Brokers in peril

Brokers need to always think about protecting themselves from future legal disputes / Image Credit: ShutterstockBrokers need to always think about protecting themselves from future legal disputes / Image Credit: Shutterstock

While the property market is much more regulated now than it was before the downturn in 200809, a recent court decision has highlighted a potential risk for real estate brokers. In September last year, Ocean View Real Estate was ordered by Dubai Courts to pay Dh2.4 million in compensation to Ventafonds Dubai Opportunity, a German fund investment group, for a project that never took off.

The German fund invested on a floor in the Legacy Tower in Dubai Waterfront in late 2007. Ocean View, which has traded in Dubai for 14 years, brokered the deal.


“We had lost the case and our appeal to the court regarding the decision against the German fund,” says Tim Boswell, CEO and founder of Ocean View, lamenting that it remains unclear to him how a brokerage was held responsible for a project that a developer failed to complete “I don’t understand how this case slipped through the crack. A broker anywhere in the world cannot guarantee that a building that they are selling will be completed. Only a developer can ensure that.”

He adds: “We are a brokerage company, whose role is to connect the buyer with a developer and take a commission for our services. The law needs to be a little bit more clearly stated on the protection of a brokerage during a deal.”

According to Sallie Bow-tell, Partner at Trowers and Hamlins, some brokers get into trouble because they fail to follow the right procedures or are unaware of the regulations. She advises brokerage firms to provide regular training to their agents to bring them up to date with new regulations and industry best practices. “By following the correct procedures there is limited exposure to claims of misrepresentation by brokers,” she says.

New priorities

As he restructures his firm, Boswell says providing regular training to his staff will be a top priority. “I am going to make sure each of our sales agents is keeping up-to-date information about the Rera and the DLD laws, and the correct paperwork are all signed and put in place during each deal. The government has put everything in place, but when you have a big sales team, you need to keep an eye on what your agents are signing. They should not be able to sign a contract that is not legally binding, which might come back years later as a cause of dispute.”

A broker’s role is mainly to match buyers and with the right products, says Philip Sequeira, Senior Associate at Hadef and Partners Real Estate Department. “His job is no more than introducing the end user to the developer in return for remuneration,” says Sequeira. “He uses his skills and expertise to promote the property. However, he should declare his position as a broker clearly and not use unethical tactics to sell the property.

“The code of ethics under By-Law 85 of 2006, which regulates the Real Estate Brokers Register in Dubai, needs to be strictly followed by the broker when selling properties on behalf of a developer.”

Boswell admits real estate regulations have now improved and provide ample protection to the developer and buyers, although he says his experience shows that brokers will have to always think about protecting themselves, especially when it comes to paperwork. He advises brokers to work with an experienced law firm.

Avoid legal loopholes

“If you sell a property in the UK or US, you cannot sell a property without going through a law firm,” says Boswell. “Going through a law firm might make a deal to close slower or cost little extra money, but getting legal help from the beginning would protect the brokers a lot better. I would try doing more business involving legal entities so that a similar situation would never arise in future. In case a customer takes you to court for any dispute, don’t take the case lightly. If the opposition lawyers are good and savvy, they can beat you and put you in trouble.”

Sequeira says brokers should also carry out due diligence when selling a project. “A broker should ensure that the developer has good standing in the market and is registered with the DLD. Also, check if the terms of engagement are clearly spelt out and agreed by both parties.”

Despite losing the case, Boswell says he has learned his lesson and is now looking for a fresh start. “With the help of an understanding sponsor and landlord and trusting customers, our company has been able to continue trading in Dubai,” says Boswell. “We have resolved most of our problem, our license is okay. We are negotiating with the German fund with the help of their lawyer regarding the settlement of the remaining amount as monthly instalments.” He says the fund has agreed to accept monthly payments, although the terms are still under discussion.

“The year has started on a good note for us as our agents have already sold 12 properties and all our agents now have sales leads on their table, whereas few months ago it was only rentals.”


Hina Navin, Special to Property Weekly PW


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