Ensuring timely handovers

Property Weekly, gulfnews.comProperty Weekly, gulfnews.com

A number of people who invested in Dubai's off-plan developments prior to the economic downturn were forced to wait much longer than they were promised. While some buyers were fortunate to see their projects assigned to other developers through the Dubai Land Department's (DLD) Tanmia initiative, others have not been as lucky and are still contemplating their next steps.

Firstly, when tackling delays in property handovers, we should always refer to the unit's sales and purchase agreement (SPA), which will cover the rights and obligations of the buyer and developer. SPAS are not standard documents in the UAE and, therefore, they often tend to be structured in favour of the developer, which is why it is crucial for the buyer to carefully review the terms and get the agreements revised by their attorneys.

Case study

As an example, a complex of two towers in Jumeirah Lakes Towers launched in 2005 and originally scheduled for completion in 2008 was sold to a new developer through the Tanmia scheme in 2012. In this situation, the buyers cannot demand a compensation from the new developer, as the latter only took over from the previous developer and is not to be blamed for the delay.

Today, nearly six and a half years later, the twin towers are finally making progress, with both buildings almost 70 per cent complete. In the new SPA, issued to investors in the middle of last year, the developer states that it reserves the right to postpone the anticipated completion by a further two quarters, and that such postponement shall be without any penalty on the seller.

This means that the completion of those towers may be postponed by up to six months, although many developers grant themselves up to 12 months. As previously mentioned, SPAS are not standardised documents and thus the contractual terms could differ from one agreement to another.

Apart from such mutually agreed extensions, the only circumstance under which a developer may delay a project is in the event of a force majeure. In this scenario, a buyer's obligations as well as rights are suspended until the force majeure no longer exists as notified by the developer. But what qualifies force majeure? A typical SPA defines it as an "act of God", which includes natural disasters, labour disputes, terrorist attacks and war. Yet several developers have taken the liberty to quote the financial downturn of 2008 and their inability to obtain municipality approvals as events of force majeure. The latter has particularly prompted the Dubai Courts to release a statement in September 2014, saying that the municipality's refusal to grant approval of buildings is not a sudden decision and, therefore, this is not subjected to force ma-jeure.

Actions a buyer can take

As a buyer, you have several options to take if your property handover has been delayed. If construction is progressing but at a much slower pace than it should be, you can apply pressure on the developer by raising the issue with the Real Estate Regulatory Agency (Rera), the regulatory arm of the DLD. Such a move will be more effective if you come forward with a group of investors in the same project.

Rera does not generally interfere in disputes if the project is progressing. Nevertheless, communicating with the regulator can be worthwhile, as seen with the Dh3-billion Dubai Lagoon, which was expected to be completed in 2008 and whose developer Schon Properties had cited the real estate market crash as one of the reasons for delay.

After several investors approached Rera, the DLD decided to split the project into seven phases, each with a standalone escrow account. Soon after, Schon had secured an investment of Dh339 million for the completion of Dubai Lagoon and the first zone of the project was scheduled to be delivered in November.

If you are considering legal action as a buyer and have chosen to withhold payments because you are certain that the project will not be delivered, you should be ready to terminate the contract. However, you must have clear and compelling evidence to show that your concerns are justifiable. Also, taking a developer to court could take years, and if the project has been constructed by the time the dispute reaches the court, it will be difficult for a buyer to maintain a case. Even then, the refund you will get will depend on the percentage of construction completed.

How the law protects you

According to Law No. 9 of 2009, if a developer has completed at least 80 per cent of a project, it may keep the full amounts paid and request the buyer to settle the remaining amount. If 60 per cent has been completed, the developer may revoke the contract and deduct up to 40 per cent of the unit's price. If construction has commenced but did not reach 60 per cent, the developer may revoke the contract and deduct up to 25 per cent of the unit's price. If construction has not yet started for reasons beyond the developer's control without any negligence on its part, it may revoke the contract and deduct up to 30 per cent of the total paid by the buyer.

Ultimately, Rera may decide to cancel a real estate project, in which case the developer must return all amounts paid by the buyers in accordance with Law No 8 of 2007 concerning escrow accounts of real estate developments. The grounds for cancellation include the developer's failure to commence construction without a good reason, Rera's confirmation that the developer has no intention to perform the project or if the plot is affected by projects undertaken by the government.

Once a project is decisively cancelled by Rera, Article 25 of Executive Council Resolution No. 6 of 2010 requires the regulator to appoint an independent auditor to determine the monies paid by investors towards the cancelled project, after which funds must be refunded to the buyers within 14 days.

The role of banks

Banks in the UAE play a major role in ensuring that the project's funds are not misused by the developer. Since the Escrow Account Law was passed in June 2007, all payments made for the purchase of an off-plan unit must be deposited in a dedicated bank account in an accredited UAE bank.

The developer and escrow agent (the bank) then sign an agreement and provide a copy to the DLD, which regulates the operation of the account. Whenever Rera confirms that a milestone has been achieved, the developer is allowed to withdraw funds. The escrow agent regularly updates the DLD with the status of the account by providing statements showing all funds credited and debited. Off-plan buyers in the project have the right to review the bank statements.

Real estate regulations in Dubai have clearly evolved in recent years to address many concerns relating to the purchase of off-plan property, although there are still no restrictions to prevent extensive delays in the completion of a project. In order to safeguard the interests of both the developer and buyer, the government needs to standardise SPAS and establish a system that will penalise delays in the delivery of off-plan projects.




Source: Porush Jhunjhunwala, Special to Property WeeklyPW

The author is Director of Banke International Properties

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