Real Estate, Construction and Hotels & Leisure Focus
Fatema Sarhan Associate, Litigation
Ehsan Ahmed Associate, Litigation
Owners Associations, as readers may be aware, is the entity formed between owners of a property to govern the owner’s relationship vis a vis the common parts of the property.
These Associations have steadily gained importance since their introduction to the Bahraini Legal system pursuant to Legislative Decree No. 8 of 1987. With their use growing more critical with the rise of privately developed community islands such as Amwaj Islands and Al Reef Islands.
To this effect, ensuring the stability of Owners Associations, and the clarity of the rules and regulations governing them has been at the forefront of Bahrain’s Real Estate Regulatory Authority (“RERA”) agenda, ever since its inception in 2017 pursuant to Legislative Decree No. 27 of 2017, with RERA issuing its Executive Regulation No. 1 of 2020 (the “2020 Regulations”), governing the management of Owner’s Association.
While the 2020 Regulations have indeed been a definite improvement in the regulations governing the management of Owners Associations, providing concise and clear rules to be adhered to – instead of the general principles previously applied which were naturally vague and left room for different interpretations – RERA has decided to further update these regulation to clarify points of concern raised during the application of these regulations by key stakeholders.
Executive Decision No. 2 of 2022 Amending articles of the 2020 Regulations (the “2022 Amendment”) has accordingly been issued on the 7th of May 2022, introducing further regulations to matters such as the Constitution of the Owner’s Association Management Board, the terms of several of its functions, as well as a clarification of the percentage of votes each property is deemed to have for the purpose of issuing decision by the Owners Association. Discussed below are these amendments as well as their legal impact on existing Owner Associations in Bahrain:
The Management Board is the body within the Owners Association responsible for managing its general day to day activities and carrying out its executive functions. The powers vested with the individuals – especially in larger development projects – have made holding these positions a very contentious matter. RERA has accordingly sought to clarify a point of vagueness within the 2020 regulations to avoid disputes that may arise consequentially.
The 2022 Amendments clearly stipulate Board members are to be elected where the members of the Owners Association exceed a total of (9) nine members, whereas where the members of the Owner Association are less than (9) nine, all members shall be appointed to the Board by law without the need for any elections. While this above does not greatly deviate from the rules of the 2020 Regulations, this amendment elevates the confusion caused by the regulations which previously also mandated that the Board is constituted automatically were the members of the Owners Association are less than (9) nine. However, the 2020 Regulations did not automatically appoint the owners to the board vesting the owners with the power to choose the number and identity of members to be appointed (between 3 – 9), which consequentially defeats the purpose of constituting the Management Board by Law.
The effect of the above, in light of the mandatory nature of the 2022 Amendments, will be the automatic appointment of Owners in Owners Associations with (9) nine or less members, and while this is not expected to affect larger properties, smaller properties are expected to be greatly affected, with the constitution of their Management board greatly altered, affecting the Board’s ability to carry out its functions.
With regards to the functions carried out by the members of the Management Board, the 2022 Amendments prohibited members from serving as a Treasurer for two consecutive terms. This can effectively place a safe stop on any attempts by a treasurer to embezzle or otherwise mismanage the Association’s funds.
While this amendment cannot apply retroactively, All Owners Associations are expected to replace their Treasurers upon the conclusion of their current term, and are required to appoint a suitable alternative to carry out this function for its next term.
Finally and perhaps most importantly, are the clarifications made by the 2022 Amendments on the voting rights of Owner Association members. The Amendment differentiates between the rights of owners with built and functioning plots and the rights of members who have not yet built their plots. For the purposes of the 2022 Amendment, a plot is considered built and functioning once the plot is provided with electricity and water services.
For owners whose plots are yet to be connected to water and electricity services, the vote’s weight assigned to the owner is a percentage of the Land’s/ apartment’s area relative to the relative to the total area of the plots concerned within the vote. Whereas for owners who have completed the process of connecting their plot to electricity and water services their vote’s weight is calculated based on the maximum built up area of the land or apartment relative to the total area of the plots concerned with the vote.
This Amendment significantly affects the power dynamic between owners, with the voting rights attributable to owners with built and functioning plots increasing significantly and instantly. And while this amendment is aimed at ensuring that plots that are not under development or those that are held as a future investment do not hold the same voting weight as the plots that are functioning with active inhabitants, given these latter plots are the key stakeholders largely affected by the Owner Associations decisions, this change is expected to be met with resistance and push back from owners whose plots are currently under development who feel they should be deemed equal in terms of voting rights to other functioning plots.
Overall, these amendments are a welcome clarification to the rules governing Owner Association and a much needed safety to ensure the continued stability of these associations. They however are expected to only be a part of the continuous updates and improvements to the rules and regulations to be undertaken by RERA as part of its plan for the development of Bahrain’s Real Estate Sector. With the continued development of this sector and the increase in investment by Private Companies, it is more than likely for these rules to continue increasing in terms of details and accordingly complexity, requiring specialised individual to navigate.
For further information, please contact Fatema Sarhan and Ehsan Ahmed.
Published in July 2022
