Executive Council Resolution No. 6 of 2010, approving the executive regulation of Law No. 13 of 2008, concerning the regulation of the Interim Real Estate Register in the Emirate of Dubai (the "Resolution"), came into force on 14th February 2010 but is yet to be published in the Official Gazette. The Resolution contains the much-anticipated regulations relating to Law No. 13 of 2008 (the "Law") which, amongst other things, introduced the Interim Real Estate Register to Dubai. Those regulations which are repetitive of provisions of the Law will not be covered in this article.

Expanding on the Law

The Resolution expands upon some aspects of the Law, for example, stating that it is sufficient for a developer to apply to register a unit (rather than complete such registration) within the time limit specified in the Law, in order to have complied with the Law. If a developer does not apply within the specified time limit, the Land Department will still allow registration out of time but impose a penalty on the developer of AED 10,000.

The Resolution also states that in addition to taking possession of the plot and obtaining the required approvals (as mentioned in the Law), a developer must also obtain a demarcation certificate and take actual control of the plot before a developer is allowed to commence construction of the project or sell units off-plan.

Another aspect of the Law that was expanded upon relates to registration upon completion. Previously, a developer could not refuse to hand over or register a unit in the name of the purchaser on the Real Estate Register once a project had been completed or a completion certificate had been issued by the relevant authorities, if a purchaser had discharged all its contractual obligations. The Resolution adds that now, the developer cannot refuse even if there were other financial obligations owed by the purchaser to the developer which did not arise in connection with the sale contract.

As regards a developer marketing a project through a real estate broker, the Resolution adds to the provision of the Law (which only mentioned registering contracts with brokers at the Land Department) by stating that the project and the project marketing agreement must also be registered with the Land Department. In addition, the Resolution makes it mandatory for a broker to pay the proceeds from the sale of a unit into the project's escrow account and not the broker's personal account, meaning that the broker now cannot receive its commission before paying the proceeds into the escrow account.

The Law had stated that the developer must compensate a purchaser if the area of the unit turned out to be less than the agreed area. The Resolution clarifies that such compensation shall be payable if the difference was more than 5%.

Clarifications to the Law

Rather significantly, the procedure for termination of sale contracts by a developer through the Land Department has been clarified. It would appear that the thirty day termination notice no longer needs to be served through the Land Department. The developer may either request the purchaser to perform its contractual obligations by personally appearing before the Land Department or in writing by registered mail or email, provided that the Land Department is given a copy of the request.

Another clarification is that if the developer has completed at least 80% of the project, it no longer must sell the unit at public auction to recover any balance of monies owed by the purchaser. The developer now also has the option of deducting a maximum of 40% of the unit's purchase price and terminating the sale agreement. If the unit is not sold at public auction the developer may make use of or let it, subject to the balance amount being paid to the purchaser.

Additions to the Law

The Resolution has added that a developer may apply to court for compensation if on termination of the sale contract, the payments received from the purchaser in the possession of the developer are less than the percentages the developer is entitled to retain under the Law and Resolution.

The Resolution also adds that in cases where the developer has not started construction of the project (defined in the Resolution as the completion of leveling and infrastructure works) and a purchaser is in default, the developer can only terminate the contract and retain 30% of the payments made by the purchaser, if it can prove that it has performed all its contractual obligations and the reasons for failing to commence construction are not due to its negligence but due to reasons that are beyond its control. This repeats the Law, but the Resolution additionally defines what "negligence" and "beyond control" actually are.

The developer is considered to have failed or neglected to perform its obligations for any reason determined by the Real Estate Regulatory Agency ("RERA") or if the developer:

  • Delays to take delivery of the plot without good reason or delays in obtaining required approvals to commence the project.
  • Sells the project off-plan without obtaining written consent of the master developer.
  • Delays in obtaining the written approval of the master developer for the project's plan and design.
  • Delays in preparing the project for construction work.
  • Omits to provide RERA with the required information to approve the project.
  • Fails to register the project or the project's financial statements with RERA.

The occurrence of any of the following events are considered to be reasons which are beyond the developer's control:

  • Expropriation of the plot upon which the project is to be constructed for the public interest.
  • The stopping of the project by a government body for re-planning purposes.
  • The discovery of buildings, excavations or utility lines on the project site.
  • Variations made to the project site by the master developer which result in changes to the boundary and area of the project so as to affect the performance of the sub-developer's obligations.

The Law, which regulated the practice of sale contract termination by developers, did not cover instances where purchasers could terminate such contracts. The Resolution, however, introduces the following reasons the purchaser can rely on for applying to court to request termination of a sale contract with the developer:

  • If the developer refuses to deliver the final sale contract to the purchaser without a reason acceptable to the Land Department.
  • If the developer does not link payments of the purchase price to construction milestones proposed by RERA.
  • If the developer makes material changes to the specifications agreed to in the sale contract.
  • If it is determined that the unit on hand over is not fit for use due to material defects in construction.
  • Any other reason which would require the termination of a sale contract in accordance with the law.

The Resolution also introduces reasons which RERA can use to cancel development projects following sight of a technical report. Such reasons are:

  • After obtaining all necessary approvals to commence construction, the developer fails to do so without good cause.
  • The developer breaches Article 16 of the Escrow Law No. 8 of 2007.
  • RERA finds the developer is not serious about constructing the project.
  • The plot upon which the project is to be constructed is repossessed because of the sub-developer's breach of its contractual obligations with the master developer.
  • The plot upon which the project is to be constructed is affected by planning or re-planning projects undertaken by the authorities.
  • The developer fails to construct the project due to gross negligence.
  • The developer provides reasons satisfactory to RERA as to why it does not want to construct to project.
  • The developer is declared bankrupt.
  • Any other reason as determined by RERA.

The developer is entitled to appeal the cancellation of the project within seven working days of being notified of such cancellation. If RERA rejects the appeal, such rejection is final and the project shall be cancelled.

If the cancelled project's escrow account does not contain enough money to repay purchasers, the developer must repay the balance of the monies paid by each purchaser to such purchasers within sixty days of cancellation of the project. If the developer fails to do this, RERA will take all steps to ensure that the purchasers' rights are protected, including referring the matter to the judicial authorities.

Conclusion

The Resolution has no doubt provided useful clarification on how real estate transactions are to be regulated in Dubai, particularly in relation to purchasers' rights vis a vis developers, and also in relation to the criteria that RERA can use to cancel projects. It will be interesting to see how the various provisions of the Resolution are applied and how they work in practice, given the changing state of the Dubai real estate market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.