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Aruna Mukherji - Associate - Real Estate
On 18 October 2017 His Highness Sheikh Mohammed Bin Rashid Al Maktoum issued Law No. 19 of 2017, amending Article 11 of Law No. 13 of 2008 which regulates the Interim Real Estate Register in the Emirate of Dubai (“Law 19”). Law 19 outlines procedures to be followed by a developer in the event of default by an off‑plan investor, leading to termination of the sale and purchase agreement (“SPA”) and de-registration of the SPAs by the Dubai Land Department (“DLD”). These procedures are a matter of public policy and a developer is not permitted to contract out of its obligations.
Article 11 was initially amended by Law No. 9 of 2009 which was then subsequently further explained in Articles 15 and 16 of Executive Council Resolution No. 6 of 2010.
Law 19 takes effect from the date of its issuance, being 18 October 2017, and will apply retrospectively. The only exception to the application of Law 19 is in the case of land sales that have no off-plan sales, which remain subject to the provisions stated in the SPA.
Law 19 also implicitly confirms the right of the DLD to de-register off-plan SPAs in the event of termination without the need to obtain a court order.
How can the developer terminate?
Law 19 has introduced set procedures with timelines which are to be complied with by a developer prior to termination of the SPA of the defaulting off-plan purchaser. Law 19 sets out the following procedures:
Where a real estate project is cancelled by RERA, Law 19 obliges the developer to refund all paid monies back to its purchasers in accordance with Law No. 8 of 2007 concerning real estate development trust accounts in Dubai.
If the defaulting purchaser is of view that the termination by the developer was not done in good faith, then Article 11 (4f) of Law 19 allows such purchaser to approach the courts or arbitration to challenge the termination.
Law 19 has certainly stirred the real estate market in a progressive manner whereby investors are encouraged to comply with their obligations, failing which the developer has the right to terminate and de—register the purchaser’s SPA from the DLD’s interim real estate register with clear steps laid out in Law 19. Also, Law 19 is an important pillar for the off-plan regime in Dubai and will help developers to save the cost and time arising from unnecessary litigation.
Law 19 clarifies a widespread misunderstanding which existed prior to the enactment of this law, namely whether an order from the DLD is sufficient to terminate a SPA or whether a developer is also required to approach the court to obtain an order confirming termination of a SPA. The most important aspect of Law 19 is the developer’s right to unilaterally request from the DLD termination of the SPA without a court order.
Termination of the SPA by the developer in the above manner indicates that the DLD will legally deregister the SPA in the DLD Interim Property Register upon the developer’s request, without the requirement of a court order confirming the termination. Nonetheless, the purchaser still has the right to challenge termination before the Dubai Courts in cases where the developer has abused its rights under Law 19.
Another notable feature of Law 19 is that the DLD shall only consider the relevant completion percentage, of the unit which is the subject matter of the dispute, rather than the total completion percentage of the project. The general practice followed by the DLD prior to the enactment of Law 19 was to issue completion certificate for the project as a whole rather than issuing a certificate for the relevant unit.
Although Law 19 provides that the developer may terminate the SPA unilaterally, in our view, in order for the provisions of Law 19 to be applicable, the procedures for terminating a SPA should be commenced by notifying the defaulting purchaser through the DLD. This means that, in cases where the developer has already served a notice on the defaulting purchaser prior to the issuance of Law 19, then the developer should recommence the notification process by serving a notice through the DLD in order to comply with the formalities of Law 19. However this particular legal question has not been tested before Dubai courts, thus there is no precedent to follow and it is yet to be seen how Dubai courts shall interpret this issue.