Since the 2008 global financial crisis, the United Arab Emirates (UAE) has taken great care to reinforce confidence in the real estate market. Most recently, the Dubai courts, in particular, have issued a number of landmark judgments that aim to balance the competing interests of developers and buyers, to facilitate the sale and purchase of property in the Emirate, and to keep the market as buoyant as possible in the face of a global economic slowdown.
The courts are upholding the spirit of the law to achieve justice and commerciality rather than simply sticking to the letter of the law. Their approach is highlighted by cases in two different areas relating to property development in Dubai
1. Developers gain clarity over required governmental approvals for the first time
Two judgments recently issued by the Dubai Court of Cassation in 2019 have clarified the types of approval required, the governmental entities responsible to issue such approval, and, crucially, the timing of the approval, before developers can promote or sell off-plan property in the Emirate.
These groundbreaking rulings and interpretation of the real estate laws provide specific guidance on the above for the first time: developers can now promote or sell off-plan projects after obtaining an approval from a number of competent government entities, including the Department of Tourism & Commercial Marketing (DTCM) and the Dubai Municipality, in addition to registering the property with the Dubai Land Department (DLD).
Articles 4 and 10 of Law No. 13 of 2008, enacted to protect buyers against fraudulent developers, regulate the Interim Real Estate Register in Dubai and stipulate that a developer cannot market and sell an off-plan property in Dubai if the project is not approved by "the Competent Entities” first, and render any sale and purchase agreement (SPA) executed prior to obtaining such approval null and void.
However, the law is silent as to exactly what types of approval are required and which government departments qualify as competent entities. As a result of this ambiguity, the Dubai courts have been accustomed to interpret this law to mean that the project adoption date by the DLD is considered as the required approval from a competent entity before an off-plan property is marketed for sale.
A major UAE real estate developer's successful appeals in two cases to the Dubai Court of Cassation brought these issues to the fore. The lower courts previously ruled to nullify the SPAs in favour of the buyers on the basis that the off plan property developments were marketed for sale and the agreements were signed before the project adoption date by the DLD in accordance with the Interim Real Estate Register. This was despite the fact that the projects were completed and the sold units registered in the names of the buyers in the DLD’s Oqood registration.
The successful appeals presented by Baker McKenzie Habib Al Mulla on behalf of the developer was based on the facts that it had obtained:
- an approval for the construction of a hotel from the DTCM for one project (under the first judgement); and
- a building permit from the Dubai Municipality for the other project (under the second judgment), following which the properties were marketed and the SPAs executed.
Ruling in favour of the developer, the Dubai Court of Cassation overturned the rulings of the lower courts on the following grounds:
- The developer had adhered to the provisions of the Interim Real Estate Register by securing approval from the competent government entities, namely, the DTCM and Dubai Municipality, prior to the execution date of the SPAs.
- The developer had registered the property units in the name of the buyers in the DLD’s Oqood registration, and the projects were ultimately adopted by the DLD.
- The developer had fulfilled all of their contractual obligations towards the buyers by depositing the purchase price in the projects’ escrow accounts and finalizing the construction of the off-plan projects.
What does this mean for you?
If you are a developer disposing of off-plan property, you can now seek an approval from a range of government entities, including DTCM and Dubai Municipality, in addition to the DLD. Clearly, this will save you time and costs, as you can commence your off-plan sale projects upon securing any of the above approvals, and can avoid financial loss arising from buyers trying to contract out of the SPAs and claiming for a refund of the purchase price.
As a buyer, you will not be able to escape your liabilities, but your investment should still be secure as you will benefit from protections offered by the law with the proper approval and registration process in place.
To speak to us in relation to the above judgments, please feel free to contact Tarek Saad and Abdalla Eisa (see contact details on the side).
2. Main developers are obliged to ensure completion of infrastructure for sale
A ruling by the Dubai Court of Cassation in 2018 in relation to the dispute over the sale and purchase of two plots of land in Downtown Jebel Ali set a precedent by confirming the liability of both main developers and sub developers for ensuring that the infrastructure is completed for a property or land before it is advertised or offered for sale.
In this case, the successful appeal presented by Baker McKenzie Habib Al Mulla on behalf of the sub-developer, a major real estate developer in the UAE, sought to: a) invalidate the SPA entered into with the main project developer, and b) receive a refund of the purchase price amounting to approximately AED 58.3 million (excluding interest), on the basis of breach of obligations by the main developer.
The court found that the sub-developer had grounds to repudiate the agreement as the main developer had breached their obligations to verify that the land for sale should be ready and equipped with the proper infrastructure. As a result of this ruling, the main developer had opted for a settlement with the sub-developer instead, which awarded our client a total of AED 81.9 million.
The court also ruled that, notwithstanding a breach by the main developer, the sub-developer may be held accountable by the end buyers for not completing the works of the infrastructure.
The court's ruling in favour of the sub-developer was significant, as their interpretation of the law addressed an issue upon which the law was silent - the law does not specify the obligations and liability of parties to complete the works for the required infrastructure before offering a property or land for sale.
What does this mean for you?
If you are a main developer, you risk suffering significant financial and reputational loss if you breach your obligations to complete the infrastructure of properties for sale and cannot avoid your liabilities in this regard.
If you are a sub-developer, you must note that the obligations of the main developer does not relieve you from your own obligations towards the end buyers of the property units - a point that the Dubai Court of Cassation has stressed. Accordingly, you should exercise caution when setting up your projects on the property for sale, as you may be held liable by the end buyers for what is ultimately the main developer’s obligation.
And as an end buyer, you have greater assurance that the property you are purchasing is fully completed with the required infrastructure and that if this is not the case, you have recourse against the developer.
To speak to us in relation to the above judgment, please feel free to contact Wael El Tounsy, Shaima Al Barguthi and Marina Gaballah (see contact details on the side).
How can we help?
Baker McKenzie Habib Al Mulla regularly represents real estate developers in such precedent-setting cases in the UAE real estate market, including presenting arguments, challenging the previous rulings, and assisting with settlements. We have obtained favourable judgments from the Dubai Court of Cassation on behalf of our clients, and more importantly, confirmed the Dubai court’s interpretation of the law for similar cases in the future.
Whether acting for the buyer or seller, we are well placed to advise clients on contentious real estate issues. We are happy to assist with any enquiries that you may have with regard to the application of local laws, practices and procedures in your real estate transactions and cases, including representing you before the relevant UAE courts as required.