His Highness Sheikh Mohammed Bin Rashid Al Maktoum issued Law No. 19 of 2017 on October 18, 2017, partially amending Law No.13 of 2008 (Article 11) which regulates the Interim Real Estate Register in Dubai. Law No. 19 puts forward the procedures a developer would have to follow in the event of default by an off-plan investor in order to terminate the respective Sale and Purchase Agreement (SPA).
I. Termination of SPA by the Developer
Before the developer can terminate the SPA in accordance with Law No. 19, there are certain procedures to be followed. Firstly, in case of a default by the off-plan purchaser the developer will need to provide the DLD with a detailed description of the default and the property in question. Secondly, after consideration of the developer’s request and consequent verification, the DLD will grant the purchaser a 30-day notice period to rectify the default. DLD may also consider settlement options, if possible. Thirdly, if the purchaser fails to rectify the default within the 30-day notice period, the DLD will issue a report stating the developer’s fulfillment of the conditions set down in the Law. Subsequently, the DLD will de-register the SPA upon request from the developer without the need to obtain a court order. The report will also mention the completion percentage of the project in question. Lastly, once the DLD has issued the report, the developer has the right to terminate the SPA with the defaulting purchaser.
The developer’s options in case of default by a purchaser depend on the completion percentage of the project in question. In case the project has reached more than 80% completion, the developer has the right to exercise one of the following three options:
(i) to proceed with the defaulting purchaser and retain all amounts paid and request for outstanding payments from the purchaser; (ii) to request the DLD to sell the property through an auction to make up for the balance due from the purchaser; (iii) to terminate the SPA without a court order and retain up to 40% of the purchase price and return excess amounts back to the purchaser within one year of the date of contract cancellation or within 60 days of the re-selling date, whichever is earlier.
In case the project has reached approximately between 60-80% completion, the developer can choose to terminate the contract without the need to obtain a court order and retain no more than 40% of the purchase price and then refund the remaining back to the purchaser either within a year of termination or within 60 days of successful resale whichever is earlier.
In case the project has reached approximately 60%, the developer can opt to void the contract without a court order and retain no more than 25% of the SPA value and refund the remaining amount back to the purchaser either within a year of the date of termination or within sixty days of the date of successful resale of the property, whichever is earlier.
In case construction has not commenced due to reasons beyond the developer’s control and fault, the developer can then opt-in to void the SPA without the need of a court order and deduct no more than 30% of the amount paid by the purchaser and refund the remaining amount back to the purchaser within sixty days of termination.
In all cases, the purchaser may challenge the termination of the SPA by the developer before the courts, if the purchaser believes that the termination was not done in good faith.
II. Summary Law No. 19 has provided developers with recourses in the event of defaulting purchasers. This includes the right of the developer to terminate the SPA and deregister the SPA from the DLD’s register, encouraging compliance on the part of investors. The most significant aspect of this legal instrument is the right provided to developers to terminate the SPA without the need to obtain a court order, which was previously required. On the other hand, the purchaser is not left unprotected as Law No. 19 grants him the right to challenge the termination of the SPA in case the developer is believed to have abused its rights.
For further information or assistance, please contact our colleagues at Germela-Lootah.
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