Essential property contract terms

Property termsSarit Thomas

Many of you may be familiar with the process of buying and selling property in Dubai. However, many purchasers and sellers alike will more often than not execute a sale and purchase agreement, without giving the contractual terms much consideration.

The sale and purchase agreement, also more commonly and incorrectly referred to as a memorandum of understanding, is the foundation on which the parties to the transaction cement their relationship. In an ideal world, such a document should clearly set out the rights and obligations of both buyer and seller and adequately provide for the worst-case scenario.

Being on opposite sides of the relationship, each party will of course have different requirements, which they should rightly want the agreement to reflect. These requirements can very easily be drafted into a sale and purchase agreement, leaving nothing to the imagination, chance and, ultimately, to interpretation. It is important to remember that the sale and purchase agreement should protect both parties and the parties should be able to negotiate the terms of the agreement.

The following is a non-exhaustive list of provisions that should be considered and included in the sale and purchase agreement for completed real estate units:

1. Details of the parties - The contract should state clearly the full names of the parties, their passport numbers and address for serving notices. The seller's full name should match that stated in the title deed of the property.

2. Property details - The contract should provide a clear description of the property as it is commonly known, i.e. street name and number, and as it appears on the title deed, including any parking spaces.

3. Commercial terms of the transaction - The agreement should expressly state the purchase price payable by the purchaser and detail which party is to bear the costs associated with any mortgage on either side (as applicable), the transfer fees charged by the Dubai Land Department and its Trustee Offices. any fees payable to the developer and master developer (as applicable), including service charges and utility charges, and any agency commission (as applicable).

4. Definitions - Many agreements we come across with quite often have various capitalised terms, which have not been defined and which are not consistently used throughout the agreement. This can provide uncertainty with regards to the parties' intention. As such, it is important to ensure that clear definitions are inserted and used consistently. We would suggest that the parties pay particular attention to the definition of completion, transfer, completion date and transfer date, so that the parties are in agreement as to what exactly constitutes completion of the transaction.

5. Salient terms of the transaction:

a) The agreement should clearly detail the practical workings of the transactions and the steps the parties are required to take to successfully complete the matter and transfer the legal title of the property from the buyer to the seller. For example, with most transactions, following execution of the sale and purchase agreement. The parties are required to apply for a no-objection certificate (NOC) from the developer and at times from the master developer. All developers have their own processes and procedures in place for completing such process, with some requiring the involvement of both the buyer and the seller and some only requiring the involvement of the seller. The agreement should clearly provide the steps required to be undertaken by the parties to obtain an NOC. Securing an NOC is usually a relatively straightforward process, however, where the seller has a mort- gage in place, the mechanics of discharging the mortgage while ensuring that the buyer's interest has been appropriately protected is a little more cumbersome. In such instances, having an agreement in place that details the agreed process is fundamental.

b) It is important that the agreement clearly provides the type of title being conveyed by the seller and whether there are any encumbrances affecting or burdening the property. These may include a mortgage or a tenancy agreement or any other third -party charges.

e) It is imperative that the default and termination provisions are clearly stated and that the parties are in agreement as to what happens in such instance. For example, in the event of default, it is usually reasonable to provide for a period where such default can be remedied on receipt of a written notice.

6. Governing law and dispute resolution provisions - We all hope that every transaction we enter into will conclude successfully and amicably. However, one cannot ignore the possibility that things could go wrong. It is better to ensure that the agreement executed reflects at the outset how the parties want to resolve any disputes that may arise, rather than leave things to chance.

The above list is not exhaustive. However, it does go some way in demonstrating how many factors need to be considered prior to entering into a sale and purchase agreement. It is imperative to ensure that before entering into any contract, you have read and fully understood the terms and that you are happy to be bound by such terms, especially in a worst-case scenario when the transaction goes pear-shaped.

I cannot stress enough how important it is that the contract be drafted correctly and clearly at the outset. This will avoid uncertainty and disputes later on. A sale purchase agreement is a legal contract and its contents should not be taken lightly. It is therefore always advisable to have it read over by your trusted lawyer.

Source: Sarit Thomas, Special to Property WeeklyPW
An associate lawyer at Taylor Wessing. Before relocating to Dubai, she practiced in the UK, specializing in commercial property, particularly in property acquisitions, sales, commercial and residential landlord and tenant matters, options and development work. Thomas now specialises in non-contentious and contentious property-related matters.

Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the Information provided.

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