Monday, July 7, 2014

Real Estate Owners' Associations in Oman

As the residential real estate market continues to develop in Oman, it may be the right time for the Government to consider clarifying the model system of real estate owners’ associations in Oman.

Real estate owners’ associations are envisaged in the Flats and Floors Alienation Law promulgated by Royal Decree 48 of 1989 and Ministerial Decision 50/89. Accordingly, since 1989, it is possible for a condominium or real estate building with multiple owners to establish a real estate owners’ association for that building. The object of a real estate owners’ association is to manage the common parts of the real estate.

In practice, few if any real estate owners’ associations have been created. The absence of a real estate owners’ association may have an impact on the management of common parts of real estate in Oman. Without an association, it may be difficult for owners in a shared building to carry out maintenance and improvements. Therefore, the lack of a real estate owners’ association may impact on the value of a particular real estate.

The Flats and Floors Alienation Law states that the Ministry of Housing shall issue a model system for the real estate associations to guarantee the good use and management of the common parts of the real estate. The system should include the manner in which the association should be run, the principles for determining the obligations and duties of members and organising the use of their rights and the rules of the representatives of the owners and the real estate developer. The system should also clarify the different bodies within an association. This would help developers to structure association rules.

In framing a model system for real estate owners’ associations, Oman could examine, amongst others, the US, Canadian and Hungarian experience with real estate owners’ associations.

In the US, a homeowners’ association (“HOA”), whose members are the unit owners, manages the condominium through a board of directors elected by the membership. Among other things, the HOA assesses unit owners for the costs of maintaining the common areas, etc. That is, the HOA decides how much each owner should pay and has the legal power to collect that.

In Ontario condominium owners are members of the “condo corporation” and each unit has one right to vote in the election of the Board of Directors who run the affairs of the condo corporation. The Condominium Act 1998 provides the guidelines relating to the operations of the corporation in which the Board of Directors and the unit owners must adhere. There are five different styles of condominium corporations which all require shared ownership of land, building or both. This would incorporate gated communities and fractional ownership. There are differences between actual ownership (i.e., deeded title to, or exclusive use) of the real property. Each condominium corporation has a specific declaration reflecting their common elements and operations. Condominiums are self-governed in many provinces.

In Hungary, condominiums or “társasház” were formally introduced in 1924. The condominium acts as a non-profit legal entity maintaining the common areas of the property, and is managed by a representative elected by the owners’ convention. Decisions that involve changes to the terms and conditions or larger common expenses need to be approved by the convention, where voting power is based on the percentage of property owned.

Oman can benefit from the experiences of real estate owners’ associations in other countries. Further clarification on the model system from the Ministry of Housing would be welcome benefitting developers, owners and the real estate market.