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Real estate lawyers in Dubai have had a pretty challenging time over the past few years. Together with difficult economic conditions and reduced transaction flows, legislative development has also slowed. Between 2006 and 2010, real estate practitioners were well served with new legislation comprising more than 18 laws, regulations, directions or resolutions dedicated to the sector. Since then, the pace has slowed somewhat, with the market still awaiting the introduction of certain legislation, including the much-talked-about Investor Protection Law, and clarity surrounding offshore company ownership regulations.
The Dubai Land Department (DLD) recently made a potentially significant contribution to the day-to-day workings of the market with the introduction of standard contracts for the purchase and sale of real estate in Dubai. These include basic documents regulating the relationship between the parties and brokers and, significantly, a standard sale and purchase agreement (SPA).
Anyone familiar with an Ejari form (used for lease registration) will recognise the basic format of the SPA. The front section consists of a relatively comprehensive information-gathering exercise, presumably being structured with a view to providing the DLD with information for comprehensive market analysis. However, the real substance of the initiative comes in the remaining terms and conditions.
At the date of writing, adoption of the terms and conditions is voluntary, but parties now have access to a relatively detailed contract to act as a default basis for their agreement.
The terms of the SPA are diverse and cover basic scenarios such as the payment of deposits and liability for transfer fees. More interestingly for those in the industry, it expects the seller to provide undertakings with regard to the title of the property in question and also give assurances in relation to disputes that may exist, which could have an impact on the transaction.
The standardised contract is an important step towards promoting proper use of documentation for real estate sales and purchases. While buyers and sellers should always take legal advice before entering into any legally binding commitment, providing a basis sets some boundaries around what the parties should expect.
There will always be a need to tailor contracts to the circumstances and types of transactions, but this serves as a useful starting point for less-complex transactions.
Contracts in the Dubai market (and in the GCC generally) have often been unsatisfactory, in many cases poorly drafted and unsuited to the transaction at hand. In the past, certain contracts have been an amalgam of documents, which agents or brokers, rather than lawyers, have built up over a period of time. Short-form contracts for low-value residential transactions have been used to document complex, multimillion-dirham commercial transactions, without distinction.
As someone dealing with such matters on a daily basis, I can say that the number of instances where parties have used agreements which bear little or no resemblance to the bargains they thought they were entering into, is surprisingly high. Also, many documents I am asked to review seem to challenge the most basic rules of both the Arabic and English language. Anything that provides parties with a clear and generally fair starting point from which to negotiate can only be of benefit to the market.
Does the DLD's move provide any reason for concern? As it stands today, no—provided the parties understand that it is not a standard that fits all types of transactions and take legal advice on its terms and the drafting of special conditions. As long as the individual investor or seller is able to voluntarily adopt the documents, then this is simply another step by the DLD to provide greater protection in the now buoyant real estate market. Were terms of the SPAs made mandatory, a one-size-fits-all approach would be unlikely to meet the needs of both residential consumers and institutional investors satisfactorily.
The DLD's approach should be welcomed by the general public and legal profession alike. It provides a solid starting point for parties seeking to enter fairer and more transparent bargains.
Source: Andrew Thomson, Special to Property Weekly
Andrew Thomson is an Associate Partner at Clyde and Co