Since the opening of the Dubai property market in 2002, there has been a plethora of predominantly constructive changes regarding the regulation of the Dubai property market, its players and their transactions.
The latest move by the governing body
RERA as well as a ruling issued by the Dubai Court of Cassation are well worth noting as they both clarify and enhance the rights of purchasers invested into off-plan property in the Emirate of Dubai.
Excessive Variation: RERA Steps in to Protect Purchasers
In a recent dispute between off-plan property purchasers and a Dubai-based developer the question was raised if the developer was entitled to increase the sellable area and consequently the sales price of the property substantially. The developer in question had put a clause in its Sale and Purchase Agreement (SPA) allegedly allowing for a price increase in case the actual Built Up Area (BUA) differed more than three percent from the areas as contracted in the SPAs.
The developer then inflated the unit sizes and their sales prices by as much as 51%, prompting the investors for payment.
RERA, the regulatory arm of the Dubai Land Department now clarified that it does not accept price increases for concluded contracts of off-plan properties due to alterations of unit area.
Court Ruling: Buyer`s Default to be Determined Exlusively by Court
Another notable change with respect to the regulatory landscape of off-plan investment in Dubai is the recent ruling of the Dubai Court of Cassation pertaining to the termination of Sale and Purchase Agreements (SPAs).
Until now, developers dealing with non-paying purchasers of off-plan property had often cited Law No. (9) of 2009 which stipulates under Article 11:
If the purchaser breaches any of the terms of the sale contract of the Real Property Unit concluded with the developer, the developer must notify the Department of such breach, and the Department must give a thirty (30) days’ notice to the purchaser, in person, by registered mail or by email, to fulfil his contractual obligations.
As a consequence, if the purchaser failed to pay within thirty days of the issued notice, developers took back the unit from the Land Department`s interim register and withheld parts of the buyers downpayments in an apparent reliance on paragraph two of the same statute.
Contrasting to this practice however the Dubai Court of Cassation held in its ruling that a breach of contract on the buyer`s side could exclusively be determined by a court.
Therefore, the recent court ruling degrades the provisions of Article 11 of Law No. 9 of 2009 to be purely administrative measures necessary to recover an off-plan unit by way of repossession. In order for the compensation provisions of Article 11 – which grant the developer the right to withhold parts of the purchase price – to take effect, a court order declaring the purchaser`s default und thus termination of the contract must be sought.
By rendering the repossession without issuance of a court order a unilateral termination of contract from the developer`s side, the latter becomes liable to repay any downpayments received towards purchase of the respective unit to full extent.
Summary
The discussed provisions add another two elements to Dubai`s increasingly mature and complete legal property market framework, predominantly protecting purchasers` and end-user`s rights. By passing the recent ruling (and clarification in the case of RERA) Dubai could not send a clearer message about its sincere intention of putting foreign capital at ease in the Emirate`s property market.
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The author advises institutional investors about property transactions and handles property portfolios in Dubai since the year 2007. Should you have comments or inquiries, please contact the author on
author@property-blog-dubai.com.
