Service Charge Budget Review by RERA

The Real Estate Regulatory Authority (RERA): A Quick Rundown

The Real Estate Regulatory Authority (RERA) is the Dubai Land Department’s policy-making authority. RERA is designed to follow a global best practice framework and a transparent international real estate methodology. Also, it was developed to promote greater transparency in the real estate industry.

To guard unit owners against the enormous strain of service fees, RERA had tightened its supervision over annual budget allocation, which independent auditors reviewed. As required by Law (6) of 2019 on Jointly Owned Properties, Management Companies must now choose and designate the authorized auditors with the agreement of RERA to examine the yearly service charge budget they have established.

The management firm should adhere to applicable RERA laws and regulations when creating the budget for Jointly Owned Properties (JOP) and master communities. Expenses should be anticipated using best practices in the sector.

Since it is crucial to safeguard the interests of the owners of each property’s units, the service budget review is a significant obligation under RERA. Every builder and developer must register with the RERA to function in the real estate sector. The main objective of RERA’s examination of the service charge budget in Dubai is to carefully assess the budgeted service charge figures and contrast them with industry standards and guidelines.

Different Types of Funds by RERA

RERA insists on creating two types of funds, the general fund and the reserve fund, and mandates that the management company needs to prepare annual budgets.

General Fund

The general fund pays for regular maintenance services and other recurring daily expenses. Based on the service provider quotes, service and maintenance costs are estimated.

Reserve Fund

A reserve fund is a savings account or other highly liquid asset that a business has set up to handle any expenses or monetary commitments, particularly those that arise suddenly. One of the RERA’s requirements for budgeting the reserve fund is to conduct a reserve fund analysis that includes information on the building’s state and anticipated replacement costs. As a result, the research must project the reserve fund requirement over the next ten to twenty years. Reviewers must check that the reserve fund is collected under the forecasted annual amount.

The reserve fund must include non-recurring or Capital expenses and other expenses that the Capital may, in most cases, be covered. This involves replacing wasted assets that will outgrow their usefulness and need to be replaced within the building’s lifecycle.

Role of Reviewers

The reviewer should confirm that the criteria listed below have been addressed.

• The required minimum and maximum numbers of quotes from each service provider are 3 and 5, respectively
• Not less than 20% of the total supplier contracts must be procured through national enterprises established with the Mohammed bin Rashid Establishment for Small and Medium Enterprises Development
• The appropriate action against the service they are given should be listed in the service provider’s trade license
• Although a developer or related party can be hired as a service provider, they must contest with outside service bidders since their trade license covers the relevant activity.
• Choose the service provider depending on the product’s quality and economic benefit
• Clarify by employing the chosen service provider

Separate regulated bank accounts under the Account Trustee must be set up for the general fund and reserve fund, and all payments and collections must pass through these accounts.

Reviewers should verify that shared expenses are distributed appropriately based on the research if the JOP is a multi-component building and that a specific allocation of resources study was undertaken. The reviewer must confirm that the management business had applied the index distributed by RERA when calculating the management fee.

Budget planning should consider the additional parking spaces and storage facilities. It is necessary to undertake a cost allocation analysis and collect service fees on them so that JOP may earn more revenue. Before being sent to the auditors for evaluation, the Owners Committee needs to approve the management company’s budget.

How HLB HAMT can assist?

HLB HAMT, with over 20 years of experience, has a track record of providing clients with services in various industries with knowledgeable specialists who comprehend regulatory compliance challenges and needs while reviewing the service charge budget.

You may get all the help you need in exploring the service and its requirements from our qualified chartered accountants.