Service Charge Budget Review by RERA
Every freehold property in Dubai should have an owner’s association, comprising all the unit owners within that property. The Owners Association must be formed upon completion of registration of the first sale of the property and they will control, manage and administer the common areas in the property.The owner’s association will usually hire association managers with experience in managing free-hold properties, to act on their behalf. They will oversee various segments such as maintenance, security, rule enforcement and engagement with statutory authorities.
Every association must prepare service charge budget on an annual basis and submit it to a financial audit company registered with Real Estate Regulatory Authority (RERA) for review and approval before approaching the authority for approval. The budget will include the forecasted maintenance charges of the property and based on this the service charge will be collected from the unit holders.
Service charge may not be the same for every owner; it varies depending on factors that include the size of the unit, the permitted use of the unit and certain standards that must be maintained by particular unit owners.
The second stage involves the preparation of a financial statement (by the association) comprising the actual charges involved in the maintenance of the building, at the end of the year. This must be audited by the audit company registered with Real Estate Regulatory Authority (RERA) and submit the same to RERA.
The scope of Service Charge Budget Review must be conducted in accordance with the RERA Owners’ Association Department guidelines and international best practices.
The scope of Budget Review should include the following sections:
Project Details (Particulars of the building/community)
Particulars of the building including the name of the project, unit numbers, occupancy, service charge rates and title deeds.
The forms submitted by the association manager need to be reviewed along with conducting a variance analysis of the actual expenses of the previous year and the budgeted expenses of the current year. The reviewers must check whether the below mentioned forms are completed by the association manager;
- Request for Service Charge Approval Form
- RERA Requirements for Service Charge Budget Approval Form
- Info Pack
- Review Disclosure Checklist
- Manpower List
- Tender Evaluation Form
- Service Providers Contract Control List
- Comparison of Actual vs. Budget
- Compliance with RERA Requirements & Guidelines
- Budget Acknowledgement Form
- Summary of Income and Expenditure Statement
A detailed review of service charge must be conducted, and it should include details such as the master community invoice, insurance policy, management agreement and summary of utility cost breakdown along with the basis of calculation.
A detailed review of the tendering documents must be conducted to ensure that the tender procedures have been followed. The list of service providers and their respective service contracts must be checked and also see to it that there are signed engagement letters and agreed minutes of the meetings in record. Previous year’s approved service charge budget, developer’s valid trade license and the basis of allocation must also be reviewed.
This involves a detailed review of the budget computations, contracted and non-contracted expenses, tendering process and previous year’s audit report.
RERA has made rules regarding budget review stricter to enhance transparency in the sector and avoid corruption. This has been made possible by collaborating with financial audit agencies. HLB HAMT is an audit company registered with RERA and takes care of service charge budget review of freehold properties in Dubai. You can rely on our services for unbiassed and accurate reviews.
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