I booked a villa in Ajman in February 2008. I paid Dh150,000 in two instalments before the market crashed, then stopped paying while waiting for the developer to begin construction. Now the developer has disappeared and the site is still a desert. The project was supposed to be completed by December 2010. How can I recoup my money? The Ajman Real Estate Regulatory Agency (Arra) is not willing to cancel the project.
Even if the developer cannot be traced, you should still instigate the termination procedures set out in the Sale and Purchase Agreement (SPA). That will enable you to cancel the agreement, which should in turn trigger your entitlement to a refund. Once the SPA has been formally terminated and if there is no response from the developer, then your options will include the following:
1. Arra: Lodge a formal complaint with Arra, which may be able to trace and apply pressure on the developer to honour its commitments. This approach should not cost you anything other than time and effort.
2. The Ajman Courts: Issue proceedings in the Ajman Courts for payment of the refund plus interest. This will only be effective if the developer is still in the country and has assets/funds. This approach will cost you legal fees as well as time. Even if you are successful in obtaining judgment against the developer, enforcement might not be possible if the developer is insolvent.
3. The Ajman Police: Lodge a complaint with the police. If the developer has left the country, you could file a criminal complaint against the general manager so that he can be detained if he returns to the UAE. Alternatively, the only feasible option would be to reluctantly walk away from your Dh150,000 investment.
I booked an apartment in January 2008 with a delivery date of September 2009 and an extension of one year with no penalty up to September 2010. The project has not yet started. According to the developer, owing to recession, it may take another four to five years to build. I have already paid 50 per cent of the costs. When I asked for a refund, the developer said he will deduct 60 per cent and pay me 40 per cent as he has incurred initial costs like paying for land, commission, advertisement and so on. Are such deductions permissible under Dubai laws? What is the recourse available to get my hard-earned money? Can anyone help me? Since I deposited the money into an escrow account isn’t the developer obliged to refund the full amount because technically he wouldn’t have been able to withdraw from this account due to non-commencement of the project. What’s stopping him from releasing my money?
You may well have a strong contractual claim for a full refund. That said, enforcing your legal entitlement against a struggling developer can be difficult. The lengthy time scales and relatively high costs associated with legal action, coupled with the risk of the developer not being able to satisfy the judgment debt, should all be borne in mind. After carefully weighing these factors the developer’s offer may seem more appealing.
My advice in this case would be to follow the contractual procedure for terminating the SPA and recovering your full investment. Commencing or at least threatening to commence this formal process, usually involving the service of a written termination notice, may encourage the developer to improve his offer. On a technical point, there is certainly nothing to stop two parties from agreeing on a settlement deal and formalising this within a settlement agreement or similar document. However, the developer cannot legally force you to accept an offer that’s less than your contractual entitlement.
You mentioned that you had previously paid funds into an escrow account, and suggest that as the project has not commenced, the funds should still be in the account and therefore available for refund. Unfortunately, not all funds paid into an escrow account are retained pending commencement or completion of the project. The developer may well have utilised the funds in the escrow account for the purposes of paying for land, architect’s fees, feasibility studies, design and marketing costs. Also just because the project has not commenced doesn’t necessarily mean that the purchasers’ funds are still standing to the credit of the escrow account. Secondly, release of funds from an escrow account is not a matter that the developer has sole control over. If the developer wants to make a payment from an escrow account then it has to communicate with the escrow bank, which in turn needs to obtain approval from Rera for the withdrawal.
Jerry Parks is a partner and head of real estate at Taylor Wessing
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