Gulf Insider: July 2015

The Problem…

During recent years, Bahrain has witnessed a revolution of high quality developments and substantive projects that reflected positively on the national economy, through the creation of multiple job opportunities and attracting foreign investment.

Nevertheless, Bahrain’s real estate market has been constantly facing a number of challenges, mainly those arising from the sale of “off plan properties” to investors without governmental approval. Many of those projects were never fully completed, either due to improper planning and mismanagement of funds, material breaches of contractual provisions, unforeseen events of force majeure, or violations of the laws through undertaking real estate development activities prior to obtaining the required licenses and approvals from concerned authorities, leaving the investors without remedies for the incurred losses resulting from such delays.

… and the Solution

Based on the large number of legal claims arising from those issues, the New Law was passed as a tool to offer further protection to investors and to restore confidence in the Bahrain real estate development market.

Under this New Law, real estate developers are prevented from undertaking, marketing or promoting any project, prior to obtaining the required licenses from the concerned authorities (in particular, from the Ministry of Municipalities and Urban Planning) following the submission of all necessary and supporting documents relating to the projects. Furthermore, completed plans, including the design, artist impressions, the start and completion dates and value estimates are required to be presented and approved by the Engineering Practices Regulatory Committee. Therefore, as a result to these regulations, “off plan” properties will be prohibited, since developers will only be permitted to sell completed units, unless otherwise approved, and a detailed field assessment has been conducted.

The New Law also imposes penalties, including imprisonment and fines, on developers who commit any of the violations stated in the New Law; such as selling unlicensed, incomplete or unregistered projects, violating the provisions of a granted license, or having knowingly submitted false information to the competent authorities for the purposes of registering a project or obtaining a license.

Always on the Safe Side

As a substantive guarantee to investors’ rights, developers shall be compelled to deposit their projects’ funds into a “Guarantee Account”, prior to commencing work on a project, of which 5% will be held by the appointed Account’s Secretary to ensure the settlement of any compensation claims that may arise from the suspension of the project. The New Law also grants both the buyer and the seller the right to terminate a sale and purchase agreement and claim compensation for any loss and damage arising from such termination.

Furthermore, under the New Law, if a project is partially suspended, the developer will be obliged to complete the project or reimburse the investors for the amounts. If a project has been fully suspended, the developer will be required to complete the project at its own expense, under the supervision of a different developer or sell the project and distribute the revenues among the investors.

One of the most prominent outcomes of the New Law is the introduction of the “Real Estate Projects Dispute Committee” whose main role is to resolve the disputes relating to real estate projects within six (6) months. The Committee’s verdict can be challenged before the Court of Appeal within fifteen (15) days of the verdict’s issuance date.

We hope that the New Law will pave the way towards a prosperous future for Bahrain’s real estate market which will ultimately benefit the national economy as a whole.