The Dubai off-plan real estate market is well regulated and developers comply with their legal obligations. However, amid current market conditions, there have been reports that developers are now selling off-plan without an escrow account or with a registered escrow account but not depositing money in it. It is important that purchasers are aware of their rights and of developers’ responsibilities to address challenges in the unlikely event they find themselves facing such developers.
Here is what purchasers can do if they find themselves in a dispute with a developer:
Pursuant to Law 8 of 2007 (Escrow Account Law), developers selling off-plan units must open a separate escrow account for each project with an escrow agent, being a bank or financial institution accredited by the Dubai Land Department. The developer must deposit all amounts paid by the purchasers of off-plan units and loan payments funded by financiers in the escrow account for the purpose of construction of the real estate development project. The amounts deposited in the escrow account are to be allocated exclusively for the construction of the project and settlement of the project financing payments in accordance with the law.
The penalty for any person who steals, appropriates or forfeits any amounts of money delivered to him or her for the purpose of implementing real estate development projects is a jail sentence and a fine of at least Dh100,000.
What can buyers do?
In the event property buyers find themselves facing a dishonest developer, a complaint should immediately be lodged with the Real Estate Registration Agency (Rera), which is responsible for regulating the activities of real estate development companies and monitoring all development projects on a financial and technical level. It also monitors the compliance of developers with the applicable laws and imposes penalties for violations.
To recover lost monies and claim damages, purchasers should also look to the dispute resolution mechanism in the sale and purchase agreement (SPA), which is most commonly an arbitration. Arbitration is beneficial as it is usually faster than going to court, it is private and specialist arbitrators can be used to determine a matter. In Dubai the most popular arbitration venues are before the Dubai Chamber of Commerce and Industry or the Dubai International Financial Centre/London Court of International Arbitration (DIFC/LCIA) Centre, which is based in DIFC.
If the SPA has no arbitration clause, purchasers can file a case with the Dubai courts. Proceedings are started by filing a claim in the relevant court office. On application by the claimant, payment of court fees can be deferred in exceptional cases. The court fee depends on the value of the claim, and has a maximum cap of Dh40,000. This fee is payable either on an application for provisional relief, or on filing the main lawsuit.
The claim must meet procedural requirements, include the names and addresses of the parties to the proceedings, and include details of the claim. Documents in support of the claim are usually annexed to the claim and must be translated into Arabic. The court issues a summons with a hearing date endorsed on it for service on the defendant. The court usually appoints an expert to assist and usually accepts their report.
As more and more off-plan units come into the market, purchasers, more than ever, should be aware of their legal rights, potential remedies and developers’ responsibilities.
Shahram Safai is a partner and Anna White is an associate at Afridi and Angell.