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Sat 27 Dec 2008 04:00 AM

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The new mortgage laws

KK Sarachandra Bose, commercial and contract lawyer at Dar Al-Adalah Advocates and Legal Consultants, explains the working of the new mortgage laws in the UAE.

According to recently introduced laws (i.e. Law No. 14/2008 concerning mortgages in the emirate of Dubai and Law No. 13/2008 regulating the Interim Real Estate Register (IRER) in the emirate of Dubai) all mortgage contracts must be registered with the Land Department.

The main advantage of these new laws is transparency which gives more confidence to the purchaser. As per the new laws, both the buyer and the seller are well protected.

The salient features of Law No. 13 of 2008 are:

• All disposals of real estate units off-plan must be registered with IRER.

• Any sale or other disposition that transfers or restricts title or any ancillary rights shall be void if not recorded in the IRER.

• Developers who make a sale or other disposition that transfers or restricts title prior to this law should get it registered with the IRER within 60 days after the date on which this law came into force - (Article 3).

• A master developer or sub-developer shall not begin a project or sell its units off-plan before obtaining possession of the land on which the project is to be built and the necessary approvals from the competent authorities in Dubai - (Article 4).

• An application to register the real estate unit in the IRER shall be filed using the standard form - (Article 5).

• Real estate units that are marked as sold off-plan and are registered in the IRER may be sold, mortgaged or legally disposed of - (Article 6).

• The master developer and sub-developer shall not charge any fees for the sale, re-sale and other dispositions of real estate units that have been completed or sold off-plan, but they may charge administrative expenses to third parties with the approval of the department - (Article 7).

• Developers must register completed projects in the IRER as soon as a completion certificate has been obtained from the competent authorities, including any units that were sold to purchasers who have fulfilled their contractual obligations as per procedures of the department - (Article 8).

• A developer who wishes to market his project through a real estate broker must first conclude a contract with an accredited broker in Dubai and must get the contract registered at the department - (Article 9).

• Any informal contract concluded by developers or brokers for the sale of real estate units off-plan in projects not approved by the competent authorities will be null and void - (Article 10).

• If the purchaser defaults on any term of the contract he made with the developer for the sale of the real estate unit, the developer should notify the department accordingly and then the department will give the purchaser 30 days notice to fulfill his contractual obligations, by hand, registered post or email.

In case the purchaser fails to fulfill his obligations, the developer may cancel the contract and repay the purchaser his money less a deduction that does not exceed 30% of the money paid by the purchaser - (Article 11).

• If the area of the unit sold turns out to be bigger on completion, the developer may not claim the difference in value.

If the unit turns out to be smaller, then the developer must compensate the purchaser for the difference unless the difference is marginal - (Article 12).

• When the department finds that a developer or broker has committed an act of omission that constitutes an offence under this law or other legislation in force, the director general shall prepare a report and refer the matter to the competent investigating authorities - (Article 13).

The salient features of Law No. 14 of 2008 (Mortgage Law) are:

• This law is applicable exclusively in Dubai and is a modification of the UAE mortgage law .

• The purchaser of property that is sold off-plan or under construction may mortgage it as security for the debt provided that the unit is registered with the IRER .

• Right to mortgage or long term lease for a period of not less than 10 years or more than 99 years is permissible as per law.

• Rights of a mortgagee can be subrogated as per this law.

• The government of Dubai had also promulgated few laws earlier, which are applicable in the Emirate, Law No. 7/2006 which streamlines land registration; regulation No. 3/2006 designating the areas where non-UAE nationals may own freehold property in Dubai, No. 85/2006 which regulates real estate brokers' register; and Law No. 8/2007 which governs trust accounts of real estate developments.

• The land registration law is applicable to real estate properties situated in the emirate of Dubai. Foreigners may, subject to the approval of the ruler, be granted the rights to acquire absolute ownership of land without time restrictions in certain areas, and usufruct or leasehold of properties for a period not exceeding 99 years. Land means any plot of land and all that is located thereon such as buildings, plants etc.

• As per the land registration law, all transactions that create, transfer, change or cancel rights over land shall be recorded in the Land Register and no transaction shall have any effect unless registered.

• As per the bylaw on real estate brokerage in Dubai, every person carrying on brokerage activities must be registered at the Electronic or Documentary Register of the real estate brokers at the Land Department.

• As per the law on trust accounts of real estate developments in Dubai, every developer selling units of the project is bound to open a trust account in the name of the property developer in a bank or financial institution approved by the Dubai Land Department and deposit the amounts paid by the buyers of the units or the financing parties.

If you would like to write for Construction Week in this column, please email rob.wagner@itp.com.

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