<p>Other names used for similar or related concepts are &ldquo;Residences&rdquo; and &ldquo;Branded Apartments&rdquo;.&nbsp;Generally the concept of MSA, Residences or Branded Apartments will contain the following features:</p>
<ol>
<li>The Building will be of a higher quality.</li>
<li>Commonly the MSA, Residences or Branded Apartments may sit along side a singly owned Hotel development.</li>
<li>The offer of the Units by Owners for short term accommodation services is often a feature.</li>
<li>In all cases, the development is branded and both Owners resident in  the development and any tenants or guests will be entitled to benefit  from a range of services provided by the Hotel Operator or arranged by  the Owners Association. A list of such Ameliorated Services is set down  in Part C &ndash; Commercial and Practical Considerations in Structuring MSA  schemes (&ldquo;Ameliorated Services&rdquo;).</li>
</ol>
<p>In this article we explore the legal backdrop to the concept of MSA.  It should be noted that this article does not purport to comment on the  licensing requirements of the Dubai Economic Department or Dubai Tourism  Commerce and Marketing<br /><br />The simple description above of a MSA  scheme belies what is in fact a relatively complex legal and commercial  arrangement with many potential variations possible.<br /><br />We consider in more detail below, the nature of MSA schemes under the following topics:</p>
<p>A.&nbsp;The Legal Entities involved in providing MSA.</p>
<p>B.&nbsp;The Relevant Legal Documentation.</p>
<p>C.&nbsp;Commercial and Practical Considerations in Structuring MSA Schemes.</p>
<p>D.&nbsp;Regulatory and other Issues Arising.<br /><br /><strong>A)&nbsp;The Legal Entities involved in providing MSA</strong></p>
<p>In theoretical terms, once the development is complete the management  of the &ldquo;Common Areas&rdquo; and general administration of the development  should pass to the Owners Association formed pursuant to Law No 27 of  2007 on Ownership of Jointly Owned Properties in the Emirate of Dubai  (&ldquo;JOP Law&rdquo;) and regulated pursuant to RERA&rsquo;s &ldquo;Directions&rdquo; to the JOP  Law.<br /><br />The investors become the Owners of the Units. By virtue of  their ownership, Owners are members of the Owners Association, are  entitled to vote at meetings of the General Assembly and be elected as  Board members of the Owners Association.<br /><br />If therefore the  developer wants to ensure that there is the ability for a Hotel Operator  to operate from the development, this will have to be procured by a  contract with the Owners Association.<br /><br />The Owners of the Units  will also need to enter into their own private arrangement with the  Hotel Operator for the rental of their Unit, should they wish to use the  Rental Pool.</p>
<p><strong>B)&nbsp;The Legal Documentation</strong></p>
<p>The principal document relevant to the creation of a MSA scheme is  the Sale and Purchase Agreement (&ldquo;SPA&rdquo;), between the developer and  investors. Ideally, the SPA should fully disclose or make sufficient  reference to the documents set out and discussed below:</p>
<ol>
<li>The constitutional document pursuant to the JOP Laws and Directions  is known as the Jointly Owned Property Declaration. This document needs  to set out clearly the role of Hold Co (discussed below) and the Hotel  Operator.</li>
<li>The Hotel Operator will need to have the right to provide the  Ameliorated Services, as well as operate the Rental Pool and provide  various other branding and consulting services. In addition, the Owners  Association may need to be compelled to provide certain Ameliorated  Services. These aspects are normally dealt with in a framework agreement  which, for the purposes of this Article, we will call the &ldquo;MSA  Framework Agreement&rdquo;. This MSA Framework Agreement is not to be confused  with (though may incorporate features of) an association manager&rsquo;s  agreement or facilities management agreements (see the table in Part C  which sets out the various services).</li>
<li>Hotel Operators are normally appointed pursuant to separate  operational and technical services agreements between the Hotel Owner  and the Hotel Operator.</li>
<li>If the MSA development sits alongside part of a Hotel development,  the developer may wish to ensure that the Owner of the Hotel has the  right to also remove the Hotel Operator from the development comprising  the Branded Apartments.</li>
<li>Therefore, the developer would need to ensure that the Hotel  Operator did not have the MSA Framework Agreement directly with the  Owners Association. Accordingly, the developer should set up a holding  company (&ldquo;Hold Co&rdquo;) to enter into the MSA Framework Agreement and then  create a separate operational and technical services agreements (on a  back to back basis) with the Hotel Operator (&ldquo;Operator Agreements&rdquo;) in  relation to the Branded Apartments.</li>
<li>Without the use of Hold Co, the Owners Association would have a  contract directly with the Hotel Operator complicating the ability of  the Hotel Owner to remove the Hotel Operator from the Branded Residences  or the ability to assign the rights under the MSA Framework Agreement  to any purchaser of the Hotel.</li>
<li>Unit Owners have jurisdiction over their Units and accordingly it is  for them to enter into any arrangement with the Hotel Operator for the  management of their Units. As the Hotel Operator will require rental  stock to operate, a Rental Pool Agreement needs to be appended to the  SPA, with the relevant investor&rsquo;s agreement to enter into this. As for  the MSA Framework Agreement referred to above, it may be more  appropriate that the Rental Pool Agreement be between Hold Co and the  investors, though operationally the Hotel Operator would be appointed  (pursuant to the Operator Agreements) as Hold Co&rsquo;s agent to enter into  the Rental Pool Agreements and operate the Rental Pool.</li>
</ol>
<p>The Rental Pool Agreement will generally entitle the Hotel Operator  or Hold Co (as the case may be) to manage the Unit for a fee. The  obligations on the Hotel Operator or Hold Co would generally include;  arranging tenants and occupiers, maintaining the Unit, paying all  outgoings in relation to the Unit and paying the balance of the revenues  to the Unit Owner.<br /><br />Whilst it may be possible to design the MSA  scheme independently of the Hotel Operator and endeavour to incorporate  the necessary flexibility to adapt to the requirements of any Hotel  Operator, generally such schemes are designed in tandem with the Hotel  Operator at the conceptual and design phases of the development.<br /><br />The  developer / Hold Co and the Hotel Operator would also enter into the  Operating Agreements relating to the Hotel and/or MSAs. It is important  in doing this that any commercial considerations in such documents are  also carried down through the documents referred to in 1 to 6 above in  so far as they relate to or in any way impact on the legal entities  referred to.</p>
<p><strong>C) Commercial and Practical Considerations in establishing a MSA scheme</strong></p>
<p>Considerable effort and consideration needs to be put into MSA  schemes to ensure that they meet the expectations of investors and the  Hotel Operator without conflict, and with clarity on the structuring. It  is important to remember that not all of the investors may want their  Units to form part of the Rental Pool, and some investors may want to  actually reside in the development.<br /><br />For resident Owners, they may  not want many of the services that the Hotel Operator provides as  mandatory and for which they have to pay for. They may nonetheless be  happy to pay for some services on a &ldquo;User Pays&rdquo; basis.<br /><br />For other  investors, there can be the inclination to see any Ameliorated Services  as being the obligation of the Hotel Operator (as they are operating a  business from the Common Areas of the development and profit from same),  and therefore the costs should be met out of the Hotel revenues.  Accordingly the exact service, cost and revenue matrix needs to be  developed and investors made aware of same.<br /><br />We consider, in  simple terms, the services to be offered in relation to a development  comprising MSA fall into the categories set down in the table below.</p>
<table border="1" cellspacing="0" cellpadding="2" align="center">
<tbody>
<tr>
<td align="center" valign="top">
<h6><strong>Association Management&nbsp;</strong><strong>Services (a service to the&nbsp;</strong><strong>Owners Association (&ldquo;OA&rdquo;)).</strong></h6>
</td>
<td align="center" valign="top">
<h6><strong>Contracted Services (facilities&nbsp;</strong><strong>management) provided in relation to Common Areas.</strong></h6>
</td>
<td align="center" valign="top">
<h6><strong>Ameliorated Services (a la&nbsp;</strong><strong>carte and other similar&nbsp;</strong><strong>hotel type services)</strong></h6>
</td>
</tr>
<tr>
<td valign="top">
<ul>
<li>Working with OA Board to develop strategies for management of common areas;</li>
</ul>
<ul>
<li>Preparing annual budgets;</li>
</ul>
<ul>
<li>Negotiating supply contracts; &nbsp;</li>
</ul>
<ul>
<li>Supervising contractors;</li>
</ul>
<ul>
<li>Attending to day-to-day operational matters and correspondence;</li>
</ul>
<ul>
<li>Implementing decisions of OA and Board;</li>
</ul>
<ul>
<li>Keeping books and records as required by law;</li>
</ul>
<ul>
<li>Supervising defect repairs and warranty claims;</li>
</ul>
<ul>
<li>Coordinating insurances and insurance claims;</li>
</ul>
<ul>
<li>Issuing service charge notices and collecting payments;</li>
</ul>
<ul>
<li>Facilitate submission of technical, financial and management reports to&nbsp; Board and OA;</li>
</ul>
<ul>
<li>Dealing with complaints from Owners;</li>
</ul>
<ul>
<li>Coordinating and attending Board and General Assembly meetings,&nbsp;&nbsp; sending notices of meetings and maintaining minutes;</li>
</ul>
<ul>
<li>Follow up on legal matters on behalf of OA;</li>
</ul>
<ul>
<li>Representing OA with governmental and quasi- governmental entities.</li>
</ul>
</td>
<td valign="top">
<ul>
<li>HVAC plant and equipment;</li>
</ul>
<ul>
<li>Electrical Systems;</li>
</ul>
<ul>
<li>Plumbing Systems</li>
</ul>
<ul>
<li>Minor Civil Works;</li>
</ul>
<ul>
<li>Uninterrupted Power Supply;</li>
</ul>
<ul>
<li>Pressurization systems;</li>
</ul>
<ul>
<li>General Building Supervision;</li>
</ul>
<ul>
<li>Maintenance of swimming pool;</li>
</ul>
<ul>
<li>Water tank maintenance and cleaning;</li>
</ul>
<ul>
<li>Lifts and Elevators;</li>
</ul>
<ul>
<li>Cleaning;</li>
</ul>
<ul>
<li>Security Services;</li>
</ul>
<ul>
<li>Pest control services;</li>
</ul>
<ul>
<li>Gardening;</li>
</ul>
<ul>
<li>Painting and decorating of Common Areas;</li>
</ul>
<ul>
<li>Repairs and maintenance of Common Areas;</li>
</ul>
<ul>
<li>Audit;</li>
</ul>
<ul>
<li>Valuations;</li>
</ul>
<ul>
<li>Architectural and engineering consulting;</li>
</ul>
<ul>
<li>Reserve Fund Studies;</li>
</ul>
<ul>
<li>Legal Services;</li>
</ul>
<ul>
<li>Design assistance.</li>
</ul>
</td>
<td valign="top">
<ul>
<li>The Rental Pool including a booking service and property management services;</li>
</ul>
<ul>
<li>Housekeeping and cleaning services;</li>
</ul>
<ul>
<li>Arranging linen services;</li>
</ul>
<ul>
<li>Additional security control;</li>
</ul>
<ul>
<li>Childcare services;</li>
</ul>
<ul>
<li>Property maintenance services and repairs;</li>
</ul>
<ul>
<li>A mini bar service;</li>
</ul>
<ul>
<li>A food and beverage service;</li>
</ul>
<ul>
<li>The use of specialist Club facilities</li>
</ul>
<ul>
<li>A valet service;</li>
</ul>
<ul>
<li>Porterage services;</li>
</ul>
<ul>
<li>Bellboys;</li>
</ul>
<ul>
<li>Full time reception;</li>
</ul>
<ul>
<li>Full time caretaker;</li>
</ul>
<ul>
<li>Services including towels, chairs, umbrellas and related services and equipment.</li>
</ul>
</td>
</tr>
</tbody>
</table>
<p><br />Note: services specifically related to Units in the Rental Pool  are excluded from consideration in the table as any costs associated  with such Units would be for the Owner of that Unit under the Rental  Pool Agreement. If the costs of providing services in relation to such  Units formed part of the budget for the Owners Association this would  severely prejudice those Owners who chose not to put their Units into  the Rental Pool. It is the case however, that services in relation to  the Units are covered in the Rental Pool Agreement, it being a private  arrangement between the Unit Owner and Hold Co/the Hotel Operator and  the costs of the same are deducted from the revenues obtained from  letting out the Unit.<br /><br />The Association Management Services are  clearly a cost of the Owners Association and would be budgeted for and  paid for by Owners through their payment of Service Charges. Likewise  the Contracted Services would ordinarily be contracted for by the Owners  Association in the same fashion.<br /><br />The controversial category  (should we take the view of the cost conscious resident Owner) will be  the Ameliorated Services. Some of these may be able to be provided on a  &ldquo;User Pays&rdquo; basis, such as the putting of a Unit into the Rental Pool or  Unit maintenance services. If this is the case those &ldquo;User Pays&rdquo;  services would ordinarily be removed from the Owners Association budget.  Some Ameliorated Services may however be less easily categorized as  &ldquo;User Pays&rdquo;. Take for example &ldquo;Reception&rdquo; services and &ldquo;Bell Boy&rdquo;  services which may be used by all Owners and occupiers and not just  guests to the Rental Pool. In such cases it needs to be clear whether  the Hotel meets the costs of the same or the services are procured by  the Owners Association and paid by Owners through their payment of  Service Charges.<br /><br />Another potentially problematic aspect of MSA,  is that the Hotel Operator may also want to control the nature of the  services offered to the Owners Association by service providers and  choose service providers to ensure that it can meet its Brand Standards.  Sometimes the Hotel Operator may want to provide services itself and in  such circumstances there may need to be a process to benchmark and  apportion costs.<br /><br />Careful consideration from both a legal and  commercial perspective needs to be given to the issues raised in this  Part C and it is suggested that appropriate disclosure of the  arrangements may reduce the potential for disputes with Owners or the  Owners Association at a later date.<br /><br /></p>
<p><strong>D)&nbsp;Regulatory and other Issues Arising</strong></p>
<p>Readers may appreciate that a MSA scheme is a more complicated  ownership arrangement than simply owning an apartment in a building  which is nonetheless regulated pursuant to the JOP Laws and Directions.<br /><br />It  should be emphasized furthermore that if developers could bind the  Owners Association to long term contracts this could seriously undermine  the freehold nature of the investment.<br /><br />MSA arrangements are not  surprisingly therefore regulated in the Directions. In particular the  following provisions of the Directions may apply should RERA determine:</p>
<ol>
<li>Restrictions on the length of all Supply Agreements (of which the  MSA Framework Agreement would be one) with the Owners Association to no  more than 3 years.</li>
<li>Article 17 of the Direction for General Regulation ensuring that the  content of all Supply Agreements are fair, clear and have appropriate  mechanisms ensuring quality.</li>
<li>Article 34 of the Direction for General Regulation which may  restrict the ability of the Developer to enter into Supply Agreements on  behalf of the Owners Association.</li>
</ol>
<p><strong>In addition it is likely that RERA may require:</strong></p>
<ol>
<li>An Association Manager, registered with the Dubai Economic  Department and RERA, to be appointed to perform the various statutory  association management services set down in the Direction for  Association Constitution and as summarised above in Part C.</li>
<li>The Management Agreement be registered with RERA in accordance with Article 17(1)(d) of the Direction for General Regulation.</li>
</ol>
<p>It is probable that RERA may exercise its discretion as above, having  regard to the fairness of the scheme overall on Owners. In addition it  is very likely that RERA may also consider, in exercising its  discretion, the extent to which the developer has complied with the  disclosure regime set down in the Direction for General Regulation and  therefore the extent to which the investor appreciated the nature of the  scheme into which he was investing.&nbsp;<br /><br />The above represents an  overview of a managed and serviced apartment scheme in the context of  Dubai regulation to date. As mentioned this Article does not deal with  licensing considerations.</p>