Off-plan Property Delays in the UAE: Know Your Legal Rights as a Buyer
Mahmoud Kreidie and Michael Kortbawi of BSA Ahmad Bin Hezeem & Associates provide an overview of the key clauses in sale and purchase agreements (SPAs) for off-plan properties in the UAE, highlighting their importance in protecting buyers’ interests in case of delays or non-delivery. They also outline the legal framework in the UAE, especially in Dubai, that governs real estate transactions and provides additional buyer protection through regulations and agencies like RERA and DLD.
Mahmoud Kreidie
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Michael Kortbawi
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When purchasing off-plan property in the UAE, buyers must be aware of several key clauses within the SPAs. These standard clauses, used by most developers, are vital in protecting buyers’ interests and ensuring their rights are upheld throughout the property transaction process. The key clauses related to late delivery include:
The Completion and Passing of Risk Clause outlines the developer’s anticipated completion date and permits an extension for specific reasons outlined in the agreement, usually between 6-12 months. If the property is not completed and deliverable beyond the extension period, the SPA may be cancelled. The clause also specifies the buyer’s financial obligations to become eligible for possession once the property is complete and the risks associated with the property transfer to the buyer only after handover.
“Buyers should review their SPAs to understand the compensation terms for delays”.
The Cancellation of the SPA Clause allows the buyer to terminate the agreement if the developer fails to fulfil their obligations, such as not handing over the property by the agreed date. Typically, SPAs allow for a 12-month extension beyond the Anticipated Completion Date. If the property remains incomplete after this extension, the buyer can cancel the SPA. Buyers should review their SPAs to understand the compensation terms for delays, which may include a percentage interest for delays beyond the completion date or a refund of the entire amount paid plus 9% interest if no specific clause is present.
Additionally, if the off-plan project reaches different stages of completion, the SPA typically includes specific terms:
- More than 80% complete: The developer can ask the buyer to follow the terms of the sale contract and seize the paid amount. Alternatively, the developer may retain up to 40% of the purchase contract’s value and return the remaining amount to the buyer within a year of the contract cancellation date or within 60 days upon the resale of the property, whichever is earlier.
- Between 60% and 80% complete: The developer may disregard the sale contract solely, retain not more than 40% of the purchase contract’s value, and return the remaining amount to the buyer within a year of the contract cancellation date or within 60 days of the resale of the property, whichever is earlier.
- Less than 60% complete: The developer may disregard the sale contract, retain up to 25% of the sale contract’s value, and return the remaining amount to the buyer within a year of the contract cancellation date or within 60 days upon the resale of the property, whichever is earlier.
- Project did not proceed due to reasons beyond the developer’s control: The developer may disregard the sale contract solely, deduct not more than 30% of the payment, and return the remaining amount to the buyer within 60 days upon the resale of the property, whichever is earlier.
Relevant Laws and Regulations
In the UAE, real estate transactions, including off-plan property purchases, are governed by regulations that vary by Emirate, with no unified federal law. For example, Dubai has a well-defined legal framework offering significant buyer protection. Key laws include Law No. 8 of 2007 (Escrow Accounts), Law No. 13 of 2008 (Interim Real Property Register), and Executive Council Resolution No. 6 of 2010. The Real Estate Regulatory Agency (RERA), established under Law No. 16 of 2007, oversees the real estate sector, ensuring transparency and accountability by regulating developers, brokers, and projects. Developers must open an escrow account for each project, deposit all buyer payments into this account, and allow buyers to review the account records. If a project is incomplete, the escrow agent must protect buyers’ rights, including project completion or refunds.
Law No. 13 of 2008 mandates that all off-plan property sales be registered with the Dubai Land Department (DLD), providing additional buyer security. Executive Council Resolution No. 6 of 2010 requires developers to hand over properties by the agreed date if buyers have fulfilled their financial obligations. Buyers can seek amicable settlements through the DLD or take legal action in court for delays or non-delivery. Article 11 of Law No. 13 of 2018 deals with breaches of sale contracts by a buyer, detailing the notification process through the DLD and potential outcomes depending on the project’s completion percentage.
If the project is cancelled by a resolution from RERA, the developer must refund all paid amounts made by the buyer.
Recommendations
Potential buyers should:
- verify the project’s registration with RERA and confirm the existence and details of the escrow account;
- check the developer’s registration and permits;
- consult with a legal practitioner to understand the terms of the SPA, including any compensation clauses for delays or non-delivery; and
- consider professional legal assistance for drafting, negotiating, and performing due diligence.
Buyers can negotiate compensation clauses in their SPA and may seek contract termination if necessary. If the developer does not agree, buyers can approach the DLD or file a lawsuit under Article 20 for termination. Delays may be considered negligence under Article 22, allowing action under Article 383 of Federal Law No. 5/1985 even without a specified contract period.
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