Property management arrangements for branded residences: A critical consideration

Branded residences have become a positive trend in the UAE real estate market, offering residential owners the standards and services of, and affiliation with, a globally recognised brand. Whilst branded residences are often synonymous with luxury brands, we are starting to see a broadening of the UAE market including the introduction of mid-market and boutique offerings.

However, while developers and brand operators often focus on design, marketing, and sales, the property management arrangements do not always receive the same level of attention. This can lead to significant legal and operational challenges, particularly due to the UAE’s regulatory framework governing jointly owned properties, which differs in each Emirate within the UAE.

Regulatory complexities in the UAE

Branded residences in the UAE typically fall under the category of jointly owned properties. The management and operational structures envisioned by brand operators, or used by them internationally, can be challenging to implement under local laws, particularly those governing homeowners’ associations and service charges. The UAE’s regulatory framework, which varies across Emirates, imposes strict requirements on how jointly owned properties must be managed, often limiting the extent to which a brand operator can unilaterally control property management arrangements. 

Whilst brand operators have relative freedom in terms of the day-to-day management of hotels, their ability to manage and operate jointly owned property requires careful consideration.

For example, in Dubai, the absence of statutory homeowners’ associations means there is no statutory body to represent and manage the owners, or contract with service providers. Instead, the Real Estate Regulatory Agency (RERA) requires that licensed building management companies are appointed to act for and on behalf of the collective owners in the maintenance and management of the relevant property, under the guidance and supervision of RERA. As further noted below, there are also limitations on the length of term of supply agreements, which carries some risk in terms of the longevity of the ability of the brand operator to provide brand services. This can pose a challenge to international brand operators, as their preferred management structures which are typically implemented internationally may not be legally enforceable under UAE law. Similar, as well as other, limitations apply in other Emirates.  

What brand operators seek to achieve

Brand operators need to ensure that their brand standards are maintained once the relevant project is operational, and they usually look to control the operation and management of the common areas as a means of doing so. Their key objectives typically include:

• Exclusive management control: Brand operators often seek to retain control over property and owner management, which typically includes key management decisions, such as the hiring of licensed managers, setting service levels, procuring and/or providing brand services, and enforcing brand standards. This would also extend to the way in which their brand is used and displayed throughout the project.
• Long-term management agreements: To ensure continuity, operators prefer long-term property management contracts. These agreements are subject to legal limitations in the UAE which can be challenging for brand operators, and in particular new entrants to the market.
• Control over service charges and budgets: Operators typically seek the ability to set and control service charges to ensure that there are sufficient funds for the purposes of maintaining the common areas in accordance with their brand standards and ensuring there are sufficient funds for all of their brand related services. This is particularly the case for brands which target the luxury or upper luxury segment.  
• Integration with hotel operations: Where branded residences are part of a mixed-use development that includes hotel operations, brand operators often want seamless integration between the hotel and residential services to ensure a consistent guest experience. However, local law often impacts the interaction between the hotel, which is owned by the hotel owner, and the collective owners of a branded residences project.

Limitations on long-term property management agreements

Brand operators typically prefer to be appointed on a long-term basis to ensure service consistency and brand standards. However, under law applicable in a number of Emirates, long-term supply agreements are restricted by law to periods between one and three years, absent special exemptions from the applicable authorities. Any agreements exceeding these terms must be renegotiated and renewed in compliance with local regulations at the time of expiry, which carries a risk to brand operators that they may not have longevity in terms of their appointment. Failure to structure agreements within these legal limits can lead to complications in enforcement and potential regulatory scrutiny. 

Some brand operators prefer to provide these services directly. However, local licensing requirements mean that many brand operators are not set up and licensed to provide property management services directly. Brand operators therefore have to rely on delegation or supervisory rights from locally licensed management companies which can carry a risk of dilution of the manner in which certain services are provided. Whilst it is possible to structure around certain obstacles, careful planning and expert local law expertise is required.

Differences in approval of service charges

Another critical aspect of property management arrangements for branded residences is the approval of service charges, which varies across the UAE:

• Dubai: Service charges must be approved by RERA, which evaluates the reasonableness of the charges and ensures they align with market standards before they can be implemented.
• Abu Dhabi: Service charges require approval from the Department of Municipalities and Transport (DMT), with oversight ensuring that fees are justified and proportionate to the services provided.
• Ras Al Khaimah: Service charges must be communicated to RAK Real Estate Regulatory Authority (RAK-RERA) and ultimately approved by the General Assembly, which consists of owners within the property. 

Failure to secure the necessary approvals for service charges in any of these Emirates can result in insufficient funds for service charges, and potential regulatory penalties. It may also result in rights for the brand operator to terminate its management or supervisory arrangements, which would result in termination of the use of the brand in connection with the project.

Impact on project timelines

Whilst it is possible to structure in an optimal manner to provide for the provision of brand services on a long-term basis, failing to structure for the legal and regulatory environment at an early stage of the project can cause delays in launching sales for a branded residence project. In the case of off-plan sales, the developer of the project must also ensure that it makes adequate disclosures to purchasers in relation the management arrangements. Failure to do so can result in a risk of purchasers terminating their sale and purchase agreements.

Mitigating risks through early planning

To avoid such pitfalls and mitigate risk, developers and brand operators should prioritise property management arrangements during the initial planning phase. This involves:

• Engaging local legal counsel early to assess the feasibility of the proposed management structure under local law.
• Understanding the regulatory requirements in the relevant Emirate, including any limitations in relation to the term of the property management arrangements, the role of owners’ associations (or equivalent) and service charge regulations.
• Structuring agreements in compliance with UAE law, ensuring that brand standards can be upheld without violating local regulations, and providing sufficient time for brand operators to understand the jurisdictional differences.
• Aligning expectations with buyers and investors, clearly communicating how the property will be managed within the legal framework in order to mitigate developer and owner risk.

Conclusion

The UAE market is particularly service-oriented and branded residences will continue to represent a key opportunity for developers and brand operators in the UAE. To ensure success in the long term, careful planning is key—especially when it comes to property management. By addressing property management considerations from the outset, stakeholders can avoid legal hurdles, prevent costly delays, and ensure a seamless launch for their projects.

If you would like further information or advice on property management arrangements, please contact Alexis Waller or Janeen Pickering.