Navigating New Norms: The Impact of Abu Dhabi's Resolution No. (1) of 2024 on Construction and Real Estate
Construction and Infrastructure & Real Estate / UAE
Rashed Abdel HadiParalegal,Construction & Infrastructure
Raneem Salha Trainee Solicitor,Real Estate
Administrative Resolution No. (1) of 2024 on Application and Activation of Property Occupancy Certificate System in the Emirate of Abu Dhabi (the “Resolution”) was issued on 31 January 2024. It sets out the requirements and conditions for obtaining and renewing different types of occupancy certificates, which are documents that certify that a building is safe and suitable for occupancy and usage. The Resolution also establishes a timeline for applying the occupancy certificate system to different categories of buildings, such as new buildings, existing buildings, and private residential villas. It provides a grace period for regularizing the existing buildings that do not have certificates of completion, construction permits, or approved layouts. This will have implications for stakeholders in the real estate and construction sector. Contractors, owners, and tenants will be mandated to comply with the occupancy certificate system and the relevant inspection program of the applicable regulatory authority. This article will discuss the impact of the Resolution on both sectors.
The Resolution arguably heralds a new era in occupancy certification and therefore requires further examination of its implications from the construction industry's perspective. As the industry pivots to align with this new mandate, it will become imperative for stakeholders to analyse the implications and strategize accordingly.
Risk Allocation: At the core of construction contracts, risk allocation emerges as a primary concern under the Resolution. The directive imposes an additional layer of compliance by requiring that construction projects and contractors adhere to additional requirements, altering how contractors approach risk distribution.
Notably, the Resolution escalates the stakes in ensuring construction meets the stringent criteria, as detailed above, for occupancy certification, meriting a recalibration of contractual risk to address the augmented responsibilities and potential for increased liabilities for both contractors and owners, depending on the relevant certificate required.
The Path to Procurement: Securing occupancy certificates now demands more intricate administrative planning, placing contractors in the spotlight of responsibility on the basis that they will likely be the contracting party required by owners and employers, to assume responsibility for compliance with the Resolution. The process becomes a critical pathway that necessitates meticulous planning, coordination with regulatory bodies, and adherence to enhanced safety and quality standards. Initial occupancy certificates and temporary occupancy certificates are more relevant to Contractors and Employers as they a contingent upon the construction phase of projects. The following outlines the requirements and validity periods for both certificates:
- Initial occupancy certificate: Shall be issued to contractors of new buildings notifying them that the building will be valid for occupancy upon:
completion of construction;
completion all required tests;
Issuance of the Certificate of Completion.
Installation, operation and test of the electrical, mechanical, fire systems and sanitary systems.
The Initial occupancy certificate shall be renewed every 10 years, although the validity period may be decreased depending on the type of building and the nature of the occupancy certificate.
- Temporary occupancy certificate: Shall allow temporary occupancy of a part or parts of the building before the completion of construction, provided that the construction works for the parts of the building required to be occupied are complete and allow for safe occupancy. The expiry period of such certificate will be determined by the municipality (provided that this period does not exceed 2 years) or upon issuance of the Certificate of Completion for the whole property.
Financial Implications: The Resolution’s requirements will likely stretch project timelines and may result in an increase in project costs and potential delay liquidated damages and undue financial burden of fixed price contracts in which contractors are required to obtain all necessary approvals. For projects where the Resolution will have retroactive application in respect of which the relevant contract does not apportion the associated obligation/risk, this will likely result in additional contractor claims for additional time and cost in order to reconcile the time and cost implications of contractors having to address the Resolution’s requirements. It may therefore be prudent contracting parties examining from now, their existing risk allocation and mutually agreeing a written amendment to the existing terms (by way of a formal supplemental or amendment agreement to the original works contract) which formally documents the additional requirements imposed by the Resolution, the party responsible for ensuring adherence to same and (if the contractor) the agreed time and cost implications (if any). Similarly, for prospective pipeline projects, employers and contractors should ensure the issue is expressly dealt with in their contracts so that there can be no ambiguity as to which party is responsible for the obligations and risks assumed pursuant to the Resolution.
Strategic Adaptation to Avert the Penalties of Non-Compliance: To effectively avoid penalties and adapt to the Resolution’s regulations, clear contract terms must assign certificate procurement responsibilities at the various stages of construction. Adjusting project timelines is essential to accommodate approval processes, mitigating risks of non-compliance that could lead to significant delays, additional costs, and potential ministry intervention. This intervention may restrict building occupation, underscoring the importance of proactive risk management and strategic planning to ensure legal compliance and project success.
In essence, the Resolution presents both challenges and opportunities for the construction sector. By understanding its implications and strategically navigating its demands, the industry can uphold its commitment to excellence, safety, and compliance, paving the way for a resilient and sustainable future in construction.
The implementation of the Resolution will occur in stages and impact the rights and obligations of owners and tenants in the following ways:
The First Stage: In the first stage of the Resolution, which commences three months after its issuance on 1 May 2024, and spans over five years, significant regulations are put in place concerning building occupancy certificates. Owners of newly completed properties must procure an occupancy certificate before utilizing or occupying their premises, with renewal obligations aligned to the certificate's validity, dependent on the building's characteristics. Meanwhile, owners of pre-existing buildings must secure a conditional occupancy certificate, contingent upon meeting specific safety standards related to construction, civil defence, gas, and elevators. Owners of unlicensed buildings or those lacking completion certificates have a two-year window to regularise their properties. Although the Resolution notes that non-compliance will result in potential restrictions and penalties, details on the specific consequences remain vague.
The Second Stage: Transitioning into the second stage, which follows the initial five-year period and extends for three years, further obligations are imposed, particularly on owners of residential villas completed before the Resolution's enforcement. These owners are compelled to obtain conditional occupancy certificates, the duration of which is determined based on various factors such as structural integrity, material durability, system effectiveness, and maintenance practices. Nevertheless, the maximum term for these certificates is capped at three years, signalling a continued focus on compliance and safety measures.
The Third Stage: In the third and final stage, occurring after the lapse of the second stage, conditional occupancy certificates will cease to be an option. At this juncture, owners of private residential villas must fulfil all requisite conditions to obtain full occupancy certificates. This marks the culmination of the regulatory framework outlined in the Resolution, emphasizing the overarching goal of ensuring the safety, compliance, and proper maintenance of buildings. For owners and tenants alike, adherence to these stipulations is imperative to avoid potential penalties, restrictions, and disruptions to their property rights and occupancy arrangements.
The phased implementation outlined in the Resolution sheds light on the advancement of real estate regulations in Abu Dhabi. Introducing the Resolution enhances safety and compliance standards in building occupancy certification within the emirate. From mandates for obtaining occupancy certificates for both new and existing properties to the specific requirements delineated for each stage, stakeholders must adhere to evolving regulations. As the enforcement of the Resolution progresses through its stages, stakeholders must remain proactive to ensure compliance with the evolving regulatory landscape, avoiding potential penalties and disruptions. Ultimately, the Resolution aims to cultivate a safer and more sustainably built environments for all residents and property owners in Abu Dhabi.
Incorporating insights from both the construction and real estate perspectives, the Resolution is a pivotal regulation, reshaping industry practices and stakeholder responsibilities. For construction, it demands a re-evaluation of risk management, emphasizing the procurement of occupancy certificates, which will potentially extend project programs and may result in an increase in project costs.
The real estate sector must navigate compliance through stages, affecting ownership and tenancy agreements, especially concerning new and existing building certifications. The Resolution not only aims to elevate safety and compliance standards but also introduce a framework that requires diligent adaptation, fostering a collaborative approach towards achieving a sustainably built environment in Abu Dhabi. This conclusion synthesizes the implications of the law across sectors, highlighting the proactive measures and strategic planning required by construction and real estate industry stakeholders in ensuring compliance and moreover for the future prosperity of the construction and real estate markets in the Emirate of Abu Dhabi.
For further information,please contact Raneem Salha and Rashed Abdel Hadi.
Published in April 2024
