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Cancellation notices raise issues

As Dubai developers get tough, defaulting buyers could look at options to minimise damages.

  • By Andy van Smeerdijk, Editor, Property
  • Published: 00:00 June 1, 2010
  • Property

  • Image Credit: Silvia Baron
  • It has been reported that several developers in Dubai have issued hundreds of cancellation notices to purchasers who were late in their payments. Picture for illustrative purposes only

With reports of cancellation notices being issued by Dubai developers to buyers who have defaulted on their payments, lawyers say purchasers do have a form of recourse, given their particular circumstances.

This follows a report in a UAE newspaper that said Dubai developers had issued hundreds of cancellation notices to purchasers who were late in their payments.

It cited the Dubai Land Department as its source. According to the report, notices had been issued to purchasers of properties developed by Emaar Properties, Deyaar Development, Omniyat Properties and Al Fajer Real Estate.

When asked how the developer responded to defaulting buyers, an Emaar Properties spokesperson said in a statement, "Emaar Properties sends notices through the Land Department to all defaulting customers in the normal course of business and in line with the related legal processes."

Given that defaulters are being issued notices, then, this is just the first step in the termination procedure. Andrew Yule, associate at Afridi & Angell law firm says property purchasers have recourse, depending on their circumstances.

"Under Decree 6, there is a specific procedure that must be followed before a contract can be terminated. Initially, there must be a notice to the purchaser advising that the purchaser is in arrears. If the purchaser wishes to challenge such a notice, he should do so in writing to both the Land Department and the developer.

"The purchaser may be able to persuade the Land Department to hold a roundtable meeting among all parties at which the purchaser can explain his position. Even if the developer does proceed to terminate the contract, the purchaser still has the option of challenging this under the dispute resolution procedure detailed in the contract — by going to court or arbitration."

 

Termination of contracts

Yule says purchasers should be careful before withholding payment as this will put them into default, "thereby running the risk that the developer will attempt to terminate the contract and retain the appropriate monies.

"Every case should be considered on its own merits," he says. "However, important factors will include whether construction has started, the current percentage of completion of the project, whether the contract between developer and purchaser actually specifies a completion date (and whether, under the contract, that date can be varied in certain circumstances), whether the contract contains a Real Estate and Regulatory Agency approved payment schedule linked to construction milestones and whether the developer has registered the contract in the Interim Real Estate Register."

According to the law, if a buyer defaults on repayments, his refund will depend on how far a project has been completed.

If the developer has not yet completed 60 per cent of a project and terminates the purchase agreement, it is entitled to 25 per cent of the payments made by the buyer. If it has completed 80 per cent, it can retain up to 40 per cent of the property's value or put up the property for auction.

The purchasing contract may specify whether disputes are to be resolved before the Dubai courts or at arbitration, says Yule.

"If it is silent on this issue, then it will be [taken to] Dubai courts," he adds. "There are costs to be paid to the courts or to the arbitration centre before a case will be heard. The chances of success for a case are significantly increased by retaining experienced and knowledgeable lawyers. This will result in competent analysis of facts and law, and expert drafting of pleadings. Inexperienced or unknowledgeable lawyers can lose the strongest of cases."

The likelihood of being compensated for legal costs must also be considered, he says. "The majority of incurred legal costs are generally not recovered ... even if a purchaser wins a case."

Mohammad Sultan Thani, assistant director general of the Land Department, recently told a local newspaper that although hundreds of letters had been sent out to defaulters, no properties had yet been put up for auction.

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