The Counsel

International
by Mamoon Khan
Senior Associate, Al-Tamimi & Co., Dubai
It is reported that Pakistani residents have invested approximately $6 billion in Dubai, mostly
in the real estate market. Consequently, any legislation which seeks to regulate or make
changes to the existing legal framework governing the relationship between the regulator,
developer and the investor inter se, is likely to have an impact on the financial health of
Pakistani investors. This from our Dubai correspondent seeks to inform the readers of such
current developments


United Arab Emirates – Dubai decrees Regulations for
protection of real estate investors

In a much awaited step towards regulating the real estate industry in the Emirate of Dubai, a decree has recently been passed known as the Executive Council Resolution No. 6 of 2010 (“Resolution”) concerning the Regulation of the Interim Real Estate Register in the Emirate of Dubai. The Resolution came into force on February 14, 2010.  The Resolution contains the much-anticipated regulations relating to Law No. 13 of 2008 (the “Law”) which, amongst other things, introduced the Interim Real Estate Register (“Interim Register”) to Dubai allowing developers and purchasers to register their off plan real estate units in the Interim Register.

The Resolution expands upon some aspects of the Law, stating that it is sufficient for a developer to apply to register a unit (rather than complete such registration) within the time limit specified in the Law, in order to have complied with the Law.  If a developer does not apply within the specified time limit, the Department of Land and Properties (“Lands Department”) will still allow registration out of time but impose a penalty on the developer of AED 10,000.

As a significant development, the Resolution makes it mandatory for a broker to pay the proceeds from the sale of a unit into the real estate project’s escrow account and not the broker’s personal account, as was done in the past, meaning that the broker now cannot receive a commission before paying the proceeds into the escrow account.

Further, the procedure for termination of sale contracts by a developer through the Lands Department has been clarified.  It would appear that the thirty (30) day termination notice no longer needs to be served through the Lands Department.  The developer may either request the purchaser to perform their contractual obligations by personally appearing before the Lands Department or in writing by registered mail or email, provided that the Lands Department is given a copy of the request.

Another clarification provides that if the developer has completed at least 80% of the project, it no longer must sell the unit at public auction to recover any balance of monies owed by the purchaser.  The developer now also has the option of deducting a maximum of 40% of the unit’s purchase price and terminating the sale contract with the purchaser.  If the unit is not sold at a public auction the developer may make use of or let it subject to the balance amount being paid to the purchaser.

The Resolution has added that a developer may apply to court for compensation if upon termination of the sale contract, the payments received from the purchaser in the possession of the developer are less than the percentages the developer is entitled to retain under the Law and Resolution.

The Law, which regulated the practice of sale contract termination by developers, did not cover instances where purchasers could terminate such contracts.  The Resolution, however, introduces a number of circumstances under which the purchaser can apply to court to request termination of a sale contract with the developer.  For example, termination may be requested if the developer does not link payments of the purchase price to construction milestones proposed by RERA or if the developer makes material changes to the specifications agreed to under the sale contract.

Finally the Resolution also allows for Real Estate Regulatory Authority (“RERA”) to cancel development projects following examination of a technical report.  The developer is entitled to appeal the cancellation of the project within seven (7) working days of being notified of such cancellation. If RERA rejects the appeal, such rejection is final and the project shall be cancelled.

The Resolution has no doubt provided useful clarifications to the regulation of real estate transactions in Dubai, particularly in relation to purchasers’ rights vis-à-vis developers and also in relation to the criteria that RERA can use to cancel projects.  It will be interesting to see how the various provisions of the Resolution are applied and how they will work in practice, given the changing state of the Dubai real estate market.

The author is the Counsel’s UAE correspondent based in Dubai and is a Senior Associate at the law firm Al Tamimi & Co.  Comments may be directed to editors@counselpakistan.com.