There have been several instances of finalised agreements which got upended at the last minute by the property owner taking his unit to someone who just happens to be offering more. Picture used for illustrative purposes only. Image Credit: Supplied

Dubai The property of your dreams has been identified, the terms for the purchase have been negotiated with the seller and an agreement gets drawn up. Sounds like a done deal, right?

Far from it, as many potential property buyers are finding out.

"A full agreement was drawn up for a Dh2.5 million property and a down payment was made when the seller withdrew the offer," says one disgruntled investor. "Just days later we heard that the property was sold for Dh2.9 million.

"I decided to pursue the issue through the legal channels because an agreement was in place which was reneged upon. I have also pressed the Real Estate Regulatory Authority to intervene, but nothing was forthcoming.

"There's still a paucity of buyers in today's real estate market, which is one reason why their rights should be upheld as much as the sellers are. It's needed to rebuild trust in the marketplace."

Not isolated

Real estate agents confirm this is not an isolated incident. There have been other finalised agreements which got upended at the last minute by the property owner taking his unit to someone who just happens to be offering more.

"It's happening on completed properties at communities or high-rises where prices have stabilised and is attracting a steady trickle of buying interest," said an estate agent. "What the property owner is trying to do is set the maximum price ceiling… even if it means breaking off a signed and delivered agreement. The property owner has and continues to call the shots."

So where does the law stand on this sticky point? "Gazumping is where a seller has agreed to a sale on certain terms, but before a binding contract is entered into, he or she abandons the deal in favour of a better offer," said Jerry Parks, partner at the law firm of Taylor Wessing.

"It was common in the UK in the late 1980s and early 1990s when sellers were exploiting the loophole created by the fact that most deals were ‘subject to contract' pending satisfactory surveys, etc.

"In Dubai the conveyancing procedure is somewhat different and so gazumping in its real form is less common. However, we are aware of instances where sellers have pulled out of deals in pursuit of better offers, even after having signed an Agreement of Sale."

The solution then, according to legal experts, is to make the agreement as tamper-proof as possible. Or ensure there is a provision for stiff penalties if the seller fails to do his part.

"Where a seller is in breach of his obligation, by law the original buyer is not able to force him to complete the transfer of the property," said Shahram Safai, partner at Afridi & Angell, the law firm.

"The original buyer may take legal action against the seller seeking to prevent the sale or seek damages from the seller."

Penalty clauses

The size of the compensation must be set out in the terms of the initial agreement. In a real estate marketplace where clear-cut rules of engagement between a buyer and seller are still being moulded, potential buyers are better off arming their agreements with penalty clauses.

That way, they are at least assured of some compensation other than a bitter experience if the seller goes elsewhere.

What to do: Protect yourself

Arming the agreement of sale with sufficient clauses is the best way to go about guarding a potential buyer's interest, especially if a seller starts having second thoughts. "To protect against such withdrawal, a buyer should ensure that the agreement contains a hefty penalty clause obliging the seller to pay in the event that he or she withdraws without due cause," said Jerry Parks at Taylor Wessing. "Getting a better offer is not usually regarded as due cause. This penalty should be paid to the agent or a lawyer to be held effectively in escrow pending the completion of the transfer. If not, and the seller declines to honour the penalty provision, a disappointed buyer will often find that the legal fees for recovery of the penalty far outweigh its amount. "If the seller withdraws, the penalty is paid by the agent or the lawyer to the buyer by way of compensation. If the seller stays in the deal and proceeds to transfer, the penalty is returned to the seller. The position is that we don't need to look for any specific real estate law that deals with sellers withdrawing. Buyers are protected by the basic principles of contract law, which should be used to their benefit and supported by an insistence on the seller paying the penalty to a third party as security."

— M.N.