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In the past few years the Dubai Government has introduced several new laws that aim to strengthen the local real estate industry and protect the rights of all stakeholders. The Real Estate Regulatory Agency (Rera) and the Dubai Land Department (DLD) have made significant progress in this respect and are continuing to identify areas that would benefit from new legislation.
One of the recent laws introduced by the DLD mandates that standardized contracts be used for property transactions. In line with this, the government released in May contract forms A, B, F and U, which can be downloaded on emart.gov.ae, the government portal that facilitates the auction, sale and rental of property.
Prior to this, standardized contracts were available from Rera, but they were only used at the discretion of the parties.
Form A is for transactions between a seller and broker, form B is for deals between a buyer and broker, and form F serves as memorandum of understanding (MoU) between a buyer and seller. Form U is a cancellation form that can be used by a buyer or seller.
Despite the DLD making it mandatory to use the new forms, there are agents who flout the rule.
On the other hand, agents who have used the new forms affirm that the system is crucial in promoting trans parency in property transactions and protecting all real estate stakeholders.
''I see this area of the regulatory framework to be the most significant development in the industry over the past five years,'' says Mohanad Alwadiya, Managing Director of Harbor Real Estate. ''The purpose of introducing the new standardized contracts was to provide the parties a contract that clarifies their rights and obligations and removes any possibility of misunderstanding or misinterpretation on the meaning of the clauses mentioned in the contracts.
''The forms help all the parties improve the efficiency and effectiveness of a property deal. As the property market is expected to grow even more significantly in the lead-up to the World Expo 2020, it is that much more crucial for transparency to be maintained.''
Mario Volpi, Managing Director of Prestige Real Estate, could not agree more.
''The forms protect a buyer or seller against any misappropriation or misuse of the property, as the forms ensure that people only deal with Rera-qualified realty agents,'' says Volpi. ''During a transaction, agents themselves provide the buyer or seller with these forms.
''According to the law, all agents must use these forms. If an agent does not use them, that agent is not following the proper Rera protocol.''
While most professional real estate brokers in Dubai use the standard contracts, Volpi says there are some brokers who don't.
''Some brokers even amending the forms in such a way that the original purpose for using the forms, i.e. transparency through clarity and simplicity, is being compromised,'' says Volpi. ''This is unfortunate as we have always said that a properly functioning real estate market needs the three Cs: confidence, clarity and capital. It is in the interests of all industry stakeholders that the standardized contracts are utilised.''
The new rules governing the use of the standard contracts effectively outline the rights of all parties involved in the transaction, says Volpi.
''Through these forms, both parties are made fully aware of their expectations and limitations,'' he says. ''The form details the price of the property, the range and the time frame as to how long the real estate agent will have the rights to sell the property. This is good for agents too, as they will know exactly how much time and money they need to spend in marketing the property.''
There are no fees to download the forms. However, once the deal is concluded, a commission will be payable to the agent by the buyer and the seller.
Volpi also says most sellers mistakenly believe that it is the buyer who has to pay the agent's commission. The new rules also address misconceptions such as this by clearly stipulating the responsibilities and financial obligations of both parties.
''Another thing that a seller needs to understand is that selling a property does not come free,'' says Volpi. ''Another point I want to raise is that it is not illegal for one company to represent both the buyer and the seller. In such a case, it is perfectly alright for a realty company to get a commission from both the buyer and the seller.''
Buyers and sellers also have the option to make the transaction non-exclusive with an agent. ''When you sign the form, it asks if you want the deal to be exclusive or non-exclusive.''
Most common form
Form F is currently the most commonly used contract form.
''Form F is mandatory. There is no transaction that can happen without an MoU,'' says Volpi. ''What some companies do is they produce their own MoU in conjunction with form F. This is because they are reluctant to change. Form A, too, is being increasingly used by sellers to protect their rights and their property. It is form B that is not very commonly used by buyers.''
Volpi says it is not just the agents who are flouting the rules, but also sellers.
''For example, Rera only allows sellers to use up to three agents to sell a property,'' he says. ''But you don't see this happening. Sellers end up listing their properties with a number of agents, and this could backfire on the seller's intention to sell the property quickly.''
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Source: Anjana Kumar, Special to Property Weekly