Dubai has proven itself to be a pioneer in the field of real estate development through its innovative work in the process of selling off-plan real estate units. Such units are those that do not exist at the time of purchase but may exist in the future or are not yet completed when the contract is made.
This type of sale is an important method for supporting and stimulating the real estate sector within the Emirate. It provides mutual benefits for both parties as it allows the buyer to purchase the real estate unit through instalments that fit their financial circumstances, while providing the developer with the necessary funding through these instalments to complete the project.
However, this arrangement does not come without its risks, as it is highly dependent on the buyer's adherence to timely payment of the agreed installments. Should the buyer fail to pay the agreed installments, this could negatively impact the progress of development and delay the project's completion, thereby highlighting the need to enable the developer to take the necessary measures against the buyer.
Accordingly, the legislator has accounted for this through Dubai Law No. 13 of 2008 (as amended by Dubai Law No. 19 of 2017) regulating the Interim Real Estate Register in the Emirate of Dubai (the Interim Real Estate Register Law). As per the provisions of the Interim Real Estate Register Law, a developer is empowered to directly resort to the Dubai Land Department (the DLD) in case the buyer defaults on the payment of installments, without the need to initiate litigation or arbitration first. This is highly advantageous as litigation and arbitration proceedings are lengthy in nature, and the ability to approach the DLD directly, can facilitate faster resolution of the dispute, thereby abating undue delay to the completion of the project while minimizing the harm caused to other investors.
Article 11 of the Interim Real Estate Register Law outlines the procedure that the developer and the DLD must follow when taking measures against a defaulting buyer:
- The developer must first notify the DLD of the buyer's breach of contractual obligations.
- The DLD must then verify the developer's claim of the buyer's breach and after doing so, it must notify the buyer to fulfill their obligations within 30 days of the notification date.
- If the 30-day period expires without the buyer fulfilling their contractual obligations or reaching a settlement with the developer, the DLD will issue an official document to the developer confirming that all required steps have been taken, including determining the completion percentage of the sold unit.
Once the developer receives this document, they are entitled – through the DLD – to take the measures outlined in the Interim Real Estate Register Law, which include the unilateral cancellation of the unit's sale contract, deregistration of the unit from the buyer's name, and deduction of a certain percentage of the unit price (from the amounts already paid by the buyer) depending on the percentage of the unit's completion. While this can be done without the developer having to resort to the courts or arbitration, the buyer retains the right to contest these measures in court or through arbitration.
Upon analysis of this procedure, it becomes clear that the legislator has assigned a supervisory role to the DLD, which involves two important responsibilities among others, being the verification of the developer's claim, and proper notification of the buyer to provide them with the opportunity to rectify the breach within the stipulated timeframe.
However, in practice, there have been instances where this supervisory role has not been adequately fulfilled, which has been taken advantage of by some unscrupulous developers, thereby undermining the intended purpose of the procedure.
A recent ruling from the Dubai Court of Appeal issued on 30 July 2024, showcased the importance of adhering to this procedure. In this case, the court ruled in favour of a buyer of an off-plan real estate unit in a lawsuit against one of the developers, by holding that the cancellation of the unit's registration was invalid. The Court found that the developer falsely claimed that the buyer defaulted on instalment payments. During the proceedings, it was subsequently revealed that the buyer was never properly notified of the mandatory payment request, a notification which the DLD should have ensured delivery of before allowing the developer to proceed. Consequently, the court ordered the re-registration of the unit in the buyer's name.
It is therefore crucial for the DLD to fulfil its supervisory role by thoroughly investigating the developer's claims of breach against a buyer under the unit sale contract and its terms. The DLD should not merely relay these claims without verifying their validity, and must properly notify the buyer of any breaches, once confirmed, to ensure that the buyer is given a fair chance to remedy these breaches before the developer takes further action.
Developers should also be forewarned of the risks of presenting false information to the DLD and may wish to confirm with the DLD that all necessary steps have been conducted according to the applicable laws, to minimize any question into the validity of the remedies availed by a developer against a defaulting buyer.
This will enhance confidence in Dubai's real estate development market, mutually benefiting buyers and developers alike.
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.
