I have deposited Dh125,000 as a down payment for an apartment in Dubai which has gone into an escrow account. Now I am out of job and have some financial problems. Can I get back my deposited funds in the escrow account? What is the procedure for getting the money back, even if it means that some will be deducted as part of cancellation charges?

ANSWER: There are many people who have put down deposits for off-plan apartments in Dubai in the past few years, who have then subsequently been caught up in the global recession, so you are not alone in your predicament.

From your question I am presuming that you are an off-plan buyer and that the escrow account is a trust account complying with Law No 8 of 2007.

This law was introduced to ensure that developers retained and used deposited funds for off-plan properties solely for the construction of the specified building.

The move was taken to boost confidence in the UAE's real estate sector among investors, such as yourself. However, with the economic slowdown in the past 18 months, a number of real estate developments in the emirate have been delayed or cancelled, while some buyers have been unable to keep up with scheduled payments, leading to purchase contract terminations.

In response to legal uncertainties over how such situations should be resolved, the Dubai government has passed two more laws in the past year that deal specifically with the issue on defaults, where the property concerned has been sold off-plan.

These are Law No 13 of 2008 as amended by Law No 9 of 2009. For sales that are not off-plan, the terms of the contract for sale will prevail.

 

In general terms, for people like yourself who need to cancel their purchase contract because of financial constraints, you are entitled to a partial or even full refund under Law No 9. The amount you receive as a refund will depend largely on how far along the construction of your apartment is.

In the situation where construction has yet not commenced, for reasons beyond the developer's control, the developer may revoke the contract and deduct 30 per cent of the total amounts paid by the purchaser, that is you would receive a 70 per cent refund.

If construction has actually commenced, the developer may revoke the contract and deduct 25 per cent of the actual purchase price. The more advanced the construction, the higher the percentage the developer will deduct from the purchase price.

If the project is cancelled by the Real Estate Regulatory Agency — better known as Rera — because the developer has simply failed to act, you would then be entitled to a full refund. But, it is important to note here, that such cases have so far been rare.

If you want to proceed down the road of getting your money back, then the first step to take is to default on a payment, as it is up to the developer to initiate the termination of your contract via Rera.

The developer will report you as being ‘in breach' of contract and Rera will act to find out if this is true, before authorising your contract termination.

But beware, this is not a quick fix to your financial constraints, as under the law the developer has up to 12 months to return any funds that are due to you.

If you need to carry out a full assessment of your finances the advice of an independent financial advisor is always helpful, as they can find other ways for you to build savings and raise capital.

 

The writer is a solicitor and senior estate planning consultant at Nexus Insurance Brokers.