on the service charges. They can also organize a formal review of the real estate portfolio every year to identify unique ideas for cost savings.
3. Schedule a Professional Energy Audit
An energy audit enables an OA firm in identifying and developing opportunities that help in reducing energy use in a commercial facility which directly impacts the operating costs of the building. Therefore, it can be said that an energy audit is imperative for maintenance managers if they want to reduce the cost of energy of their properties.
4. Identifying Dark Space
OA firms should identify spaces in their existing portfolios that are either not being used or under-used for which residents are contractually liable to pay. In the context of property management, these spaces are known as dark spaces. The approach of identifying dark spaces and then working to eliminate them will not only help the OAs in significantly reducing their operational costs but will also help the tenants as their service charges will also get reduced as a direct result of decreased operating costs.
5. Issuing Vendor Guidelines
An OA should prepare and issue guidelines for all its vendors to ensure that there is no room for miscommunication. The guidelines should provide the vendors with information regarding the quality of services and supplies needed, the maximum prices the OA is willing to offer for the supplies and services needed, the minimum credit period which the OA firm needs from its vendors, etc. This will not only help in reducing costs but will also add value to the property’s operations and processes.
6. Buy Reliable Equipment
Purchase equipment such as water heaters and A/C units from reputable brands that are known for providing quality products. Quality equipment not only last for a long period of time but also break down less which means saving in the cost of repairing and maintaining equipment.
7. Prevent Damage Instead of Repairing Damage
Investing in damage maintenance to keep your property in shape and preventing it from any type of damage can save you from costly repairs. You can do this by creating a list of daily maintenance checks and assigning one of your staff members with the responsibility of ensuring that these checks take place on a daily basis and the results of these maintenance checks are properly examined and in case there is an issue then it gets proper attention and time. Reduction in the cost of repairs will ultimately result in reduced service charges.
8. Conduct a Pro-active Walkthrough to Identify Small Details and Issues before they Become Big
Conduct a proactive walkthrough at least twice a week to identify small and tolerable problems and issues before they become big and uncontrollable. Addressing small details and issues can add up to huge improvements in appearance and efficiency. Some things to inspect for replacement/ repair include corner guards, doors (sticking locks, door stops, door sweeps, etc.), tile and grout, ceiling tiles, fire extinguishers, cabinets and hinges, countertops and shelving, and faceplates and light switches.
9. Reduce Asset Runtime During Vacancy Hours
Reducing run time of assets during vacancy hours is one of the best practices for reducing facility operating costs. Asset runtime during vacancy hours should limit all systems to absolute necessity. The lighting should only be used for safety and security safety purposes, and HVAC systems should be turned off completely. There is no excuse for implementing the policy of reducing the runtime of assets during vacancy hours unless any business activity or function is required to be performed at that time.
10. Making Optimum Use of Government Schemes
There is a list of economic incentives and other schemes that have been launched by the government of UAE with reference to capital expenditure, spaced renewal, and new facilities. The OAs should make the most of these schemes with the main aim of minimizing the overall operational expenses and as a result service charges as well. Recently, the Crown Prince of Dubai, His Highness Sheikh Hamdan bin Mohammed Al Maktoum launched an initiative in which DEWA utility bills in Dubai were reduced in the context of the COVID-19 pandemic.