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Beginning this month, all transactions related to the buying and selling of property in Dubai will be officiated through unified property contracts as per a new policy being implemented by Dubai Land Department (DLD).
It is now mandatory for all sellers, buyers and brokers to use the standard contracts that are available in three versions — between a buyer and seller (formF), seller and broker (form A) and buyer and broker (form B). Through these unified contracts, the DLD aims to bring in more consistency, transparency, efficiency and confidence to the real estate market.
''Unified contracts between the parties not only prevents misunderstandings and misinterpretation of articles, which could have occurred previously, but also guarantees the rights of all the stakeholders involved,'' says Sultan Bin Butti Bin Mejren, Director General of the DLD. ''This important new document contributes to the enhanced competitiveness of the real estate market in Dubai and moves it to a new phase of leadership and excellence by establishing principles of transparency and professional standards.
''It will be of great value in assisting us to keep pace with the real estate boom in the emirate and will promote confidence in the market.''
Property Weekly looks into the pros and cons of the unified contracts policy announced by the DLD.
With the market in an uptrend, Sunil Saraf, Managing Director of Tanjay Real Estate, believes sentiment and excitement generally heighten, while legal guidelines tend to be ignored. He says this is the perfect time to regulate the market and standardise processes, which will protect the rights of all stakeholders.
This move will speed up the buying and selling processes in the real estate market, especially since it allows the completion of registration procedures without the need of an agent.
The standard contract system will create a professional real estate market that has clear and measurable rules.
Saraf says, ''Speculators will be kept in check, because the contracts would now be legally enforceable, which makes the market more mature. It would also help to establish stability, transparency and ethics in the market.
''Even agents would be discouraged to take shortcuts in a hurry to close deals.''
The unified forms are available for download on the DLD's eMart portal. These are basic forms that include all the details required by the DLD to process a transaction such as information about the buyer and seller, property code, purchase price, project, developer, broker or the legal representative, says Philip Sequiera, Senior Associate at Hadef and Partners. These forms enable all the parties to access the details at a glance.
Before the standardized forms were introduced, details of sale and purchase agreements were sometimes recorded haphazardly, says Sequiera. He adds that with the standard forms in place, it will simplify the process and reduce ambiguity pertaining to the details of a property and the parties involved.
''The new forms will assist DLD officials to retain details in their system much more quickly, and without having to skim through several pages. The standardized form policy will provide better services to customers and bring about transparency in all transactions handled by buyers, sellers, brokers and agents,'' says Sequiera.
Forms A and B, issued by the Real Estate Regulatory Agency (Rera), have been in use since their inception in 2008. However, the new format of these documents is not as comprehensive as the original ones, says Mario Volpi, Managing Director of Prestige Real Estate. However, they are simpler, which make them easy to deal with.
Form F includes only basic information such as names of the buyer and seller, address of the property, financial details and names of the agents in its present format. However, Volpi explains an agreement needs to be more detailed and should cover all eventualities to protect the interests of buyers and sellers, as generally outlined in a regular contract.
Since the standardized agreement forms are not comprehensive enough, Volpi believes agents would continue using their own forms as an addendum to the DLD's form F, which needs to be signed by the buyer and seller in any case.
''There will be two agreements in the property transaction, which will mean more work for agents,'' he says. ''However, I believe that form F will be tweaked again in due course from a legal point of view and the clauses that are missing will be added to it.
''Standardised forms are great in theory because everybody uses the same format, leaving no chance of misinterpretation, but since it is not detailed enough, it would still leave the door open for agents to take advantage.''
By enforcing this new procedure for all resale transactions, Sequiera says the DLD and its nominated agents will be able to handle more transactions per day and also ensure a more efficient transfer of the property without the need for amendments at a later stage.
''Earlier, the details of relevant parties would be scattered throughout contracts between buyers and sellers or in documents where brokers, agents or legal representatives were involved, which took more time to handle,'' he says. ''But on the newforms, the details of all the parties are clearly stated.''
Having standardised contracts also ensures that customers are aware of the documents that need to be signed when executing a real estate transaction, says Sequiera.
''Although there will be separate terms and conditions between the parties depending on the commercial aspect of the transaction, customers would be easily alerted to any dubious documents that unscrupulous agents or brokers may ask them to sign,'' he says.
These forms will also eliminate any chances of mistakes, such as wrong property codes, which could result in the buyer facing hardships in the future, adds Sequiera.
The DLD's standardized contract policy is a positive step towards promoting high quality real estate services and enhanced efficiency. However, these contracts do not cover all details that are essential to protect the buyer and seller's interests during a sale. Therefore, separate agreements need to be made to cover these concerns.
''Although the standard contracts will be a mandatory part of any resale transaction, it is obvious that these cannot replace the underlying terms and conditions of a proper sales and purchase agreement,'' says Sequiera.
''The parties will have to separately enter into an agreement, which will clearly capture all aspects of the sale from mortgage and payable charges to applying for no-objection certificates for property under construction and more.
''Moreover, the form does not refer to warranties, covenants, obligations, the effect of force majeure, forfeiture, penalties and default and termination, so there are a lot of other terms that the parties will have to agree on separately.''
These forms are likely to be used for all resale transactions, which means they will cover completed as well as under-construction property and hence the terms will vary for every transaction.
Yash Shah, Property Sales and Leasing Manager of SPF Realty, says all deals will now have the DLD as witness since all contracts will be registered with it. This benefits both parties since neither will be able to back out from the deal and sellers will get the right price of a property, while buyers will also benefit as prices are based on estimated market values.
''All parties faced several challenges in the past, such as sellers changing their minds depending on market fluctuations even after a deal is signed or buyers changing their minds in the face of multiple options,'' says Shah. ''But now, this will stop, establishing a more mature market, which hinges on smooth transactions and reasonable market prices, while getting rid of unusual price hikes.''
Common areas of misinterpretation:
- Who and how much transfer/registration fee is to be paid?
- Who pays the NOC/ service charges?
- If a deal falls through, what are the repercussions and how are the interests and penalties implemented?
- What happens if there is a delay in transferring a property or establishing ownership, or transferring the title of a property or the rights of each stakeholder in the deal?
Source: Hina Navin, Special to Property Weekly