Amendment to the Bahrain Real Estate Sector Regulation Law
In what appears to be the most significant legislative reform to the Real Estate industry in recent years, on 2nd November 2022, Decree Law No.(41) of 2022 Amending the Real Estate Sector Regulation Law Promulgated by Law No.(27) of 2017 was decreed.
The provisions that have been amended are: Articles (3), (11) Paragraph (A) Clauses (2) and (3), (55), (62) Paragraph (D) and (E), (67) Paragraph (A), (68) Paragraph (B) of Law No.(27) of 2017.
We have set out below a summary of the changes, including the important new articles that will introduce a new type of management to developments in Bahrain.
Article (11) Paragraph (A) Clauses (2) and (3) Legal
- RERA can now charge a maximum daily fine of BD 1000 for first time violations, BD 2000 for repeat violations within 3 years and in all cases up to a maximum of BD 50,000 (the previous maximum was BD 20,000).
- RERA now have the ability to impose fines up to maximum of BD 200,000, and in the case of development projects, up to a maximum of 2% of the projects estimated value. The previous cap was BD 20,000.
Article (55): Dividing and acting upon the common areas
- RERA can require a developer to establish a company to own the infrastructure and utility services owned by the developer, to ensure continued their continued operation.
Article (62) Paragraph (D) and (E)
- Owners Associations (OA) and RERA can now appoint a manager or appoint a licensee to manage the common areas. OA's can determine the powers and duties of any manager or licensee by resolution. RERA can determine the rules and regulations by which the directors of the OA, or the appointed licensee, shall observe in carrying out the ongoing management of the common areas.
- Paragraph E has also been amended to the extent that RERA may now determine the rules by which the effective percentage of ownership of the joint real estate units can be calculated, the nature of the owned joint real estate and whether the common parts are central, main or subsidiary.
Article (67) Paragraph (A)
- Any criteria stipulated in the management regulations of the common areas can be taken into account when determining the share of annual subscriptions payable.
Article (68) Paragraph (B)
- This article has been amended to reduce the period within which a unit owner must pay their share of the annual subscription following receipt of a notice, from 90 days to 60 days.
In addition to the amendments noted above, a new chapter has been added to Chapter Three of the Real Estate Regulatory Law promulgated by Law No.(27) including the following new articles:
Article (70 bis): Licencing the developer to manage the common areas
- This new article permits developers to undertake the management of common areas by obtaining a license to do so, in accordance with the rules and procedures to be issued by RERA. In order to obtain a licence, the developer must submit an application before marketing or selling any real estate unit within the common property. The application should include the site plan, the main system, the regulations for managing the common areas and any other documents or information required by RERA.
- This change now allows developers to manage the common areas without the need for an OA, which is a radical change in position from Law 27 of 2017. As a result of this, those developers that have projects with unique common areas can protect their brand value and goodwill, and in return it provides owners with comfort that the developers who have a vested interest in the overall success of the development are managing the common areas.
- Currently the legislation only applies to new projects or projects that have not been marketed as yet. We await further guidance as to how this may, if at all, affect existing projects.
Article (70 bis 1): Management of the common parts by the Developer
- Developers may now manage the common areas, or assign a licensee to do so. In either event, whether RERA requires the developer to set up a new company to carry out these obligations, or if an assignee is licensed, the developer shall remain jointly liable for all obligations relating to the ongoing management of the common areas.
Article (70 bis 2): Common parts management regulation
- This article requires a developer to set the regulations for the management of the common areas. RERA shall stipulate one or more forms in which the management regulations of the common areas shall be set out and may also specify the provisions and obligations that must be included within the management regulations, and also decide against those provisions that it deems should not.
Article (70 bis 3): Establishment of the OC and its Terms of Reference
- If a developer chooses to manage the common areas, an Owners Committee (OC) will be formed instead of an OA, made up on unit owners and lease-to-own owners. The OC shall make reasonable efforts to protect the interests of the owners, verify the proper use of the common parts and supervise the developers overall management of the same. The OC shall carry out the following:
- Provide advice and assistance to the developer in order for the developer to discharge their obligations.
- Review the developers performance with respect to the management of the common areas, and hold progress meetings with the developer.
- Review any contracts, budgets and agreements concluded by the developer with any third party that relate to the common area.
- Submit any requests or objections in relation to the developers ongoing management of the common areas, or assessment of annual subscriptions and other financial obligations.
- Handle and process complaints from individual unit owners regarding the management of the common areas and work to find appropriate solutions.
- Communicate with RERA on all matters pertaining to the OC's objectives to ensure the strengthening of the relationship between the OC and the developer.
- Any other matters determined by RERA.
RERA shall also have the ability to appoint members of the OC where for any reason it has not been possible to do so. In addition to this, where unit owners who own at least 25% of the joint real estate units request RERA to appoint members of the OC, RERA shall do so.
Article (70 bis 40): Paying the annual subscription
- Developers must include within the management regulation, the basis for estimation and increasing the annual subscription. These must be fair and reasonable, and cannot exceed the actual cost of managing the common areas plus an additional percentage (to be determined by RERA) as profits and administrative expenses
- RERA may specify considerations for the developer to take into account when assessing or increasing contributions, or deciding a subscription to cover unexpected emergency costs, but RERA shall ensure that this is done in a manner that balances the interests of both owners and the developer, as well as limiting unjustified increases against reasonable adjustments for inflation
- Annual subscriptions should be calculated in proportion to the area formed by the owners unit, the nature of its use and any other criteria within the common area management regulations.
- The developer may also choose to set up a special system, incentivizing prompt payers with discounts and penalizing late payers (3 months in arrears) at a maximum rate of 10% annually provided they have had sufficient notice to pay.
Article (70 bis 5): Request to reconsider assessment of contributions
- The OC can request the developer to re-assess the amount of contributions being charged if they feel the developer is not fulfilling their obligations.
- Any rejection from the developer must be in writing and with sufficient justification. At this point the OC may request RERA to appoint an independent entity, at the developers expense, to reconsider the assessment of contributions if there are compelling reasons to do so.
Article (70 bis 6): Open an account to deposit subscriptions
- The developer must open one or more accounts to deposit the subscriptions and cannot use these funds except in the case of managing the common areas. These funds cannot be seized for the benefit of any creditors and/or in any insolvency proceedings.
Article (70 bis 7): Developer records related to the management of the common areas
- This article places an obligation on the developer to keep records relating to the management of the common areas.
Article (70 bis 8): Terminating the developer from managing the common areas
- The OC can request the court to terminate the developers management, if the developer fails to carry out their obligations with due care and skill. If at owners who own at least 75% of the common real estate units request the court to terminate the developers management, the court may do so, irrespective of the developers performance.
Article (70 bis 9): The developer relinquishes common parts management
- A developer can relinquish management of the common area, by obtaining approval from the OC twelve (12) months prior to stepping down. The developer must take all necessary steps to appoint a replacement, approved by RERA and the OC, and if required, carry out any final obligations at their own expense before handing over.
Article (70 bis 10): Transfer of custody
- If the developer no longer managed the common areas, they shall transfer all documents and information required for the management of the common areas to the new party.
The Real Estate laws in the Kingdom continue to evolve in order to bring the Kingdom into line with international best practice and instil high levels of consumer confidence. This is testament to the long-term strategic vision of the Kingdom that we continue to see flourish.