- Broker Directory
- My Tools
- News & Advice
- Market Trends
- Other GN Sites
There has been a growing policy among some developers in Dubai to link debts between properties held in one’s personal name with those held by companies that person might also be a shareholder in.
In fact, sometimes it goes further than that and links are being made to other family members or to companies where the only link might be a directorship. Unfortunately these links are not being made to increase customer service, but rather used as a debt collection tactic.
The tactic is to block fully paid properties in order to collect progress payments or penalties (even if disputed by the buyer) on other properties. The net result is that someone may find their property is blocked because of an unpaid debt on another property not owned by them.
A block effectively means a refusal by the developer to issue a title deed or an NOC (no objection certificate) to allow a transfer if there is a sale. In addition, a block may result in a refusal to hand over a property even if it has been fully paid for and is ready for handover.
The consequences can be devastating. The lack of title interferes with leasing the property and raising mortgage finance. A person may also be completely oblivious to the block, and might sign a contract to sell the property without knowing they can never fulfil the contract. When they come to transfer, the block reveals itself and the person may become subject to extreme penalties under the contract.
The process of blocking properties for the above reasons is illegal, but it seems that the leverage created or lack of knowledge on a buyer’s part means that people are being forced to pay the debts of another person in order to free up their own property.
What does the law say?
The UAE Constitution (the “Constitution”) is very clear and it states that property should be protected and no one should be deprived of their property. The UAE Civil Code expands on this position and provides that any person who suffers unlawful violation of their rights shall have the right for such violation to cease and to claim damages for any harm suffered.
Furthermore, Dubai Decree No. 6 of 2010 dealing with the Executive Regulation of Law No. 13 of 2008 (“Decree 6”) provides a developer cannot refuse to transfer title to units at the Dubai Land Department if the purchaser has fulfilled the contractual obligations even if the purchaser owes other financial obligations not arising out of that particular sales contract.
Decree 6 is very clear that a developer cannot stop the title even if the person themselves owes money on another property. Therefore, it is beyond doubt that stopping title because of a debt of another person is illegal.
The basic fundamental premise under the Civil Code is that each person is responsible for their own actions and liabilities. Thus the debts or obligations of a company owned by an individual cannot be linked to the individual shareholder themselves.
The doctrine of abuse of rights provides that a person is liable for an unlawful exercise of rights, and some developers appear to be unlawfully depriving others of the benefit of their properties. However, even though the law is clear, it appears some developers are undeterred.
The courts are definitely a viable way to combat this and it is probable the courts would reach the logical conclusions on the law stated above. However, the time taken to get a case through to judgement would likely be years rather than months. And therefore time pressures often mean such avenues are not viable and it seems developers know it and are using it to their advantage.
It may therefore be the best outcome for the Dubai real estate market that the regulator steps in to ensure that such practices are not continued by developers. Decree 6 provides a right for the Land Department to register a title in circumstances where a developer refuses to transfer it. However, it would also be helpful if the Land Department or RERA (Real Estate Regulatory Agency) implemented a policy of sanctions to deter developers from continuing such practices.