Developers may now terminate off-plan SPAs without the need to file cases in court: How, When and Why

The newly published Abu Dhabi Law No. (2) of 2025 introduces a transformative contractual remedy in Article 3 that allows a developer, under carefully circumscribed conditions, to rescind an off-plan sale and purchase agreement (SPA) unilaterally, that is without first filing a court case or going to arbitration. This may only be considered when the buyer materially defaults on his contractual obligations. This mechanism represents a deliberate legislative effort to balance commercial efficiency in the Emirate’s real estate sector with the preservation of substantive and procedural protections for buyers and mortgagee creditors.

At the heart of the provision lies the recognition that off-plan development is uniquely vulnerable to purchaser default; milestone payments finance construction, delays threaten project viability, and market confidence can be swiftly eroded.

By granting the developer a right to terminate without the need to go to court or arbitration, the law seeks to facilitate uninterrupted project execution while simultaneously embedding multistage safeguards designed to ensure transparency, notice, and an opportunity for amicable resolution. The statutory pre-conditions to rescission therefore operate less as technical formalities and more as due process which guarantees that buyers are protected from unjust termination.

The first mandatory step is a formal notice, either notarised or dispatched by registered mail with acknowledgment of receipt, addressed to the buyer. The statutory notice must be served at the address specified in the SPA. This requirement eliminates disputes over effective service and sets running a sixty day cure period during which the buyer is invited to remedy the breach.

Fifteen days after dispatching the notice, the developer must inform the Abu Dhabi Department of Municipalities and Transport (DMT) that the buyer is in default and a termination notice has been served. The Developer will enclose both the original notice and a certificate from the escrow account trustee attesting to the buyer’s continuing default. This twin reporting requirement establishes a public sector checkpoint. The DMT is alerted to the potential rescission while the impartial account trustee corroborates the factual situation for further action.

Following such notification, the DMT is vested with a statutory duty, either in its capacity as regulator of the Emirate’s real estate sector or at the request of any interested party, to convene an amicable settlement procedure within the legislative timeframe and prior to the expiration of the sixty day cure period. The explicit legislative mandate that the DMT “ensure the parties have been notified” before commencing mediation underscores the government’s intent that settlement be pursued only after procedural fairness is scrupulously observed. Should the parties successfully compromise, whether that be by way of rescheduling of instalments due under the SPA, partial waiver, or other negotiated term, the resolution is recorded in an addendum to the SPA, thereby resolving the buyer’s default without the need to file a case.

If, however, the sixty day cure period lapses without agreement, or the buyer persists in default, the developer’s right terminate the SPA. Upon termination, the DMT may delete the buyer’s name from the off-plan unit’s initial register and authorise the developer to remarket the unit, but only after a further thirty day interval. That cooling-off period serves two purposes:

1. it gives the defaulting buyer final awareness of the impending loss of contractual rights; and
2. it gives regulators a temporal buffer to verify the developer’s continued adherence to the approved construction schedule.

Both essential consumer protection features that mitigate the risk of speculative cancellations masquerading as legitimate rescissions.

The economic consequences of SPA termination are balanced proportionality. The proceeds from any resale of the unit must flow into the project escrow account, and the developer may draw down only the amount that is reasonably proportionate to both the buyer’s default and the percentage of project completion. A forthcoming government decision is expected to fix the precise deduction bands and the associated procedural mechanics for refunding any surplus to the buyer. In practical terms, a buyer who has paid instalments materially exceeding the developer’s verified construction outlay will be entitled to a partial reimbursement, thereby aligning financial exposure with actual work executed on the ground.

Notably, the new law expressly preserves the buyer’s option to submit the dispute to the Abu Dhabi Courts or arbitration notwithstanding the developer’s new termination rights. This “savings clause” is critical in sustaining buyers’ rights to protect their rights in court and in honouring any valid arbitration provisions set out in the SPA. While a court could ultimately uphold or annul the developer’s termination depending on compliance with the legal prerequisites, the new law incentivises settlement or at least cure within the prescribed timelines by making litigious recourse an avenue of last resort rather than first resort.

From a comparative perspective, the Abu Dhabi model marks an evolution from the earlier legislative schemes in Dubai and Sharjah, which often leave developers dependent on prolonged judicial proceedings to revoke contracts.

Abu Dhabi Law No. (2) of 2025 innovates by marrying a developer’s need for swiftness with a regimented, regulator supervised process that lessens the risk of unfairness or unjust action. The integration of the escrow account trustee as an independent verifier of payment default and of the DMT as a mediation facilitator embeds both financial and administrative checks within a single statutory continuum.

Market participants, developers, and buyers alike should recalibrate their risk assessment and internal compliance protocols to reflect the new legislative environment. Developers must rigorously document each procedural milestone, service of notice, trustee certification, DMT notification, mediation invitations, and construction schedule adherence so that no later court challenge invalidates the rescission. Buyers, for their part, should maintain accurate address information, monitor escrow account statements, and engage proactively with the DMT if a default looms, recognising that silence may precipitously culminate in SPA termination and partial forfeiture of instalments.

In sum, Clause 3 of Abu Dhabi Law No. (2) of 2025 represents a sophisticated legislative compromise that streamlines contractual enforcement in the off-plan market while embedding multi-layered procedural and substantive protections. By allowing developers to rescind without immediate oversight by the courts (while still requiring strict compliance with rules on notice, mediation, and escrow account protections) the law aspires to enhance project completion rates, support investor confidence, and uphold fundamental fairness in one of the Emirate’s most dynamic economic sectors.