An important and much anticipated amendment to Article 11 of Dubai Law 13 of
2008 (“Article 11”) has been issued. Dubai Law No. 9 of 2009, which
describes the amendment, is expected to be published in the Government
Gazette shortly and will have effect from the date of publication.
Article 11, as amended, will set out:
* the procedure that must be followed in the event that a developer
wishes to cancel an off plan sale contract by reason of purchaser default;
and
* monies that a developer may retain in such circumstances.
Application
Importantly, Article 11 (as amended) will apply to all cancellations of all
off plan sale contracts irrespective of the date on which the relevant
contract was signed. The indication is that contrary provisions in sale
contracts will be void.
It appears that sales of land which are not made “off plan” will not be
caught by the amended Article 11, and will remain subject to the provisions
of the relevant contract.
Background
Dubai Law 13 of 2008 came into effect on 31 August 2008. The existing
Article 11 provides that in the event of cancellation of a sale contract due
to the default of the purchaser, the developer may retain 30% of monies paid
by the purchaser.
The existing Article 11 concerned many developers in light of recent
economic conditions. In addition, there has been considerable uncertainty
regarding the application of the existing Article 11 to contracts entered
into prior to 31 August 2008.
The amendment to Article 11 is intended to address these issues and
uncertainties.
Amendment
Article 11 (as amended) will provide the following:
1.
Before taking any cancellation action, a developer must notify the Land
Department if a purchaser is in default of a contract for sale. The Land
Department will then give the purchaser a notice providing a 30 day period
within which the purchaser must fulfil its obligations.
2.
If at the end of the 30 day notice period the purchaser has not fulfilled
its obligations, the following rules will apply:
(a) Where the developer has completed construction of at least 80%
of the project, the developer may retain all monies paid and request that
the purchaser settle the remaining amounts. If this is not possible, the
developer may request that the property be auctioned in order to collect the
outstanding monies.
(b) Where the developer has completed construction of at least 60%
of the project, the developer may revoke the contract and retain 40% of the
purchase price stipulated in the contract.
(c) Where construction has commenced but construction of less than
60% of the project has been completed, the developer may revoke the contract
and retain 25% of the purchase price.
(d) Where construction of the project has not yet commenced for
reasons beyond the developers control, without any negligence or omission on
the developer’s part, the developer may revoke the contract and retain an
amount equal to 30% of all monies paid by the purchaser. Commencement of
‘construction’ is defined as meaning handover of the site by the developer
to a contractor and commencement of construction works in accordance with
designs approved by relevant authorities.
3.
For the purposes of paragraphs (b), (c) and (d) above, the developer shall
return any monies due to the purchaser within one year from the date of
revocation or within 60 days from the date of a resale of the property by
the developer, whichever is earlier.
4.
The Real Estate Regulatory Agency may cancel a project following
consideration of a status report, in which case the developer must return
all monies paid by purchasers and the provisions of Dubai’s escrow laws will
apply.
Conclusion
The amendment provides much anticipated clarification regarding the
procedures required to be followed by developers in respect of defaulting
purchasers, as well as the rights of developers to retain purchaser monies
upon cancellation. We expect further clarification and guidance regarding
the implementation of the changes to be provided by the Dubai Land
Department in due course.
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