Fichte & Co. | View firm profile
Purchasing off-plan property has become the new norm, with affordable prices and the increase in incentives being offered, purchasers are quick to jump on the bandwagon. The Dubai Law No. (8) of 2007 On the Matter of Escrow Accounts for Real Estate Development (“Escrow Law”) was issued for the purposes of safeguarding purchaser’s money after the housing crisis. Although there are hefty penalties for developers who breach the Escrow Law, there are no guarantees for project completion, or full security of a purchaser’s money placed in the escrow account. Dubai Law no. 19/2017 was further issued amending certain articles of Dubai Law no. 13/2008 on the Interim Real Estate Register in the Emirate of Dubai (“Real Estate Register Law”), which offered increased protection to developers. Developers can now file a complaint to the Dubai Land Department (DLD) of a purchaser’s non-compliance with their contractual obligations. The DLD will then notify the purchaser, and if need be, attempt to reach a settlement between the developer and the purchaser. This amendment introduced greater certainty in the procedures carried out by the DLD to enforce the developer’s rights.
Unfortunately, however, this still does not guarantee the rights of purchasers, and does not create any certainty over the project completion if developers default on their own contractual obligations. Many potential buyers sign their purchase and sale agreements fairly quickly on the premise that they wouldn’t be able to negotiate with a well-reputed developer, and that they would miss out on the deal if they don’t act quickly. However, this should not be a deterrent to conducting a full due diligence on the developer, and to have the sale and purchase agreement reviewed by legal counsel. A full review must be conducted to assess the risks, especially in this volatile market. Whilst there are numerous factors to assess and consider depending on the sale and purchase agreement, below we’ve highlighted the top eight considerations purchasers need to focus on before signing their agreements:
Ensure the Developer is registered with the Dubai Land Department:
Conducting due diligence on the developer is essential prior to signing any deals or offers. The DLD has a registry of developers on their website where you can verify if they’re an “approved developer”. A quick google search may also be worth it to ensure the developer’s reputation and proven track record for completion of projects.
Request a copy of the title deed:
You must ensure the registered owner of the property is correctly mentioned in the sale and purchase agreement. If possible, it is also worth checking to see if there are any rights being granted in relation to the use of property, and any land restrictions. A copy of the master community declaration should be requested to correctly understand the nature of the property use.
Ensure the project is approved by the DLD:
This is similar to ensuring the developer is an approved developer; the DLD website will generally list approved projects. The unit must also be registered under Oqood, as required under the Real Estate Register Law.
Verify the details of the escrow account:
You may verify this with the developer, and RERA if there are any concerns.
Verify the details mentioned of the authorized representative:
It’s essential to ensure that the person authorized to sign the agreement has the power to do so; otherwise the entire agreement may be null and void. Request a copy of the commercial license to see if the manager listed on the license is the authorized representative, or request to see a power of attorney authorizing the person signing on behalf of the developer.
Review the payment obligations:
The obligations on the purchaser are quite extensive under such agreements in order to ensure the payment provisions are adhered to. It’s important to ensure the payment schedule is linked to the construction milestones, and clearly sets out the amounts and percentages due dates.
Review the termination rights under the agreement:
This is one of the most important provisions in the sale and purchase agreement for the purchaser. Usually the developers may retain the amounts paid by the purchasers and terminate the agreement if the purchaser fails to abide by their contractual obligations. Likewise, the purchaser must ensure their rights to terminate and to be refunded are also secured in the sale and purchase agreement should the developer not meet its construction deadlines.
Ensure the forum and governing law are clearly mentioned:
The governing law in such sale and purchase agreements must be stipulated as the laws of the UAE. Furthermore, if the developer wishes to invoke arbitration as the relevant forum, then advice must be sought from a real estate lawyer, since a party’s rights to enforce arbitration awards in Dubai, specifically for real estate matters, may be limited.