Many clients who have suffered a delayed handover demand a refund from the developer, in accordance with the clear terms of their contract. If the developer fails to pay, they are forced to take legal action, either arbitration or litigation, to obtain an award or judgement obliging the developer to pay the refund.

Whichever way the purchaser approaches it and however far they take it, the answer from the developer is often the same — we simply have no money.

Developers will often seek to turn the table by referring to the fact that there is usually widespread payment default which has resulted in the effective insolvency of the developer. In other words, it’s not our fault, it’s the collective fault of the purchasers.

This can then lead to a chicken-and-egg argument — “Had you built it on time we would have paid” say the buyers. “But you didn’t pay when the market collapsed, hence we couldn’t build it on time,” are the developers’ response.

But at some point the buyer digs out a copy of the escrow law and triumphantly declares that he will simply write to the escrow bank and have the refund paid out of the money he has been paying into the escrow account all these years. And that’s where the disappointment starts.

In many jurisdictions the escrow law provides significant protection to off-plan purchasers by requiring purchase price installments to be paid to an independent escrow agent, often a law firm or an accountancy practice. That escrow agent is then obliged to retain the funds strictly on the terms of the escrow agreement.

The agreement usually states that the escrow agent must retain all funds until the project is completed, or until an agreed date, whichever is earlier. If the project is not completed by the agreed date, the escrow agent automatically returns the money, plus interest, to the purchaser.

And it must do so without regard for any excuses the developer may make concerning the delay. Issues of blame do not come into it — if it’s handed over, the developer gets paid, if it isn’t, the buyer gets his money back. Simple.

But in Dubai this isn’t how the escrow law works. The real estate market was predicated on the concept that a developer could use proceeds of sale to pay for the construction of the project.

A developer didn’t need to have a pot to mix cement in before launching the most ambitious of projects. So when the escrow law was introduced in 2007, it didn’t require proceeds of sale to be retained by a lawyer or accountant until completion.

Instead it provided that the proceeds of sale needed to be paid to an escrow bank which would release those funds to pay for the project in question. This is subtly but fundamentally different.

What this meant in practice was that developers could comply with the law by having all funds paid into the escrow account, but could immediately drain that account to cover payments for the land, marketing costs, agents commission, pre-construction expenses, etc.

So purchasers do derive some protection from the Dubai escrow law, because their money can only be used to pay for the project they bought into. But that protection is limited, which is often at odds with the expectations of purchasers used to dealing in other jurisdictions.

The reality is that there is no money in virtually any of the escrow accounts in Dubai. Unfortunately this means that when a developer in Dubai says it has no money to pay you, it may just be telling the truth.

— The writer is real estate partner at the law firm of Taylor Wessing.]