Read on legal measures aimed to protect buyers in Dubai

Read on legal measures aimed to protect buyers in DubaiGeoff Smith

There are a number of legal measures which have been introduced to safeguard property buyers in Dubai.

One of the recent additions to the list is the unified real estate contracts which have been made mandatory for all property transactions.

There are three types of standardized contract documents which are made available: a contract between a seller and a buyer, between a seller and a broker, and between a buyer and a broker.

Another law which has been in place for a number of years is the escrow law which prevents developers of off-plan properties from using funds from the escrow account for any other purposes other than for the project for which the payments were made.

Geoff Smith, Senior Associate of Afridi & Angell, explains these legal safeguards and what more needs to be done to boost the confidence of property buyers.

Unified real estate contracts

These will benefit the Dubai real estate market by introducing basic protections to the main parties involved in real estate transactions, namely: the buyer, the seller and (where relevant) the broker.

I am regularly contacted by individuals who have issues with their transactions. In many cases, their contracts lack the basic principles needed for a property sale and purchase, or are heavily one sided.

The introduction of the unified real estate contracts will go some way to introducing a level of fairness and protection.

However, it needs to be understood that the unified real estate contracts are not a ''one size fits all'' solution, and certain transactions will still require bespoke documentation to meet the needs of the parties involved.

Escrow law

It was implemented to protect off-plan purchasers and, to a certain extent, this has been achieved.

But there may be instances that, despite bona fide payments being made out of the escrow accounts with the approval of the escrow manager, the project could fail.

The off-plan purchaser, in this case, could lose his or her money as there are insufficient funds in the escrow account to repay purchasers.

International investors from jurisdictions such as Europe and North America have a very different idea of what an escrow account entails.

More often than not, in such jurisdictions, the escrow funds are held until the end of the project and then released.

Grey areas

One of the areas which requires improvement is the collection of service charges under the Jointly Owned Property Law.

The key powers granted to owners associations to assist in the recovery of service charges include (i) imposing financial penalties and (ii) imposing nonfinancial penalties.

Despite these powers, we are increasingly seeing high levels of service charges remaining unpaid; therefore, improvements and an increase in powers of enforcement are clearly needed.

In respect of new developments, there is current uncertainty on whether developers are permitted to sell off-plan units prior to taking title to the plot.

Before the economic crash, a number of master developers transferred title to the plot before the completion of the buildings constructed on the plot.

A consequence of the subsequent crash is some master developers have partially completed buildings in their communities with no legal recourse to take back title to the plot to try and reinvigorate construction.

Accordingly, a number of master developers are now refusing to transfer title to the plot until the completion of construction.

RERA's position is that off-plan sales are not permitted without title, therefore creating an impasse in that construction cannot be funded in the usual way from the funds of off-plan developers.

The law needs to be clarified in this respect as it is currently open to interpretation.

What buyers need to check:

• The main clauses that a buyer needs to pay special attention to are representations and warranties from the seller, details of how their deposit will be held and termination provisions if the transaction does not complete.

• A buyer also needs to undertake a certain level of basic due diligence to ensure that what he is buying is what he is expecting to buy.

• If a buyer is looking at a property from the secondary market, he should pay close attention to the contract/MOU, the title deed, the service charge information and whether there is any existing mortgage over the property.

Click on Purchasing property and read how to do it through a Jafza offshore company

Source: S. Dhar, Special to Freehold

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