Business | Property
Cracking the contract code
Whether you buy property off-plan or on the secondary market, knowing the facts before signing on the dotted line can save you a lot of heartache. words: Andrew Yule
- Andrew Yule; contributor; Freehold Monthly
- Published: 00:00 October 15, 2009
What is an MOU?
A Memorandum of Understanding (MOU) is a document that governs the relationship between a purchaser and a seller. It sets out the obligations of each party and the procedure to be followed. The title ‘MOU' does not give the document any special powers; some parties prefer to use the term ‘contract of sale' or something similar.
How does it work?
In most cases, the MOU document is supplied by the real estate broker or agent who put the deal together. Both buyer and seller should review the document to certify that their respective interests are protected and to ensure the document gets them to the position they want to be in.
Sale of completed property on the secondary market
When a completed property is being sold and bought on the secondary market, a MOU needs to be created. The number of off-plan sales has plummeted dramatically since the summer of 2008; however, sales of completed properties are still popular with lenders and purchasers, who can take comfort that in buying finished units there is no risk of construction delay.
Attention to detail
Before the Land Department issues a new title deed in the purchaser's name, it will require a No Objection Certificate (NOC) from the developer. However, for the developer to issue the NOC it will require full payment of an administration fee and any common charges arrears. The MOU should clearly state that both buyer and seller are obliged to be present at the developer's office to obtain the NOC. On receipt of the NOC, both parties have to agree to a date on which they will visit the Land Department for the actual transfer of title.
Purchase price and mortgage
The purchaser should pay the purchase price in return for receiving the title deed for the property in his or her name. Where the amount is being paid by a cheque, the seller would be best served to insist on payment by manager's cheque from a bank with retail branches in Dubai. If the property is subject to a mortgage, the MOU must clearly state that the mortgage must be discharged prior to the purchase price being payable. The seller should check with the lender about the requirements which should then be reflected in the MOU.
Deposits
Frequently, the purchaser will be obliged to pay a deposit upon signing the MOU. The deposit will be held by a third party (often the entity who put the deal together). The MOU should state under which circumstances the third party must release the deposit and to whom. For example, the seller should specify that the third party returns the deposit upon the buyer receiving the title deed. To help ensure the third party abides by the MOU's wording relating to the deposit, the third party should agree in writing to comply with its obligations under the MOU (the most straightforward way to do this is for the third party to be a signatory to the MOU).
Is an MOU needed for off-plan purchases?
Since off-plan property is purchased direct from the developer, an MOU is uncalled for. Whereas prior to the credit crunch purchasers would often sign documents without a second glance, buyers today regularly take time to review the contract before signing. The buyer may even be able to persuade the developer to revise certain clauses in the contract. The clauses which a buyer should pay attention to include description of the unit, payment schedule and his/her right to terminate the contract.
Reviewing off-plan contracts
The purchaser should review the description and plan of the unit, bearing in mind that any description and plan he or she may have been given previously will be superceded by whatever the contract states. Where there is reference to area, the purchaser should establish if this is gross or net area ( recommends hiring a chartered surveyor). The developer will require some leeway in the contract, permitting the final measurements of the unit to differ from the measurements specified in the contract. In this case, the buyer/investor should ensure that the permitted variance is not excessive and that the developer doesn't increase the price in the event that the as-built area exceeds the area detailed in the contract.
Payment schedule and date
The purchaser should ensure the payment schedule is linked to stages in construction. Each milestone should be defined clearly so both parties are in no doubt as to what work should be completed before each payment.
Although the contract may specify a date as the expected date of completion of the unit, it may also state that the date may be extended due to events beyond the developer's control. The buyer then needs to protect himself by specifying a date, beyond which — if the unit has still not reached completion — he or she can terminate the contract and have his money returned.
* Andrew Yule is an associate at Afridi & Angell law firm, ayule@afridi-angell.com. The above information is not legal advice and is neither intended to create nor creates a lawyer-client relationship. Neither the writer nor Afridi & Angell is responsible for anyone relying on the above information. You are therefore advised to seek independent legal advice.
tip. Always ensure the payment schedule is linked to stages of construction.
Share this article
Property
The easy-to-read guide to all things freehold, residential and commercial in the UAE and beyond
Gulf News classifieds
Popular in Business
Business Editor's choice
-
It costs a million to raise a child
Generation Z doesn't leave home at 18, but stay with the parents until mid-20s
-
Investing in funds doesn't come cheap
Many people are unaware of the effect of different expenses on their returns
-
Firm turns televised events into marketing dream
Drops anchor in Dubai to sell world's richest yachting races
-
Banking
Mortgages: there's light at the end of the tunnel
UAE buyers are securing home loans again
