property

Dubai’s new off-plan sales regulations: what we know and don’t know

Developers now have more authority to deal with defaulters; investors will find comfort in the new timescales

By Jazz Moman
00:00 January 10, 2018
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The government of Dubai has recently issued Law No. 19 of 2017, which is a partial update to the 2008 and 2009 interim property registration laws. The 2017 law relates to off-plan property sales in Dubai, and in particular deals with a new procedure following the breach of a sales agreement by an investor.

While we are awaiting the full terms of the new law, the statement issued by the government of Dubai suggests that the revised procedure will protect both developers and investors.

So what are the likely key differences between the old and updated procedures for dealing with an investor who has defaulted? As before, the Dubai Land Department (DLD) will have authority to serve a 30-day notice on a defaulting investor to cure the default. Typically in the past, these were served in person or more commonly by registered or electronic mail. The new law will give the DLD extended powers to serve notices in any method it deems appropriate. A new method of notification could also include notices in newspapers or general notices on the DLD website. While these are not yet confirmed, they are a possibility, which investors should be aware of.

Amicable settlement

Whether or not the DLD has served a default notice on the investor to pay any overdue sums, the developer and investor will be encouraged to amicably settle the arrears or other breach. The final settlement agreement must be appended to the sale and purchase agreement (SPA) and signed in writing by both parties. This will be welcome news for many investors as their SPAs may not have a clause obliging the parties to amicably settle any disputes. The existence of such a settlement agreement may help to relieve some of the financial pressures on the investor, e.g. offer an extended grace period to pay the arrears, while ensuring the investor will still be able to purchase the property.

Where an investor fails to honour the terms of the SPA or if a subsequent settlement cannot be reached, the DLD may issue an official document. This form of declaration will state that a developer has fulfilled its legal obligations under the SPA and also specify what percentage of the unit has been completed. We have not had sight on what grounds the DLD will produce such a declaration, but such an official document could be issued by the DLD at its discretion. How the developer would then use the declaration is yet to be confirmed.

A developer is likely to have extended rights to void the SPA and sell the property at any stage of the progress of the project where the investor has defaulted and not remedied the default. Typically, a developer could even void the SPA and sell the property if the property works have not yet started, provided this is not down to the control or negligence of the developer.

Where the developer voids the SPA, it would be obliged to return any surplus funds to the investor within one year of cancelling the SPA. Or if the developer resells the property at auction, the developer would have to repay such surplus funds to the investor within 60 days of reselling the property, whichever is earlier. Exactly how much funds will be retained by the developer or returned to the investor will depend on the project completion status.

Developer’s options

Where the project is over 80 per cent complete, the developer has the following options:

• Retain all the sums paid by the investor, request the investor to pay the remaining sums and continue with the development of the project.

• Ask the DLD to auction the property to collect any outstanding balance.

• Unilaterally retain up to 40 per cent of the off-plan sale agreement price and return any excess amount to the investor within one year of the termination of the agreement or within 60 days of the auction sale, whichever is earlier.

Where the project is between 60 and 80 per cent complete, the developer may unilaterally terminate the agreement, retain not more than 40 per cent of the sale agreement’s value and return any excess amount to the investor within one year of the termination of the agreement or within 60 days of the auction sale, whichever is earlier.

While the rules for off-plan sales have tightened, developers will have more authority to deal with defaulting investors. Investors, on the other hand, will find some comfort in the new timescales governing the return of their monies.