By Joanne Bladd
Dubai World tribunal rules Nakheel cannot claim AED41m in late fees from World buyer
Nakheel, the real estate arm of troubled conglomerate Dubai World, on Tuesday lost its attempt to raise AED41m in late fees from a buyer on the offshore World development in a landmark ruling by a Dubai tribunal.
The ruling requires Nakheel to finalise a ‘consolidation agreement’, and credit nearly AED30m in downpayments on two islands to a plot in Jumeirah Village, owned by one of the claimants, Diamond Developers.
Nakheel offered these credit swaps in the wake of Dubai’s real estate crash, to enable buyers to transfer cash from unfinished or halted developments to completed real estate.
The deal, agreed in March 2010, would enable Diamond to pay off its plots and secure the certificates needed to hand over nearly 1,400 units to its buyers.
In exchange for the payment, Perseus- the company behind the World purchases – would receive real estate to the value of its credit.
In July, however, Nakheel issued a demand for an additional AED41m in ‘delay fees’, a penalty for late payment on the two islands.
Nakheel said it had not signed the consolidation agreement and refused to issue five of the outstanding ‘no-objection’ certificates (NOC), stopping Diamond from handing over properties to end users.
The tribunal, however, ruled that a binding contract was in place and that Nakheel’s claim for AED41m in late fees was unjustified.
The two-day trial was the first completed by the Dubai World tribunal, a panel set up to resolve disputes relating to Nakheel’s parent company.
The subsequent ruling could have widespread implications for other buyers on the World development.
Jonathon Davidson, managing partner of UAE-based legal firm Davidson & Co, which represented the claimants, said the result could bolster the confidence of investors.
“It is certainly a clear indication of the manner with which their cases will be dealt,” he said. “The result is already drawing interest from other purchasers in a similar situation.”
The litigation process itself – which can often take up to eight months – was concluded in ten weeks, after Davidson & Co appealed for an urgent hearing.
“The tribunal sat till 7pm both nights of the trial to ensure that all of the evidence could be properly presented,” Davidson said.
Justice is served.
Individuals and others who entered into these consolidation agreements with Nakheel had to agree to have their funds in halted projects and 'credit notes' they had purchased on the open market credited into properties that were either completed or, according to Nakheel, on course to completion. The selling price of these properties were way above the market prices. In the absence of any cash refund, people holding purchase agreements on halted projects had no option but to agree to those unrealistic prices. In addition, the buyers of credit notes also bore the burden of paying the late fee penalties that the original, defaulting buyer had incurred.
Glad to see that international law has finally prevailed and will set ethical legal precedents in the eyes of foreign investors, there are a wide variety property related cases waiting in the wings one imagines.
Nakheel maybe views other potential legal matters pending with greater concern now, leading to some pre-tribunal settlements perhaps. This is an important milestone in terms of transparency too.
Diamond Developers is well known name in the real estate world for its commitment, and with this positive step the law enforcement is still in order. The foundation of justice is good faith.
Before issuing completion certificates to developers, Dubai regulators should check their masterplan and features that have been sold to buyers - developers charge premiums for locations,such as on lake, golf view etc - and if the feature is not complete, handover is not completeDevelopers can charge in excess of 1million dirams for the same specification unit, if its built on a lake or golf course, and the buyer paid that premium. If that hasn't occured, the completion certificate must not be issued.
Hello, I purchased an apartment from Diamond Developers(DD) in Diamond Views IV in October 2008. I have been waiting for handover since the past 2 years now. As a buyer, I am paying heavy home loan interest to the bank for the money released to DD (85% of the purchased amount). Since there is a major delay due to dispute between DD and Nakheel, I would like to understand how the end users should be compensated during final hand over. Buyers are also paying the price for nothing. They should be fairly compensated. Kindly provide guidance.