Purchasing real estate off-plan can be an enticing proposition in the UAE given the relatively affordable price point when compared to ready properties. However, the reality of construction delays can turn this investment into a drawn-out ordeal, leaving buyers grappling with uncertainty and potential financial losses.
Fortunately, the UAE’s legal system has some safeguards in place to protect buyers’ rights in such scenarios, according to Mahmoud Kreidie and Michael Kortbawi, legal experts at law firm BSA.
Here’s everything you need to know.
Buyers’ rights for off-plan handover delays in UAE
“When purchasing off-plan property in the UAE, buyers must be aware of several key clauses within the Sale and Purchase Agreements (SPAs),” said Mahmoud Kreidie, a paralegal at the renowned law firm BSA.
These standard clauses, ubiquitous in most developers’ contracts, are vital in safeguarding buyers’ interests and ensuring their rights are upheld throughout the transaction process.
One such crucial clause is the Completion and Passing of Risk Clause, which outlines the developer’s anticipated completion date and permits an extension for specific reasons outlined in the agreement, typically ranging from 6 to 12 months.
“If the property is not completed and deliverable beyond the extension period, the SPA may be cancelled,” Kreidie explained.
Moreover, the Cancellation of the SPA Clause empowers buyers 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,” he added.
Off-plan project completion stages and terms
These standard clauses, used by most developers in the UAE, are vital in protecting buyers’ interests. However, in the UAE, real estate transactions, including off-plan property purchases, are governed by regulations that vary by emirate, “with no unified federal law,” Michael Kortbawi, Partner at BSA, clarified.
“If the off-plan project reaches different stages of completion, the SPA typically includes specific terms,” he said.
For instance, if a project is more than 80 percent complete, the developer may ask the buyer to adhere to the sale contract’s terms or retain up to 40 percent of the purchase contract’s value and return the remaining amount within a specified timeframe.
In cases where the project did not proceed due to reasons beyond the developer’s control, the real estate developer “may disregard the sale contract solely, deduct not more than 30 percent of the payment, and return the remaining amount to the buyer within 60 days upon the resale of the property, whichever is earlier,” Kortbawi said.
Dubai-specific regulations for off-plan handover delays
In Dubai, a well-defined legal framework, including Law No. 8 of 2007 (Escrow Accounts), Law No. 13 of 2008 (Interim Real Property Register), and Executive Council Resolution No. 6 of 2010, offers significant buyer protection.
The Real Estate Regulatory Agency (RERA) oversees the real estate sector, ensuring transparency and accountability by regulating developers, brokers, and projects.
Property 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, Kortbawi said.
Law No. 13 of 2008 mandates registering off-plan property sales with the Dubai Land Department (DLD) for buyer security. Executive Council Resolution No. 6 of 2010 requires developers to hand over properties by the agreed date if buyers have fulfilled financial obligations. For delays or non-delivery, buyers can seek amicable settlements through the DLD or take legal action in court.
Article 11 of Law No. 13 of 2018 deals with breaches of sale contracts by buyers, detailing the DLD notification process and potential outcomes based 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.”
Buyers must do their due diligence before committing to off-plan
Off-plan buyers should do their due diligence before committing to a certain property investment, by looking into the developer and project’s details.
“Potential buyers should verify the project’s registration with RERA and confirm the existence and details of the escrow account,” said Kreidie.
“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.”
Instead of doing it themselves, Kortbawi suggested that potential buyers can seek professional assistance on the matter.
“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,” he said.
“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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