Where do you stand when your Dubai contract is cancelled?

Law 13 amendment finally unveiled

From ConstructionWeekOnline, 19 April '09
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The much-anticipated amendment to the Real Estate Regulatory Agency’s (Rera) Law 13, Article 11, which has caused much confusion in the industry, is soon to be enforced.

The amendment - Dubai Law No. 9 of 2009 - is expected to be published in the Government Gazette shortly and will have effect from the date of publication.

The existing law stated that in the event of cancellation of a sale contract due to purchaser default, the developer could retain only 30% of money paid, and must return the remaining 70% to the defaulter. But this provoked much concern among developers hurting from the effects of the financial crisis, and the fall in demand for real estate in Dubai.

An email sent to Construction Week by a Dubai law firm sought to ease the situation. “In light of the economic downturn with uncertainties and a drastic drop in prices in the real estate market, there were concerns for developers and purchasers in terms of their respective rights," said a spokesperson for Capital MS&L Middle East, which works closely with the law firm that has since asked not to be named.

“The amendment is significant as it alleviates much of the uncertainty in the market and clarifies the rights of developers and purchasers in the event of an agreement termination.”

The message went on to explain that if a purchaser breaches a contract, the developer may follow a procedure that involves the land department to terminate that contract. While if a developer terminates the agreement, its rights depend on how much construction has been completed.

The law will apply to all cancellations of all off-plan sales contracts irrespective of the date on which the relevant contract was signed.The email contained an attachment with a detailed break down of how the amendment will affect developers (see below).

The attachment concluded: “We expect further clarification and guidance regarding the implementation of the changes to be provided by the Dubai Land Department in due course.”

Last month Al Tamimi and Co partner and property department head Lisa Dale said of the amendment, “I understand that an amendment to the law is now under consideration.
Hopefully we will have some clarity on this issue moving forward.”

How the amendment will affect developers:

1. Before taking any cancellation action, a developer must notify the Land Department if a purchaser is in default of a contract for sale. The Land Department will then give the purchaser a notice period providing a 30 day period within which the purchaser must fulfil its obligations.

2. If at the end of the 30 day notice period the purchaser has not fulfilled its obligations, the following rules will apply.
a. Where the developer has completed construction of at least 80% of the project, the developer may retain all monies paid and request that the purchaser settles the remaining amounts. If this is not possible, the developer may request that the property may be auctioned in order to collect the outstanding monies.
b. Where the developer has completed construction of at least 60% of the project, the developer may revoke the contract and retain 40% of the purchase price stipulated in the contract.
c. Where construction has commenced but construction of less than 60% of the project has been completed , the developer may revoke the contract and retain 25% of the purchase price.
d. Where construction of the project has not yet commenced for reasons beyond the developers control, without any negligence or omission on the developer’s part, the developer may revoke the contract and retain an amount equal to 30% of all monies paid by the purchaser. Commencement of ‘construction’ is defined as meaning handover of the site by the developer to a contractor and commencement of construction works in accordance with designs approved by relevant authorities.

3. For the purposes of paragraphs b, c and d above, the developer shall return any monies due to the purchaser within one year from the date of revocation or within 60 days from the date of a resale of the property by the developer, whichever is earlier.

4. The Real Estate Regulatory Agency may cancel a project following consideration of a status report, in which case the developer must return all monies paid by purchasers and the provisions of Dubai’s escrow laws will apply.