A recent ruling by the Dubai Courts in favour of a major real estate company in Dubai has set a precedent on how courts interpret sale and purchase agreements (SPA). The dispute was raised by the buyer purchasing a private island in the UAE, claiming that he had discovered that the plot area was 50 per cent less than what was written in the SPA contract and that he was not aware of it.
Wael El Tounsy, counsel and head of real estate litigation at Baker McKenzie Habib Al Mulla, Dubai Office, the legal firm that represented the seller (the real estate company) in this case, says the court dismissed that claim for several reasons. “Part of the sold islands is in land, and the other part is in the water. Also the area of the island, according to the maps of the main developer and the measurement of the sold area, is decreased by 1 per cent, which is acceptable. The contracting ocurred after the buyer’s inspection of the island and it is written down in the contract that the sale of the land was on an as-is basis; and finally, the title deed issued by DLD confirms the area,” says El Tounsy.
“In this case the plot area has not changed from what is set forth in the SPA. The buyer was claiming that he did not know that a percentage of the sold area was the land around the island submerged by the water. When it comes to off-plan purchase of residential units, developers take precautions by providing that the area is subject to increase and decrease. However, the law resolved that while the increase in plot area is free, the decrease should not be any more than 5 per cent, and the buyer may demand a price reduction or an annulment of contract, if necessary,” he explains.
“The claim that the area is different is invalid because the area is a part of the land plus the water area surrounding the land, which can be built on. Therefore, the court confirmed the invalidity of the allegations of the buyer in this regard,” says El Tounsy.
Registering the SPA
El Tounsy says for those purchasing off plan property SPA contracts are registered in the interim register at the time of off-plan sale, since the date of signing the agreement. Both buyer and seller can register the contract, but the law provides that it is the liability of the seller to register. The seller has the chance to register the SPA at any point prior to the closure of submissions before the Court of Appeal, he explains. The buyer can undertake the registration if there is no rejection by the seller.
SPA while buying off-plan
So when homebuyers are planning to buy off-plan, what should they keep in mind about the SPA? El Tounsy says, “The buyer shall ensure that the agreement includes the most essential conditions for it as an explicit annulment condition. In other words, if the delivery date of the unit is very important for the buyer, it can be mentioned in the agreement that the contract shall be automatically terminated if the developer does not commit to delivery on a certain date. The same applies to any other conditions that the buyer deems as important for it. It should be included in the contract or should include a penalty clause in the agreement if the developer violates same.”
“The law has put in place many guarantees to avoid any problems. The escrow account allows the buyer to put the instalment in the account. The seller or developer can only disburse it under the supervision of DLD, which checks the completion rate in order to allow the disbursement. With regard to the difference in the executed designs from what is set in the SPA, the buyer can take precautions by stipulating the conditions in the agreement. Evetually, if the buyer finds a fundamental difference between what has actually been implemented and what had been contracted for, it has the right to either claim a decrease of the price or the termination of the agreement. The judge is authroised to terminate the agreement and decrease the price.