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A sales and purchase agreement (SPA) is possibly the most important document that needs careful studying before proceeding with a property transaction. Ashraf Sayed, Senior Associate at Hadef & Partners, offers essential guidance on how to draft an SPA that may afford maximum legal protection before you buy a property either off-plan from a developer or a finished house from a previous owner.
Amendments to SPA
An SPA is fundamental to protect the rights and interests of the contracting parties in a property transaction. Without it, a party may not be able to enforce any rights, interests or obligations agreed with the other party, including any protection of monies, recourse in respect of a default in selling or purchasing property and/ or compensation.
The Dubai Land Department (DLD) has a standardised SPA which the parties sign at the time of transfer; however, we believe such SPA needs to be adapted to reflect any additional or special terms. Further, such standardised SPA does not protect the parties in the pre-transfer phase. Accordingly, we recommend that parties sign a definitive SPA at the time of agreeing to the sale. Such definitive SPA should clearly identify the commercial terms agreed between parties, the obligations of the parties until and at transfer and the remedies in the event of breach. The details of a mortgage (and mechanism to discharge) should also be identified.
A buyer should always take extra precaution when purchasing an off-plan property. There are many risks associated with it like delays and the failure of the developer to deliver. If a purchase is made from a developer, the buyer should carefully look into the following points: the SPA issued by the developer should consider the rights and interests of both parties; the progress of construction on site and anticipated completion; developer’s track record; confirmation from RERA that the project is registered and active, the developer is registered and an escrow account is established; the description and location of the property in the SPA match with what one is purchasing; a disclosure notice issued according to the Jointly Owned Property Law.
Historically, many developers refused to amend their standard SPA. This remains the case for some of the larger developers. As the property market has matured and as various new projects have been announced, developers are accommodating purchaser requests far more than previously, including amendments to the developer’s standard SPA to ensure the terms are balanced between parties. Useful clauses may include:
1) restricting the definition of an event of force majeure, a concept that potentially frees parties from liabilities in case of extraordinary circumstances beyond their control. Usually, this is a force of nature such as an earthquake; however, we have seen the definition extend to matters such as delays from authorities, labour disputes and others.
2) the buyer’s rights to suspend payments in the event of delays
3) remedies (the right of termination or compensation) for the buyer where there is a default (including delays) by the developer
4) restricting the right of the developer to vary the unit details including area, location and specifications
5) warranties from the developer that it is in compliance with all relevant authority requirements.
In case of a transaction between a new buyer and original purchaser, the SPA should clearly identify the commercial terms agreed between parties.Useful clauses may include:
1) obligations of the parties pre-transfer, at transfer and post-transfer (if any)
2) remedies for the buyer where there is a default by the seller
3) accurately recording property details including area, location and specifications
4) warranties from the seller that it is in compliance with rules and evidence of approvals from relevant authorities especially where alterations have been made
5) any ongoing obligations in favour of the developer
6) escrow mechanism where a third party may hold on to deposits and security cheques
7) details of any property “block” at the DLD
• Buyers must consider the following documents before entering into any SPA: site inspection, title deed, original SPA, lease agreement, property vacating letter, seller’s passport copy, service charge and financial statement, details of fit-outs, fixtures and fittings included in the price, mortgage registered against the title, availability of financing, details of alterations made by the seller, community rules, owners association
Following the signing of the SPA, the buyer can make enquiries at DLD on any charges, encumbrances registered against the property
Source: S. Dhar, Special to Freehold