Service Charge Calculation Strategy MEFMA Focus Group 2

Service Charge Calculation StrategyMEFMA Focus Group 2

Index

1. Team members2. Group Objective3. Service Charge Definition4. Methodology5. Group Outcomes6. Exclusions and Boundaries7. Way Forward

• 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

Team Members

• 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

MEFMA 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

Focus Group 2 Objectives

Service Charge- A definitionArticle 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- CalculationPrior 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’ areaAfter 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 SurveyThe Survey Design Identified the following types of developments:-• Villa Communities• Residential Buildings (≤ 25% retail)• Mixed Use (≥ 25% retail, commercial, hotel units)• Commercial only• Master CommunitiesThe survey included the RERA required master reporting codes and a

range of sub codes from our standard chart of accounts:-Maintenance & ServicesUtilitiesManagementInsuranceReserve FundMaster Community

Service Charge Survey BenefitsThe Survey results would assist with the following:-

• 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

stakeholders48 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 0The 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 ResultsChart Title - Villas

Our Analysis of the ResultsChart Title - Residential

Our Analysis of the ResultsChart Title – Mixed Use

Our Analysis of the ResultsChart Title – Commercial

Standard Chart of AccountsGroup 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 & ServicesUtilitiesManagementInsuranceReserve FundMaster Community Charges

Thank you.

Standard Chart of AccountsGroup 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 AgreementsRERA 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

• 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) Task Name2) Frequency of the maintenance service3) Detailed description of the tasks required4) Service level – What is the minimum threshold the tasks need to be maintained5) 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 ForecastingArticle 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 & ConstraintsSuccess• 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 companiesConstraints• 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