Management of development projects: Bahrain’s updated model for management of common parts
Real Estate / Bahrain
Bahrain's real estate sector continues to undergo significant changes with the proposal of new regulations by the Real Estate Regulatory Authority (“RERA”) on the management of common parts of properties.
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Fatema SarhanSenior Associate,Dispute Resolution
Ehsan AhmedAssociate,Dispute Resolution
Reem AltaraifTrainee Associate, Dispute Resolution
Bahrain's real estate sector continues to undergo significant changes with the proposal of new regulations by the Real Estate Regulatory Authority (“RERA”) on the management of common parts of properties. Common parts are the areas and facilities that are shared by the owners or occupants of a property, such as the lobby, corridors, elevators, parking, swimming pool, gym, etc.
Currently, common parts are managed by owners' associations, which are legal entities that represent the owners of the property units and are responsible for the operation, maintenance, and repair of the common parts. Owners' associations can manage the common parts by themselves or through property managers, who are individuals or companies that are contracted by the owners' associations to perform the management tasks on their behalf.
However, the existing legal framework does not provide clear and comprehensive guidelines for the licensing, standards, duties, and oversight of property managers, nor does it regulate the contractual relationship between owners' associations and property managers.
To address this, RERA has proposed a set of new legislation regulating the profession common property management, the management of common property by developers, as well as procedures for existing owner associations to convert to the proposed new model for management of common property.
The new regulations will require property managers to obtain a license from RERA and adhere to certain standards and conditions. The license will be categorized into two types:
Category A for property managers who have at least three years of experience in managing common parts or real estate operations, and Category B for property managers who have at least two years of experience with Category B licensees having a more limited scope in terms of the properties they can manage.
To ensure that the licensees maintain the requisite standard, they will also have to undergo continuous education and training as per RERA's requirements.
Duties and obligations of the licensee under the proposed scheme will include:
Managing, operating, maintaining, and repairing the common parts, with the possibility of hiring technicians, suppliers, or contractors;
Being liable for urgent repairs and insurance coordination;
Drafting a written agreement with the owners' association;
Detailing the scope of work, payment schedules, and dispute resolution mechanisms;
Establishing and managing the operating and reserve accounts for the collection of contributions from owners and the payment of expenses for the common parts; and
Keeping records and documents related to the management of the common parts for at least ten years and providing them to RERA or the owners' association upon request.
The proposed legislation also authorises such managers to lease common parts under certain conditions, such as not altering the property's nature and obtaining approval from the owners' association.
The new regulations will also allow property developers to manage the common parts in development projects that they sell, subject to certain conditions and supervision. The developer will have to obtain a license from RERA and establish a company for managing the common parts, with the exclusive purpose of managing the common parts. The company's memorandum and articles of association will have to be approved by RERA and the owners' committee, which is a body that represents the owners and oversees the developer's management of the common parts. The developer will have to submit a license application before marketing or selling any real estate unit in the common property and obtain a preliminary approval within a maximum period of forty days. The developer will also have to pay an annual fee for the license and the management of the common parts.
Duties and obligations of the developer: The developer will have similar duties and obligations as the licensee in managing the common parts. However, they will also be liable towards making contributions against all unsold properties that they hold throughout their management of the common parts of the property.
The developer shall also be supervised by an owners’ committee as well as RERA, with the regulations providing for the owners’ committee as well as RERA with an array of authorities including the appointment – at the cost of the developer – an auditor to review the developers management, with both the committee as well as RERA being able to request that the developer be released for their duties as manager where the developer is found to be negligent.
Contracting procedures with a licensed manager for common parts: The final piece of legislation appears to be aimed at transitioning existing common properties run and managed by owner association to a model run by a common property manager (either the developer or another licensed entity or individual) and supervised by an owners’ committee.
To ensure that appointment is done in a transparent manner, the draft regulations provide that the appointment of a manager shall be done primarily through a public tender.
The new regulations will also introduce a new system for the management of common parts by the developer, which will allow the developer to retain control and interest in the development project, while ensuring the supervision and participation of the owners and RERA.
Finally, the draft regulations intend to slowly phase out the current form of owners’ associations and to replace them with owners’ committees. The owners' committee will be established when at least 30% of the real estate units are registered and will have the following features:
The committee will consist of five to nine members, elected by the owners during the general assembly meeting to appoint the developer for managing the common parts.
The committee will have the duties of supervising the developer's management of the common parts and providing advice and suggestions.
The committee will have the right to request a review of the subscription estimation, appoint an auditor or expert to verify the management of the common parts, and request RERA to take corrective measures or relieve the developer from managing the common parts.
The committee members will have to meet certain conditions, such as being an owner or buyer in a rent-to-own scheme, residency, age, and absence of conflicting interests.
The proposed regulations on the management of common parts are expected to bring significant benefits to the real estate sector in Bahrain, such as improving the quality and efficiency of the management services, enhancing the protection and satisfaction of the owners and occupants, and promoting investor confidence and transparency in the sector. The new regulations will also introduce a new system for the management of common parts by the developer, which will allow the developer to retain control and interest in the development project, while ensuring the supervision and participation of the owners and RERA. The new regulations will also regulate the procedures for contracting with a licensed manager for common parts, which will ensure fair and competitive selection and clear and comprehensive contractual terms. The new regulations are still under development and subject to change, and stakeholders should stay informed and prepare for the new regulations.
For further information,please contact Fatema Sarhan, Ehsan Ahmed and Reem Altaraif.
Published in May 2024
