Explanatory Notes on
Article (11) of Law No. (19) of 2017 Amending
Law No. (13) of 2008
Regulating the Interim Real Property Register in
the Emirate of Dubai[1]
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The Dubai Real Property
sector has been a source of attraction for investors, offering them
promising investment opportunities and considerable financial returns thanks to
the effective tools that regulate this sector, its vitality, and the confidence
of its stakeholders. The Dubai Real
Property sector has deservedly become one of the world's leading sectors. Of
the main investment attractiveness factors of the Dubai Real Property sector is the legislation which
regulates this sector, and which plays a pivotal role in sustaining its growth
and prosperity. The Dubai Real
Property legislation is among the most developed worldwide and is characterised
by its great flexibility and adaptability to changes in the Real Property market. Most significant of such
legislation are Law No. (13) of 2008 Regulating the Interim Real Property
Register in the Emirate of Dubai, its amendments, and its Implementing Bylaw;
and Law No. (8) of 2007 Concerning Escrow Accounts for Real Property
Development in the Emirate of Dubai.
The
Emirate of Dubai has been a local and regional forerunner in developing a
legislative framework to regulate Off-plan Sale of Real Property Units, by issuing the above-mentioned Law No.
(13) of 2008. The said Law has been issued to accommodate the need to recognise
this type of modern-day Real
Property dispositions. Law No. (13) of 2008
regulates Off-plan Sale of Real Property, being an important tool in supporting
and stimulating the Real
Property sector and in driving Real Property
investment. Under an Off-plan Sale agreement, a Developer is obliged to build
Real Property Units on the land that he owns or has the right to develop, and
to transfer the ownership of such Real Property Units to its purchasers in
accordance with agreed-upon specifications and schedules. The Developer
performs these obligations in consideration of the payment by the purchasers of
the price of the Real Property Units in instalments as per agreed-upon
construction-linked payment schedules.
Off-plan
Sale is an innovative tool to conclude Real Property dispositions in respect of
Real Property Units that are designated as off-plan or that are under
construction. The main advantage of this tool is that it serves the interests
of both Developers and purchasers. For a purchaser, an Off-plan Sale agreement
enables him to purchase a Real Property Unit in instalments that suit his
financial ability, which would have otherwise been unattainable if he had to
pay for it in a lump sum, given the high prices of Real Property Units. For a
Developer, an Off-plan Sale agreement enables him to raise the finance required
for implementing Real Property development projects through the instalments
paid by purchasers. This spares Developers the need to acquire loans from banks
and financial institutions and the subsequent need to provide collaterals and
to pay high interest rates which constitute a burden for Developers and often
require a long time to pay.
The
main objective of issuing the above-mentioned Law No. (13) of 2008 and its
Implementing Bylaw is to set the rules regulating Off-plan Sale agreements in a
way that ensures that the rights of Developers and purchasers are protected,
and creates a safe and transparent environment where Real Property projects are
implemented on time. Hence, the aforementioned Law and its Implementing Bylaw
include provisions stipulating the obligations of Developers and purchasers, as
well as the consequences of breaching such obligations, thus guaranteeing the
achievement of the objective of Off-plan Sale agreements, namely, completing
the construction of the subject Real Property Units and transferring their
ownership to purchasers.
It
is established that a purchaser's timely payment of the instalments of the Real
Property Unit’s price is one of the fundamental contractual obligations under
an Off-plan Sale agreement; and that his failure to fulfil this obligation
would disrupt the progress of the Real Property project and delay its
implementation, resulting in losses for the Developer. In view of this, Article
(11) of Law No. (13) of 2008 Regulating the Interim Real Property Register in
the Emirate of Dubai, as amended by Law No. (19) of 2017, prescribes a set of
procedures and measures that the Developer may take against a defaulting
purchaser without recourse to courts or arbitration.
By
the powers vested in the Supreme Legislation Committee in the Emirate of Dubai
under its establishing Decree No. (23) of 2014, and upon the request addressed
to it by the Director General of the Dubai Courts Ref. No.
(DC/OUT/2018/0000083), dated 13/03/2018, we provide hereunder our
interpretation of Article (11) of Law No. (19) of 2017.
Article (11) of Law No. (19) of
2017 Amending Law No. (13) of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai stipulates the following:
a. Where a purchaser fails to fulfil his contractual
obligations under an
Off-plan Sale agreement concluded with a Developer, the following rules and
procedures will apply:
1. The
Developer
must notify the DLD of the purchaser’s non-performance of his contractual
obligations. This notification must be submitted on the form prescribed by the
DLD for this purpose and must include all details of the Developer and
purchaser; a description of the Real Property Unit subject of the Off-plan Sale
agreement; a detailed account of the contractual obligations breached by the
purchaser; and any other details determined by the DLD.
2. Promptly
upon receipt of the notification and verifying that the purchaser is in breach
of his contractual obligations, the DLD must:
A. serve
a thirty (30) days’ notice on the purchaser requiring
him to fulfil his contractual obligations towards the Developer. The notice
must be in writing and dated; and must be delivered to the purchaser either in
person or by registered mail with acknowledgement of receipt, email, or any
other means prescribed by the DLD; and
B. where
possible, mediate an amicable settlement between the Developer and purchaser,
in which case such settlement must be attached as an addendum to the Off-plan
Sale agreement and must be executed by the Developer and the purchaser.
3. If
the notice period mentioned in sub-paragraph (a)(2)(A) of this Article expires
and the purchaser fails to fulfil his contractual obligations or to reach a
settlement with the Developer, the DLD will issue an official document in
favour of the Developer confirming the following:
A. the
Developer’s compliance with the procedures stipulated in paragraph (a) of this
Article; and
B. the
percentage of completion of the Real Property Unit subject of the Off-plan Sale
agreement, calculated in accordance with the relevant standards and rules
adopted by RERA.
4. Upon
receiving the official document referred to in sub-paragraph (a)(3) of this
Article, and based on the percentage of completion, the Developer may take any
of the following measures against the purchaser without recourse to courts or
arbitration:
A. Where
the percentage of completion of the Real Property Unit exceeds eighty percent
(80%), the Developer may:
1. maintain the Off-plan Sale agreement
concluded with the purchaser, retain all amounts paid by the purchaser, and
claim the balance of the price of the Real Property Unit from the purchaser;
2. request the DLD to sell the Real
Property Unit, subject of the Off-plan Sale agreement, by public auction to
collect the remaining amounts payable to the Developer; and hold the purchaser
liable for the costs arising from the sale; or
3. unilaterally terminate
the Off-plan Sale agreement, retain up to forty percent (40%) of the value of
the Real Property Unit stipulated in the Off-plan Sale agreement, and refund
any amounts in excess of this to the purchaser within one (1) year from the
termination of the agreement or within sixty (60) days from the date of resale
of the unit to another purchaser, whichever occurs earlier.
B. Where
the percentage of completion of the Real Property Unit is between sixty percent
(60%) and eighty percent (80%), the Developer may unilaterally terminate the
agreement, retain up to forty percent (40%) of the value of the Real Property
Unit stipulated in the Off-plan Sale agreement, and refund any amounts in
excess of this to the purchaser within one (1) year from the termination of the
agreement or within sixty (60) days from the date of resale of the unit to
another purchaser, whichever occurs earlier.
C. Where
the Developer has commenced work on the Real Property project, having taken
hold of the construction site and started construction works in accordance with
the designs approved by the Competent Entities, and the percentage of
completion of the Real Property Unit is less than sixty percent (60%), the
Developer may unilaterally terminate the Off-plan Sale agreement, retain up to
twenty-five percent (25%) of the value of the Real Property Unit stipulated in
the Off-plan Sale agreement, and refund any amounts in excess of this to the
purchaser within one (1) year from the termination of the agreement or within
sixty (60) days from the date of resale of the unit to another purchaser,
whichever occurs earlier.
D. Where
the Developer has not commenced work on the Real Property project for any
reason beyond his control, without negligence or omission on his part, he may
terminate the Off-plan Sale agreement, retain up to thirty percent (30) of the
amounts paid to him by the purchaser, and refund any amounts in excess of this
to the purchaser within sixty (60) days from the termination of the agreement.
b. Where the Real Property project is cancelled
pursuant to a reasoned decision of RERA, the Developer must refund all payments
made by the purchasers in accordance with the procedures and rules stipulated
in the above-mentioned Law No. (8) of 2007.
c. The rules and procedures stipulated in this
Article do not apply to land sale agreements which do not involve any Off-plan
Sale. Land sale will continue to be governed by the terms of the land sale
agreements concluded by the parties thereto.
d. The rules and procedures stipulated in this
Article will apply to all Off-plan Sale agreements concluded prior to or after
the commencement of this Law.
e. The rules and procedures stipulated in this
Article are considered part of public order, and failure to comply therewith
will result in nullity of the legal act in question.
f. The rules and procedures stipulated in this
Article will not preclude the purchaser from having recourse to courts or
arbitration where the Developer abuses any of his powers under this Article.
Interpretation
of Article (11) of Law No. (19) of 2017
The need for amending Article
(11) arose given the array of varied judicial interpretations thereof and the
divergent methods of implementation thereof by courts in the course of hearing
and determining claims brought before them in respect
of disputes on Off-plan Sale agreements. The disputes mostly arose in connection with the
Developer’s right to unilaterally terminate the Off-plan Sale agreement where
the purchaser was found in breach of his contractual obligations. In an attempt
to ensure that Article (11) is clearly understood and that its interpretations
do not conflict in a way that would create negative repercussions on the Real
Property market in the Emirate of Dubai, there has been more than one amendment
to that article, the latest of which is made under the above-mentioned Law No. (19) of 2017.
I.
Paragraph (a) of Article (11) stipulates the rules
and procedures that must be followed where a purchaser fails to fulfil his
contractual obligations under an Off-plan Sale agreement concluded with a Developer.
The article states the actions to be taken by both the DLD and the Developer in
the event of the purchaser's non-performance of his contractual obligations,
particularly defaulting in paying the instalments of the price of the Real
Property Unit on their due dates. These actions will be taken in the following
order:
1. The
Developer
will notify the DLD of the purchaser’s non-performance of the contractual
obligations. This notification must be submitted on the form prescribed by the
DLD for this purpose and must include all details of the Developer and
purchaser; a description of the Real Property Unit subject of the Off-plan Sale
agreement; a detailed account of the contractual obligations breached by the
purchaser; and any other relevant details determined by the DLD.
2. Upon receipt of the above-mentioned
notification, the DLD will verify, by all means necessary, the validity of the
Developer’s claims that the purchaser is in breach of the agreement. Where it
is established that the purchaser is in breach of his contractual obligations,
the DLD must take the following actions in this order:
- The
DLD will serve a notice on the purchaser requiring him to fulfil his
contractual obligations towards the Developer within thirty (30) days from
being served with this notice. The purpose of this notice is to give the
purchaser sufficient time to fulfil his contractual obligations, and prevent
the Developer from taking the measures stipulated in the Law against the
purchaser. Sub-paragraph (a)(2)(A) of Article (11) prescribes the conditions
for the validity of this notice, including that it must be in writing and
dated; and that it must be delivered to the purchaser either in person or by
registered mail with acknowledgement of receipt, email, or any other means prescribed
by the DLD.
- Where
possible, the DLD will mediate an amicable settlement between the Developer and
the purchaser. In this regard, the DLD must exert adequate efforts and discuss
all available options to enable the parties to reach an agreement. Where an
amicable settlement is reached, it must be attached as an addendum to the
Off-plan Sale agreement and must be executed by the Developer and the
purchaser. This addendum will constitute an integral part of the Off-plan Sale
agreement and will be binding on the parties thereto.
- Where
the notice period expires and the purchaser fails to fulfil his contractual
obligations, and no amicable settlement is reached between the purchaser and
the Developer, the DLD will issue an official document in favour of the
Developer confirming the Developer’s compliance with the procedures stipulated
in paragraph (a) of Article (11), and the percentage of completion of the Real
Property Unit subject of the Off-plan Sale agreement. The DLD may issue this
official document only upon verifying that the purchaser has actually breached
his obligations under the Off-plan Sale agreement concluded with him.
The purpose of issuing the Developer with this
document is to enable him to take legal action against the purchaser without
recourse to courts or arbitration. Moreover, this document provides legal
protection for the Developer, strengthening his legal position in case of any
action taken against him by the purchaser.
3. Upon
receiving the official document referred to in the previous paragraph, and
based on the percentage of completion of the Real Property Unit subject of the
Off-plan Sale agreement, the Developer may take any of the following measures
against the purchaser without recourse to courts or arbitration:
a. Where the
percentage of completion of the Real Property Unit exceeds eighty percent
(80%), the Developer may:
- maintain
the Off-plan Sale agreement concluded with the purchaser, retain all amounts
paid by the purchaser, and claim the balance of the price of the Real Property
Unit from the purchaser. The Developer may take any legal action that enables
him to collect the remaining amounts payable to him by the purchaser. Upon
receiving these amounts, the Developer must register the Real Property Unit in
the name of the purchaser on the Real Property Register maintained by the DLD,
or alternatively, the DLD may register the Real Property Unit in the name of
the purchaser on its own initiative or upon the request of the purchaser;
- request
the DLD to sell the Real Property Unit, subject to the Off-plan Sale agreement,
by public auction to collect the remaining amounts payable to the Developer;
and hold the purchaser liable for the costs arising from the sale. The DLD will
conduct the sale by auction in accordance with the relevant procedures adopted
by it, without the need for a court ruling;
- unilaterally
terminate the Off-plan Sale agreement. It is well established that the
Developer’s right to terminate the agreement in this case is granted by law and
does not require the purchaser’s consent to be established. The termination
will be effected by the DLD since the agreement is registered with it on the
Interim Real Property Register maintained and managed by it. Moreover, this
termination of the Off-plan Sale agreement does not require a court ruling or
an arbitration award, but it takes effect at the Developer's own will. In
addition to terminating the agreement, the Developer will have the right to
deduct, through the Escrow Agent, up to forty percent (40%) of the value of the
Real Property Unit stipulated in the Off-plan Sale agreement from the amounts
deposited by the purchaser in the Escrow Account of the Real Property project,
in which case, the Developer must refund any amounts in excess of this to the
purchaser within one (1) year from the termination of the agreement or within
sixty (60) days from the date of resale of the unit to another purchaser,
whichever occurs earlier. The Developer’s right to deduct the above percentage
does not require a court ruling to be established, as it is granted by law. The
Developer may exercise this right at his own will, as a legitimate means of execution against
the property of a purchaser who is in breach of his contractual obligations.
b. Where the
percentage of completion of the Real Property Unit is between sixty percent
(60%) and eighty percent (80%), the Developer may unilaterally terminate the
agreement, retain up to forty percent (40%) of the value of the Real Property
Unit stipulated in the Off-plan Sale agreement, and refund any amounts in
excess of this to the purchaser within one (1) year from the termination of the
agreement or within sixty (60) days from the date of resale of the unit to
another purchaser, whichever occurs earlier. The exercise of this right has the
same grounds referred to in paragraph (a) above.
c. Where the Developer has commenced work
on the Real Property project, having taken hold of the construction site and
started construction works in accordance with the designs approved by the
Competent Entities, and the percentage of completion of the Real Property Unit
is less than sixty percent (60%), the Developer may unilaterally terminate the
Off-plan Sale agreement, retain up to twenty-five percent (25%) of the value of
the Real Property Unit stipulated in the Off-plan Sale agreement, and refund
any amounts in excess of this to the
purchaser within one (1) year from the termination of the agreement or within
sixty (60) days from the date of resale of the unit to another purchaser,
whichever occurs earlier. The exercise of this right has the same grounds
referred to in paragraph (a) above.
d. Where the Developer has not commenced
work on the Real Property project for any reason beyond his control, without
negligence or omission on his part, he may unilaterally terminate the Off-plan
Sale agreement, retain up to thirty percent (30%) of the amounts paid to him by
the purchaser, and return any amounts in excess of this to the purchaser within
sixty (60) days from the termination of the agreement.
II.
Paragraph (b) of Article (11) stipulates that
where the Real Property project is cancelled pursuant to a reasoned decision of
RERA, the Developer must refund all payments made by purchasers in accordance
with the procedures and rules stipulated in Law No. (8) of 2007 Concerning
Escrow Accounts for Real Property Development in the Emirate of Dubai, which
requires the Developer to open an Escrow Account for the Real Property project
in which the amounts paid by the purchasers of off-plan Real Property Units are
deposited. Under the said Law, the amounts deposited in the Escrow Account are
exclusively dedicated to the construction of the Real Property project, and no
attachment may be imposed on these amounts for the benefit of the creditors of
the Developer. The above-mentioned Law No. (8) of 2007 also requires an Escrow
Agent to take the necessary measures to protect the rights of depositors and
ensure the depositors are refunded their payments in the event of any emergency
situation that results in non-completion of the Real Property project,
including cancellation of the project by RERA.
III.
Paragraph (c) of Article (11) determines the scope
of application of the Article (contracts governed by the article), stating that
the procedures, rules, and provisions stipulated therein exclusively govern the
Off-plan Sale agreements of Real Property Units to which the above-mentioned
Law No. (13) of 2008 and its amendments apply, and which must be registered on
the Interim Real Property Register. The said paragraph clearly stipulates that
Article (11) does not apply to undeveloped land sale agreements, and that this sale
will continue to be governed by the terms agreed upon by the parties thereto.
IV. Paragraph
(d) of Article (11) identifies the temporal scope of the Article, expressly
stating that the procedures and rules stipulated in Article (11) apply to all
Off-plan Sale agreements of Real Property Units concluded prior to or after the
commencement of the above-mentioned Law No. (13) of 2008.
The retroactive effect stipulated in this
paragraph is an exception to the general principle of non-retroactivity of legislation,
which limits the temporal scope of legislation to events and actions that occur
after the commencement of the relevant legislation rather than the legal
positions established before such commencement. This principle is established
in Article (112) of the UAE Constitution, which stipulates: “Laws will apply
only to occurrences that take place as from their commencement date, and may
not have retroactive effect. When necessary and in other than criminal matters,
the law may stipulate otherwise.” This Article provides for the non-retroactivity
of legislation, but authorises an exception to this principle, in accordance
with the requirements of the public interest and in other than criminal matters,
through applying new laws to occurrences and actions pre-dating their commencement.
Paragraph (d) of Article (11) explicitly states that the rules and procedures
stipulated in this Article apply to all Off-plan Sale agreements concluded
prior to or after the commencement of the above-mentioned Law No. (13) of 2008.
Accordingly, all such agreements are governed by the amending provisions prescribed
under the above-mentioned Law No. (19) of 2017.
The applicability of the procedures stipulated in
this Article to all Off-plan Sale agreements, including those concluded prior
to the commencement of the above-mentioned Law No. (13) of 2008, entails that
they must be observed, as amended, by parties to these agreements, by the
Concerned Government Entities, and by the courts. This means that courts must observe
the procedures prescribed by the amended Article (11) for purposes of
determining claims in respect of which no final definitive judgements have been
rendered, and that these procedures do not apply to claims for which final
definitive judgements are delivered. In other words, courts must apply Article
(11), as amended by Law No. (19) of 2017 retroactively, to all claims being
heard by them and relating to termination by Developers of Off-plan Sale
agreements on grounds of breach by purchasers of their contractual obligations,
whether this breach is committed prior to or after the commencement of the said
amended Law. This interpretation is consistent with paragraph (1) of Article
(1) of Federal Law No. (11) of 1992 Issuing the Civil Procedures Code and its
amendments, which stipulates that procedural laws apply to the claims which
have not been determined and to the proceedings which have not been conducted
prior to the date of commencement thereof, considering that the rules
prescribed by Article (11) of Law No. (19) of 2017 are procedural rules.
V.
Paragraph (e) of Article (11) has established the
procedures and rules stipulated therein as part of public order, stipulating
that failure to comply therewith will result in nullity of the legal act in
question. This means that the provisions of Article (11) are imperative norms
and that parties to Off-plan Sale agreements may not agree to any terms,
procedures, or rules in violation thereof. The legislative rationale behind
this stipulation lies in the fact that the rules and procedures stipulated by
Article (11) protect the vital and essential interests not only of parties to
Off-plan Sale agreements, but of the society at large, given that it guarantees
the stability and prosperity of the Real Property sector. This is why the
legislator stated that Article (11) is part of public order and that failure to
comply therewith will result in nullity of the legal act in question.
VI. Paragraph
(f) of Article (11) protects the purchaser’s right to have recourse to courts
or arbitration where the Developer abuses his right to take, against the
defaulting purchaser, the procedures and measures prescribed by Article (11).
This demonstrates the legislator’s keenness on striking a balance in protecting
the interests, rights, and legal positions of all stakeholders in the Real
Property sector. The rules and procedures prescribed under Article (11), which secure
the rights of a Developer where a purchaser is in breach of his contractual
obligations, are subject to judicial review and to nullification by the
judiciary where it is established that the Developer has abused the powers
vested in him by this Article to encroach upon the rights of the purchaser.
©2018 The Supreme Legislation Committee in the
Emirate of Dubai
[1]Every effort has been made to produce an accurate
and complete English version of this legislation. However, for the purpose of
its interpretation and application, reference must be made to the original
Arabic text. In case of conflict, the Arabic text will prevail.