Real property development in the UAE is often undertaken on a joint venture basis. The reasons for this are similar to those in other jurisdictions and include sharing risk, specific development expertise, ownership restrictions on the property and the increase in public private partnerships.
However, it is vital the Joint Development Agreement (JDA) between the development partners is transaction specific and in line with the applicable law of the jurisdiction in which it is to be carried out.
In the UAE, a key requirement for a property development structure is the property being registered in the property owner's name. In addition the property may not be mortgaged and if mortgaged during the project development, the proceeds of the mortgage must be paid into an escrow account established for the project.
The developer must be licensed to develop real estate in the UAE and additional legislated requirements must be complied with especially when dealing with a project which is intended for off-plan sale.
The agreement used is normally a comprehensive document or suite of documents detailing the structure and elements of the project.
Like all agreements, it is essential to set out the identity of the parties accurately in order to ensure any enforcement of the contractual terms is effective. Separate legal personality of corporate entities is strictly enforced in the UAE and requires the correct parties to conclude the agreement in line with their financial and technical commitments. Developers, unlike contractors will need to share in the overall profit. They may also wish to protect their investment and capital contributions by having control of the final sales, both in terms of sales prices and processes. Developers also need the right to sell and register any off-plan sales of units and collect the proceeds of these sales, through the project escrow account. Both parties should also agree to the appointment of a developer as an agent of the property owner for purposes of the development of the project.
The developer should have the necessary authority to make any reasonable and necessary changes to the building project during the term of the JDA without having to revert to the property owner.
Property Owner's Obligations
A property owner must provide all the necessary documentation on the legal status of the property including zoning details and permitted use.
They must also undertake to sign all necessary documentation to facilitate the utilisation and investment in the property and grant the developer the right to represent the Land Owner in all matters relating to the property and the construction of buildings on it. Finally they must agree not to interfere with the developer's development of the project.
A developer must comply with all local laws, open a dedicated escrow account as per regulations for off-plan projects and adhere to the construction schedule.
They must also obtain the necessary approvals from the master developer, the Municipality and relevant Land Department for the project and carry out the construction on the property within a certain timescale.
Finally they must adhere to the construction requirements before the sale of off-plan units, manage the budget, payments and amounts received from purchasers and register all off-plan sales contracts on the Land Department's Interim Property Register.
Project Funding and Budget
Projects are not funded from third party funding alone and the parties will have to invest and use their own resources, especially in the initial project phase.
Financial institutions will not fund 100% of the required project budget as UAE regulations require 20 to 25% unleveraged equity in a project.
When it comes to off-plan projects the funds from the sales and financing are held in the project escrow account and released on progress of the project, in order to protect the interests of purchasers.
Completion and Termination
The parties must agree that after obtaining the completion certificate and registering the units in the land registry, ownership of the property and buildings on it will pass to individual purchasers of the units, in line with the individual purchasers' unit entitlements.
Neither party should have the right to terminate the JDA or the project during its term.
A JDA will only expire after construction has been completed and the purchased units have been registered in their names in the land registry.
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.