Thankfully, the UAE’s legal system includes certain protections to safeguard the rights of buyers in such situations – here is a comprehensive guide to understanding them.
Investing in off-plan real estate in the UAE can be appealing due to its relatively affordable pricing compared to ready properties. Yet, construction delays can transform this opportunity into a prolonged process, causing uncertainty and potential financial setbacks for buyers.
Fortunately, there are safeguards within the UAE legal system designed to protect buyers’ rights in such situations, as outlined by legal experts Mahmoud Kreidie and Michael Kortbawi of law firm BSA.
Here’s everything you need to know.
Buyers’ rights for off-plan handover delays in UAE
“When buying off-plan property in the UAE, it’s crucial for buyers to understand key clauses in the Sale and Purchase Agreements (SPAs),” emphasized Mahmoud Kreidie, a paralegal at the esteemed law firm BSA.
These clauses, standard in most developers’ contracts, play a vital role in protecting buyers’ interests and ensuring their rights are upheld throughout the transaction process.
One such essential clause is the Completion and Passing of Risk Clause, which specifies the developer’s expected completion date and allows for an extension under specific circumstances outlined in the agreement, typically ranging from 6 to 12 months.
“If the property is not completed and handed over beyond the extended period, the SPA may be terminated,” Kreidie clarified.
Additionally, the Cancellation of the SPA Clause gives buyers the right to cancel the agreement if the developer fails to fulfill their obligations, such as not delivering the property by the agreed date.
“Usually, SPAs provide for a 12-month extension beyond the Expected Completion Date. If the property remains unfinished after this extension, the buyer has the option to cancel the SPA,” he added.
Off-plan project completion stages and terms
These clauses, standard across most UAE developers, are crucial for safeguarding buyers’ interests. However, real estate transactions in the UAE, including off-plan purchases, are governed by varying emirate-specific regulations rather than a unified federal law, clarified Michael Kortbawi, Partner at BSA.
As projects progress through different completion stages, specific terms are typically outlined in the Sales and Purchase Agreement (SPA). For example, if a project surpasses 80 percent completion, developers may enforce the contract terms or retain up to 40 percent of the purchase value, refunding the remainder within a specified timeframe.
In cases where projects face unforeseen delays beyond developers’ control, developers have the option to cancel the sale contract, deducting a maximum of 30 percent of the payment and refunding the balance within 60 days or upon property resale, whichever occurs first, as explained by Kortbawi.
In Dubai, robust regulations under laws such as Law No. 8 of 2007 (Escrow Accounts), Law No. 13 of 2008 (Interim Real Property Register), and Executive Council Resolution No. 6 of 2010 provide comprehensive buyer protection. The Real Estate Regulatory Agency (RERA) ensures transparency and accountability across the sector by regulating developers, brokers, and projects.
Property developers are required to establish an escrow account for each project, depositing all payments from buyers into this account, and providing buyers access to review the account records, as outlined by Kortbawi.
Dubai’s Law No. 13 of 2008 mandates that off-plan property sales be registered with the Dubai Land Department (DLD) to safeguard buyer interests. Executive Council Resolution No. 6 of 2010 stipulates that developers must deliver properties by agreed-upon dates upon buyers fulfilling financial obligations. In cases of delays or non-delivery, buyers have recourse to seek resolutions through the DLD or pursue legal action.
Article 11 of Law No. 13 of 2018 addresses breaches of sale contracts by buyers, outlining procedures for DLD notification and potential outcomes tied to project completion percentages.
“In the event of project cancellation by RERA resolution, developers are obliged to refund all amounts paid by the buyer.”
Before committing to an off-plan property, buyers should conduct thorough due diligence by verifying the developer’s credentials and project details.
“Potential buyers should ensure the project’s registration with RERA and verify the existence and specifics of the escrow account,” Kreidie advised.
Kortbawi recommended that prospective buyers should seek professional advice regarding the developer’s registration, permits, and understanding the terms of the Sales and Purchase Agreement (SPA), including provisions for compensation in case of delays or non-delivery.
He suggested that buyers consider professional legal assistance to handle drafting, negotiation, and due diligence processes. They can negotiate compensation terms within the SPA and, if necessary, seek contract termination.
“If the developer does not agree, buyers have the option to approach the DLD or initiate legal proceedings under Article 20 for contract termination. Delays could constitute negligence under Article 22, enabling action under Article 383 of Federal Law No. 5/1985, even in the absence of a specified contract period.”
