Tuesday, May 11, 2010

Strata Law & Benefits for Integrated Tourist Complexes

Focus on Real Estate Series

Complex legal issues can arise with respect to integrated real estate developments where parcels of real estate are owned individually while the land and common areas such as lobbies, hallways, stairways, driveways, elevators and recreation areas are jointly owned. Such issues are particularly relevant in respect of Oman’s Integrated Tourist Complexes (ITCs), where there is a legal requirement for integrating commercial, residential and tourist components. In an ITC, residential dwellings, commercial complexes, tourist hotels and common areas likely are to be included within the same complex. This combination can lead to disputes – and uncertainty – relating to the enforcement of by-laws, due to differences in the by-laws applicable to the residential, commercial and touristic components of the complex. Disputes and uncertainty may arise, for example, in the following areas:
  • Landscaping;
  • Air and noise pollution;
  • Alterations or repairs to common areas;
  • Fencing and boundaries;
  • Management of common funds;
  • Use of and access to leisure facilities;
  • Vehicle parking on common property;
  • Storage and collection of garbage;
  • Pets and pet management;
  • Enforcement of restrictions on use of common areas; and
  • Appointment and dismissal of the owners’ association members.
Without a mechanism to properly manage the complex dynamics among a large group of diverse owners with divergent interests, these issues could potentially snowball into cumbersome problems. Oman currently has in force a law – the Flat and Floor Alienation Law, Royal Decree No. 48/89 – that deals with ownership issues relating to apartments and common areas within apartment buildings. However, this law does not address many of the issues cited above, and it is difficult to extrapolate the terms of this law to apply to multi-use real estate developments. Therefore, in light of the growing importance of ITCs in Oman’s development plans, the Sultanate would be well advised to consider enhancing its legal framework to specifically address multi-use real estate development complexes. A common way to address multi-use developments is through a strata law. Typically, a strata law would include provisions covering the following areas:
  • The developer’s ability to manage and operate the development post-completion;
  • Joint ownership of common areas;
  • Establishment of a building owners’ association;
  • Formulation of by-laws;
  • Distinctions relating to commercial and residential components of the development;
  • Management of common facilities;
  • Creation and management of a sinking fund;
  • Transparency to investors; and
  • Disclosure obligations of the developers.
With the real estate market showing signs of recovery and previously suspended real estate projects coming back online, now is an opportune time for the Sultanate to consider the benefits that an enhanced legal framework for multi-use developments could provide for Oman’s fast-growing ITC sector.