Service Charge Calculation Strategy
MEFMA Focus Group 2
Index
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2.
3.
4.
5.
6.
7.
Team members
Group Objective
Service Charge Definition
Methodology
Group Outcomes
Exclusions and Boundaries
Way Forward
Team Members
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Roy Barrett – MAF Dalkia
Jennifer Blackwell-Spencer
Peter Crogan - CEO BCS LLC
Ryan Darnell-Senior Services Manager Khidmah
Ahmad Hamdani-OA Licensing & Registration RERA
Dilip Khatwani-CEO Reliance FM & MEFMA Board
Ian MacQuarrie-FM Consultant Mace Macro
Christiane Murray-Head Property Management
Landmark Properties
MEFMA Objectives
• To identify and validate all service charges
related components
• Identify challenges and limitations to calculate
various component process
• Start a process for setting up an industry
standard to calculate and benchmark Service
Charges
Focus Group 2 Objectives
• To conduct a Service Charge Survey for
benchmarking purposes
• Provide an industry wide Standard Chart of Accounts
for budgeting, tendering for service providers, end
users and to meet RERA reporting requirements
• To develop a set of minimum service level
agreements (SLAs) for each service provision
category for the service providers and end users
• Set a Standard Reserve Fund Forecasting Model for
the industry
Service Charge- A definition
Article 22 of the JOP Law No. 27 of 2007 states:-
“Each Unit Owner shall pay the Owners Association his share of the annual
service fee to cover the cost of management, operation, maintenance and
repair of the Common Areas. Such fee must be calculated in
correspondence with the space of the Unit out of the total space of the
jointly owned property. The Master or Sub Developer shall pay his share of
the fee with respect of unsold Units.”
Article (2) Definitions in the Direction for Jointly Owned property
Declarations defines Entitlement as :“..in relations to a Unit, the number of shares of ownership in the Jointly
Owned Property, as indicated in the Jointly Owned Property Declaration.”
Service Charge- Calculation
Prior to the JOP Law & Regulations
• Sales & Purchase Agreements list service charges payable on a
per square foot basis
• The developer and real estate sectors lists sale price on a per
square foot basis
• Per Sq. Ft calculation is often determined on ‘carpeted’ area
After the JOP Law & Regulations
• Service charges are to be determined on a per entitlement
basis
• Unit boundaries are defined in the JOP Law to include total
unit area (balconies & can include car spaces on title)
• RERA will need to regulate the methodology with the real
estate sector and other stakeholders
Service Charge Survey
The Survey Design Identified the following types of developments:• Villa Communities
• Residential Buildings (≤ 25% retail)
• Mixed Use (≥ 25% retail, commercial, hotel units)
• Commercial only
• Master Communities
The survey included the RERA required master reporting codes and a
range of sub codes from our standard chart of accounts:Maintenance & Services
Utilities
Management
Insurance
Reserve Fund
Master Community
Service Charge Survey Benefits
The Survey results would assist with the following:-
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Assist Owners Associations in creating, reviewing & setting budgets
Assist developers in setting future budgets
Provide benchmarks for all essential services
Provide a benchmark for measurement of energy costs
Provide data for buildings of different ages & occupancy
Assist service providers in submitting commercial proposals in line
with market expectation for service levels
• The real benefit will be to do the same survey in 12 months to
monitor the effect of the transfer from developer to owners
association control
The Survey Results
• Over 100 surveys sent to developers and industry
stakeholders
48 Budgets received so far for the following development
types:• Villa Communities 2
• Residential Buildings (≤ 25% retail) 34
• Mixed Use (≥ 25% retail, commercial, hotel units) 8
• Commercial only 4
• Master Communities 0
The problems
• Poor response
• Incomplete information and additional fields added
• Data would not calculate correctly due to formula changes
by survey recipients
Our Analysis of the Results
1%
Chart Title - Villas
0%
33%
50%
8%
8%
Our Analysis of the Results
Chart Title - Residential
6%
2%
6%
39%
38%
9%
Our Analysis of the Results
1%
Chart Title – Mixed Use
10%
12%
37%
31%
9%
Our Analysis of the Results
Chart Title – Commercial
4%
1%
8%
28%
6%
53%
Standard Chart of Accounts
Group Objective
• Introduce consistency of expenditure coding and budgeting
across the industry
• Provide flexibility for the various types of developments
• Set standard budgeting format for service providers, RFP
process and end users
• Must meet RERA master code reporting requirements as
follows:Maintenance & Services
Utilities
Management
Insurance
Reserve Fund
Master Community Charges
Standard Chart of Accounts
Group recommends the adoption of the MyStrata chart
• International recognised industry chart
• RICs representative had reviewed the chart and included local
practices
• Has over 1000 sub codes so can report down to the detailed
expenditure
• Provides the basis for accurate & consistent coding
• Meets all best practice financial reporting requirements
• Flexible to all users
• Meets RERA requirements.
• Forms the basis of a budgeting standard service provision by OA
• Can be used in the RFP process
• Used by majority of OA management companies
Minimum Service Level Agreements
RERA requested that the Focus Group design a minimum set of
SLAs for each service provision category
• Ensure minimum maintenance standards are maintained by
the Owners Associations
• Ensure that service providers have a minimum level of
performance
• Introduction of key performance indicators for supervision
• To be used as the basis for tendering for OA services
• Ensure compliance with statutory authorities & industry
standards
Minimum Service Level Agreements
• Minimum recommendation of service levels for Owners
Associations, Managers, Service Providers & all Property
Stakeholders
• Minimum levels are recommended to enhance and increase the
asset value, lifecycle and services provided
• Inform all stakeholders of industry benchmarks based on
specialised services that form the basis of service agreements with
specialised providers
• End users should always contract to specialised, licensed providers
using proper legally reviewed contracts
• SLA need to be monitored, measured & reported by a qualified
professional
• Recommended SLA do not supersede local laws, regulations or
mandates
Minimum Service Level Agreements
• Service levels were split into separate categories
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HVAC
Mechanical
Electrical
Plumbing
Specialised Services (Fire, lifeguards, swimming pool maintenance etc)
Civil Works
Cleaning
Waste Management
Landscaping
Pest Control
Security
Minimum Service Level Agreements
• Each SLA category has 5 Sections
1)
2)
3)
4)
5)
Task Name
Frequency of the maintenance service
Detailed description of the tasks required
Service level – What is the minimum threshold the tasks need to be maintained
Measurement method – How the service level will be measured
Minimum Service Level Agreements
• Service levels originate from a number of best practices from global codes
• Service levels have instructions for use and should be in conjunction with
other KPI’s such as appearance of staff, customer satisfaction,
environmental savings and safety. All form part of a balanced approach to
contract management.
• Service levels are a guide and do not supersede local laws, regulations or
recommendations by the manufacturer.
• The Service levels will only have the desired results if implemented and
monitored diligently.
• Service levels still allow for differentiation by service providers. E.g. there
is no provision in the SLA’s for thermo-graphic surveys.
• Service levels make note of local use of codes by Civil Defence, DEWA,
Dubai Municipality and Dubai Police.
• Recommendation that Service levels now be open to review for MEFMA
members for discussion.
Standard Reserve Fund Forecasting
Article No. 62 of Part 8 of the Direction for Association Constitution
says :“ the reserve fund must be based on a study of the costs of renewing
and replacing the Common Areas and Assets over a minimum ten
year period.”
Group concluded that a standard was difficult to introduce due to the
variety of building types
• The complexity & size of the Dubai assets requires forecasts of a
longer period
• Developers should be made provide Asset Registers at handover as
per Part 10 (78j)of the Directions for Owners Associations
• Developers should provide life cycle costing of assets at handover
• Forecasts should be reviewed annually to consider inflationary
affects such as material price escalations and movements in the
inflation rate & labour costs
Success & Constraints
Success
• Owners Associations will have a greater understanding of
three key areas of service charges, service levels & reserve
fund forecasting
• Service providers will have minimum standards to meet
• Able to meet customer expectations
• Will disqualify some companies
Constraints
• Many authorities are creating new regulations so service level
requirements and qualifications may change
• Many regulators in the sector
The Way Forward
• Service Charge Survey conducted annually & regulate the annual
reporting to RERA
• RERA approve the Standard Chart of Accounts & budgeting model
• Recommend that SLA’s have an industry review period for MEFMA
members before RERA approve and mandate it for all service
provision contracts in the Owners Association sector
• RERA to regulate for provision of Asset Registers from developers at
handover
• RERA to regulate for developer supplied life cycle costing at
handover
• RERA to regulate annual reviews of the Reserve Fund Forecast
Thank You