The escrow law primarily shields buyers and investors from certain risks during construction Image Credit: Supplied

The concept of buying real estate off-plan is well known in the UAE. The main advantage of purchasing off-plan or under-construction property is a lower purchase price. As the construction of the project progresses, more often than not, the cost of the property increases. Typically, a buyer pays the purchase price for an off-plan property in instalments, whereas for the purchase of a completed property the full purchase price is usually paid as a lump sum.

Off-plan purchases are, however, not without risk. One of the concerns off-plan buyers have is that the developer will use their money correctly to carry out the construction work and complete their property. In the past, this has been an issue in the UAE, where some developers have sold property off-plan and received partial or full payment for the sale, but never commenced or completed construction of the project. To guard against this, the real estate market regulators have had to bring in regulations to protect the monies paid by off-plan investors.


Another concern has been delay by developers in completing projects. Some developers include in their sale and purchase agreements (SPAs) estimated milestones for completion of particular construction phases of their projects. These developers then link the dates for payment of instalments of the purchase price in their SPAs to these estimated milestones. Those estimates are not, however, always realistic; delays may occur due to failures by developers or for reasons beyond their control.

To mitigate these risks, both Dubai and Abu Dhabi have introduced legal requirements for opening project escrow accounts. An escrow account is a designated bank account for a real estate development project in which all money paid by off-plan buyers and financiers is ring-fenced and then only used by the developer to construct and complete the specific project. A bank licensed by the relevant authorities to act as an escrow account trustee manages the escrow account.

It is also a legal requirement in both Dubai and Abu Dhabi that developers link instalments to actual completion of construction milestones.

Dubai developers have been required to open separate escrow accounts for each off-plan project since 2007. Abu Dhabi introduced similar requirements in 2016. It is crucial for an off-plan purchaser to get details of the project escrow account from the developer. The purchaser should deposit all payments towards the property directly into that escrow account.

It is also a legal requirement in both Dubai and Abu Dhabi that developers link instalments to actual completion of construction milestones. The bank acting as trustee for the project has the responsibility to oversee the escrow account. Each time the developer submits certificates of progress and request for withdrawals from the escrow account, the account trustee must tally all the money received from the purchasers and financiers with the payments to the developer, contractor and consultants.

Rera, ADM

In Abu Dhabi, the Abu Dhabi Municipality (ADM) oversees the opening and management of escrow accounts. For each real estate development project in Abu Dhabi, ADM signs an escrow account agreement with the developer and account trustee. Similar arrangements apply in Dubai where the Real Estate Regulatory Agency oversees escrow accounts. The escrow account agreements set out the conditions for the disbursement by the account trustee of all payments to the developer, contractor and consultants.

Banks acting as account trustees have a legal obligation to provide periodic statements of the revenues and payments for every escrow account they supervise. Banks must submit annual reports issued by an accredited auditor on the escrow accounts they manage and confirm that payments from the escrow accounts are compliant with the law, all regulations and the escrow account agreements.

The introduction of the escrow account requirement in Dubai and Abu Dhabi has brought greater protection for buyers of off-plan property.

David Bowman is a senior associate and Maha Dahoui is an associate at Al Tamimi & Company. The views expressed here are their own.