Property | General

Developers still get to call the shots

They have plenty of wiggle room in sales deals

  • By Jerry Parks, Special to Gulf News
  • Published: 14:13 January 3, 2013
  • Gulf News

Some commentators have suggested that many of the shortcomings of the Dubai real estate market have been, or are capable of being, addressed in the new Sale and Purchase Agreements (SPAs) being issued by developers in the post-recession era. Is this true, or has the new age simply created a new breed of developer, still one step ahead in the legal game?

What is undeniably true is that one of the main issues affecting real estate investors in recent years has been not just the late delivery of projects, but more significantly the difficulty in enforcing contractual rights against developers in relation to such late delivery. This issue has certainly been addressed in the new SPAs we see in the market, but worryingly it has not been addressed for the benefit of investors.

It remains the case that real estate investment in Dubai is still conducted largely on developers’ terms and conditions. Like it or not, they remain the dominant party in the investment relationship.

Not only are they the big kid in the playground – it’s also their ball. And their playground too in some cases.

Lessons have been learnt from RERA policies, court decisions and arbitral awards. In Dubai we now have a far more sophisticated framework for addressing real estate disputes and the outcomes of each of those disputes is a lesson for developers in what they can and cannot do.

Those developers who have a finger on the pulse of legal precedent, binding or not, or who have retained lawyers who can sensibly advise on such legal developments, have used that knowledge to their benefit.

In terms of SPA content, just compare the old and the new. Where previously master-developer default was not defined as force majeure, now it is. Where previously DEWA connection delays were no excuse for non-delivery, now they are. And where previously a lack of infrastructure was no justification for late handover, now it is.

So we are seeing a new breed of SPA, but one which is a product of a more savvy, better informed and better legally advised developer. The net effect is to further strengthen the hand of those developers by closing loopholes and addressing areas of ambiguity that previously would have provided potential grounds for legal action by investors.

Ironically, however, the position in practice remains largely the same. Previously, notwithstanding the legal merits of the case, a disgruntled investor couldn’t achieve justice because many developers simply refused to honour contractual commitments and forced innocent buyers to take costly action or grin and bear their default.

The ‘put up or shut up’ approach. Such tactics have been aided and abetted by a system whose unwillingness to award costs against a losing party has rendered it unable to punish legally and, some have alleged, morally bankrupt developers seeking to bankroll proceedings out of desperation.

So yes, we are now seeing better informed developers tightening up their SPAs in response to recent legal rulings. And so investors in the future may well find that they have fewer legal rights to enforce.

But then again, the rights they have now are difficult to enforce in practice, so has anything really changed? Plus Ça Change, as they say….

The writer is a partner at the law firm of Taylor Wessing.

Gulf News