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11 December 2018

An Overview of Recent Laws Impacting the Real Estate Landscape

Since its establishment under Law No. 27 of 2017 Concerning the Promulgation of the Real Estate Sector Regulation Law (the RERA Law), the Real Estate Regulatory Authority (RERA), along with other governmental entities, including but not limited to the Survey and Land Registration Bureau (SLRB), have issued numerous laws and decisions concerning regulating the real estate market in the Kingdom of Bahrain. These decisions have detailed the different obligations, rights and responsibilities imposed on the various stakeholders involved in real estate development projects, as well as specifying the different registers that will be available to the public.

We have provided brief summaries of recent resolutions which have been issued since our last real estate updater:

RERA Resolution No. 4 of 2018 Regarding the Licensing of Property Management and Operation

Any individual (natural or legal) wishing to practice property management and operation is required to be licensed by RERA. An application must be submitted to RERA, along with the information and documents more particularly set out on their website. The applicant must attend professional training approved by RERA prior to obtaining a licence. However, if the applicant has local or international experience of at least 3 years, then RERA may exempt the applicant from this requirement. If the applicant has experience of at least 6 months, then RERA may grant the applicant a 6-month temporary licence, provided the applicant passes the training courses within those 6 months in order to obtain a final licence.

If the applicant also wishes to perform management functions for owners association, it may request RERA to include this information on the licence.

A licence is required to be renewed annually (at least 60 days before the expiry of the licence) and the licensed property manager must submit a report to RERA prior to the renewal. This report will include details of all the property management and operation contracts concluded within that period.

RERA will also create a property managers register (either in softcopy or hardcopy format) that will be available to stakeholders, which will include information about the property managers, namely:

  • The name, address and licence number of the property manager; and
  • Head office, contact details, dates of issuance and expiry of the licence, and details of legal representatives (if any).

RERA Resolution No. 5 of 2018 on Creating a Register for Developers:

RERA will create a developers' register (either in softcopy or hardcopy format) that will be available to the public, which will include all the developers' information, namely:

  • Developer's name;
  • Developer's licence number, date of issuance and renewal date;
  • Head office;
  • Name of the authorised representative of the developer;
  • Contact information of the authorised representative; and
  • A list of the current development projects.

Any changes to the above information must be submitted to RERA within 5 days of the relevant change.

RERA Resolution No. 6 on Regulating the Duties, Obligations and Responsibilities of Developers

This Resolution outlines several duties, obligations and responsibilities that a licensed developer will be required to comply with. These include submitting comprehensive reports on the progress and sales of a development project, as well as submitting a sales schedule identifying new transactions at the end of each month.

This Resolution imposes other obligations that the developer may have towards buyers and third parties. These include restrictions on modifying the specifications agreed upon within the relevant sale and purchase agreement without the approval of RERA, unless it is necessary for technical reasons or inevitable. The developer is under an obligation to keep the buyer informed and up to date with any permitted changes as well as the progress of the licensed project.

Moreover, on completion of the off-plan project and payment by the buyer of the final instalment of purchase price in accordance with the agreed terms, the developer is required to register the buyer's details with the SLRB. The developer must fulfil this obligation irrespective of whether the buyer has other outstanding financial liabilities towards the developer. If the developer fails to do so, then the buyer is entitled to submit a request to RERA directly to register its details and interest.

This Resolution also includes a statutory mechanism in relation to variations between the estimate and final floor area of units. Accordingly, the purchase price of a unit may be proportionately adjusted to reflect differences between 5% - 10% of a unit's actual floor area against the unit's estimate floor area, as stipulated in the sale and purchase agreement. If this difference is less than 5% then neither party will be entitled to claim a variation to the purchase price. On the other hand, if the difference is higher than 10%, then the Resolution provides buyers with an option to either terminate the sale and purchase agreement or adjust the purchase price proportionately. The Resolution does not specify whether such assessment will be based on gross or net floor area; however, our understanding is that the method of measurement stipulated in the sale and purchase agreement will form the basis of this calculation.

RERA Resolution No. 8 of 2018 on Creating a Real Estate Brokerage Register

RERA will create a brokerage register (either in soft copy or hard copy format) that will be available to the public, which will include all the information about brokers and sales agents, namely:

  • Name and address of the real estate brokers and sales agents;
  • Licence numbers of the brokers and sales agents, as well as issuance and renewal dates;
  • Contact details of the brokers and sales agents;
  • Name of the authorised representative of the broker, if he is a legal person; and
  • Names of the sales agents working with, or contracted by, real estate brokers.

Any changes to the above information must be submitted to RERA within 5 days of the change.

RERA Resolution No. 9 of 2018 on Regulating Licensed Real Estate Broker's Duties, Obligations and Responsibilities

This Resolution stipulates that a real estate broker and sales agent must enter into an agency agreement if the sales agent does not work for the broker. It also states that both brokers and sales agents must keep their client informed of all negotiations, brokerage stages and any other important information.

The brokers or sales agents may only receive money from the buyers if it is agreed in writing between the parties of the sales agreement. This Resolution provides that the brokers' or sales agents' commission is 2% of the sale price and payment of the commission will be split equally by the contracting parties (unless agreed otherwise). In relation to off-plan sale projects, brokers and sales agents shall deposit the buyers' payments into the project's escrow account; the commission due cannot be directly deducted from these payments and any agreement to the contrary will be deemed null and void. In addition, the broker or sales agent will not be entitled to their commission payment from the escrow account unless the buyer has paid the first instalment of the purchase price. It is also noted that RERA Resolution No. 3 of 2018 specifies that the commission may be deducted if 10% of the purchase price has been paid and if the escrow agent is satisfied that the broker or sales agent has complied with certain requirements including its registration with RERA.

Brokers and sales agents must state their registration numbers as specified in the real estate brokerage register on all correspondence, advertisements, websites, social media, documents, visit cards, publications and business offices.

This Resolution also requires brokers and sales agents to maintain a real estate transactions register, which will include information such as property location, price of the property, the commission in each transaction, contractors' contact details, etc. RERA may also register the details contained in said register.

Brokers and sales agents are also required to procure a professional liability insurance policy, with the amount being no less than BHD 100,000 if the broker is a corporate entity and no less than BHD 50,000 if the broker and/or sales agent is a natural person. This will cover mistakes arising from negligence and/or fraud.

SLRB Resolution No. 1 of 2018 on the Creation of an Off-Plan Sales Register

Pursuant to the RERA Law, the Survey and Land Registration Bureau (SLRB) issued Resolution No. 1 of 2018 in relation the establishment of a register in relation to each off-plan project which has been licensed by RERA (Register).

The developer must submit a request to the SLRB to initiate the Register. This request is normally provided as part of the application process for a development licence and a template request letter is available on RERA's website.

Developers must submit certain data and information in relation to the relevant project including, but not limited to, details of all units within the relevant project together with their estimate areas and unit plans in the format required by the SLRB. Developers are also under an ongoing obligation to provide copies of all sale and purchase agreements concluded together with a summary of all buyers and disposals of any rights affecting the units or the relevant buyer's interest.

On completion of a project and notification to RERA, the developer will receive a completion certificate issued by RERA, which will be recorded in the Register. The certificate must also be provided to the buyers at handover. The final plans (including those relating to the common areas) will also be submitted and recorded onto the Register.

What's next?

We anticipate that RERA will be issuing further regulations over the coming months, which may include regulations for "special management schemes", regulations relating to staged, or phased, real estate development projects and regulations relating to master community developments. These regulations may introduce significant changes to the way the development projects are structured in Bahrain. Accordingly, we will explore these awaited laws in greater detail at the appropriate time.

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