A key feature of all urban development - and its principal challenge - is the achievement of a successfully integrated urban community.

This article provides an overview of urban development in the Middle East and considers some of the legal issues that need to be considered.

What is urban development?

Urban development may often involve the wholesale coordinated development of a large part of a town or city or it may involve only one facet, such as residential areas, commercial space or leisure facilities. However, urban development is not simply about developing housing or retail space; it involves creating an integrated plan which will meet the employment, entertainment, mobility and lifestyle needs of the community. The principles of good urban design, the requirements of the local municipal and regulatory authorities, the needs of the community and the commercial aspirations of scheme stakeholders, must all be brought together and balanced.

The drivers for any urban development will centre around a core set of common principles, requirements and objectives, which will reflect national, regional and local needs. The aim will be to create a vibrant focal point for the community, which delivers a better quality of life whether this is through improved civic facilities, an integrated transport network and enhanced economic prospects.

Governance of an urban community

A solid legal framework is key to any successful urban community.

When a stand-alone master community is developed the main document governing the relationship between the landowner and every occupier or other user of the land is the master community declaration. In a master community, certain facilities and amenities are shared, and so the declaration sets out and deals with matters such as the responsibility for construction, maintenance and payment for infrastructure and common areas on the site. The declaration creates a mutually beneficial scheme to govern the master community as a whole.

The property owners in the community are required to contribute to the costs of the master developer in complying with its obligations under the declaration via a service charge, which is usually proportionate to the size of the property owner’s interest in the master community.

All community areas falling outside of residential/commercial units are designated as “common property”, and include areas such as building structure, foundation, community areas, parking, swimming pool and gym. The management of such common areas is transferred to a co-owners’ association. The constitution of the co-owners’ association sets out how the association is governed and grants the association its management powers (which it may seek to delegate to a professional management company).

Planning and structuring an urban development

Given the varied nature of facilities in such a development, a common tactic of developers is to joint venture with selected operators. This is intended to generate greater commitment and buy-in from the operator on the basis that they are ultimately sharing in the economics of the development rather than simply taking a fee. A key issue to consider in these joint ventures, however, is how to deal with the inherent conflict of interest of the operator in its capacity as shareholder in the joint venture vehicle and as operator appointed by the joint venture.

Environmental and sustainability issues

The Middle East is becoming increasingly conscious of the need to consider environmental and sustainability issues when planning any development.

For instance, in May 2008 the ‘Estidama’ sustainable building guidelines were introduced in Abu Dhabi to underpin Plan Abu Dhabi 2030, and a sustainable community, by promoting economic growth whilst enhancing the overall quality of life and protecting environmental resources.

In addition, compliance with internationally recognised green building standards has been on the rise in Dubai for the past two years. In 2006 the Emirates Green Building Council was established and decided to use the US-based LEED system (Leadership in Energy and Environmental Design) as a basis for its green building guidelines.

Bahrain has yet to formulate any ‘green’ regulations but this has not stopped local developers from increasingly recognising the need to be more aware of environmental issues.

Provision of utilities

A developer of any urban development project will need to consider certain key issues in relation to the various utilities (such as the provision of desalinated water, district cooling and wastewater treatment) that will need to be provided to the development. Some of the main issues are as follows:

  • Who is responsible for the construction of any pipeline network required for the provision of the utilities?
  • The tariff mechanism will need to be bankable while at the same time incentivise the utility provider to meet the agreed performance standards through the penalty and deduction regime.
  • Who is paying the tariff – the master developer/landowner, the sub-developers, or the end-users?

Integrating transport

Transport will be a vital component of any urban development. It will be essential to integrate all modes of transport and enable goods and people to move freely throughout the community. Key issues to consider include the following.

  • The interface with wider road and other construction works on the project site and the overall project programme.
  • Any regulatory or other legal requirements.

Residential development

The following issues should be considered in relation to the residential component of any urban development: Will a plot sale agreement, unit sale agreement or both be required?

  • Will there be any provision of social housing and how will this be structured?
  • Who will fund the purchase? If purchasers will need mortgage finance then co-operation agreements with mortgage banks may need to be considered as well as the impact of local mortgage laws.
  • How will the development be structured? What will be the strata title strategy?

Retail and other facilities

In any large scale urban development, there will be a number of specific facilities for which a specialist operator will be required. These include retail mall facilities and hotels. The selection and continuing performance of the operator is key to maximising value from the operation.

Commercial office premises

The developer should consider whether it is targeting tenants to open corporate headquarters in whole buildings, or tenants who require smaller offices for a branch/ periodic use in parts of buildings.

A form of commercial lease will be required and this will need to be negotiated with each tenant. The terms of the lease will need to be considered carefully to maximise the rental stream to and protect the landlord. The above provides an overview of some of the legal issues that need to be considered when undertaking urban developments. A multitude of other issues will arise ranging from the best construction procurement method to those stemming from the need for education, hospital and health facilities.

The delivery of a successfully integrated urban community will require advice and guidance of lawyers and other professional advisers who are experts in their respective fields and who have experience of working on such projects within the Middle East.