Take legal advice before signing a contract to buy a property

Q: My daughter has signed a contract to buy a flat in Dubai which is still under construction. She has paid several instalments, and is eagerly awaiting the day on which she can move in. How should my daughter ensure that she will get the flat at the end of the construction? What happens if the developer goes bankrupt?

A: One of the challenges of providing advice for this situation is that you are already half-way into the buying stage, although you may not realise it. While your daughter hasn't been able to move her furniture into her flat yet, she has already signed a contract and paid installments for the property.

In fact, the questions you are asking now are best addressed at the very start of the buying cycle.

It is very important to use the contractual stage for any purchase to determine exactly what both parties' rights and obligations are, in terms of delivery date and in relation to unforeseen delays or cancellations.

Hopefully, your daughter will have taken legal advice regarding the contract and the clauses relating to what happens if the builder has to declare bankruptcy, for example.

Involving a lawyer in the proceedings enables you to better understand issues relating to risk and exposure. Legal advisers will also be able to counsel you on other aspects of the agreement, such as whether your daughter is responsible for service charges or what happens if the freehold title cannot be transferred to her.

So, the ideal time to consider "what happens if..." is before you sign the contract, and preferably after you've had it reviewed by reliable authorities.

Regulation

However, before this news makes you too gloomy, you should know that the Real Estate Regulatory Authority (Rera) is making important strides in regulating the market and protecting home-buyers.

Rera's introduction of the Escrow Account Law in Dubai last year should give you greater confidence about your daughter's long-term security.

Under this law, the funds that real estate developers receive - such as the instalments your daughter has paid - have to be administered through an escrow account opened with a designated bank. The idea behind escrow is that assets are held under the stewardship of a neutral third party in a separate account, until the resolution of the contract - in other words, until your daughter receives her flat.

A number of banks and financial institutions in the UAE have been certified to act as account trustees.

You should look to find the developers' registration number and their escrow account number: that should provide you with a greater sense of security in relation to the property. If there are problems, the funds your daughter has paid are being held by a trusted institution, rather than the builder or the real estate agent, so there will be greater room to manoeuvre, or even recover the funds if you need to.

However, your daughter should know that - as well as certain rights - she also has certain responsibilities. Buyers are expected to register their purchases with the Land Department in order to enjoy protection under the Escrow Laws.

- The writer is sales director at Nexus, a leading regional financial adviser. The opinions expressed above are the writer's and don't necessarily represent the views of Gulf News.

Please send your questions to advice@gulfnews.com.