Investors and home buyers are being attracted to the real estate market due to the increase in purchases of off plan property in Dubai. Nevertheless, it is important for buyers to know what happens if they fail to pay for these properties. Dubai’s off-plan property market has many options for investors. However, one should know about buyer default consequences before making any deal.
This article looks at a case where a buyer defaults on payments for an off-plan property in Dubai, by considering regulations by the Dubai Land Department (DLD) as well as the registration process of off-plan properties in Dubai.
Understanding Off-Plan Property Purchases
A buyer who wishes to buy an off-plan property, there is a legally binding document called the Sales Purchase Agreement (SPA) that must be entered into with the developer. This legal document details information about purchase terms and conditions like the payment schedule, time of completion as well as other relevant matters.
Off-plan property refers to a type of undeveloped or ongoing construction property. It is always based on development plans and future value projects where the clients invest their money. The first step in registering an off-plan property is entering into a Sales Purchase Agreement (SPA) with the developer showing how payments shall be made. All these payments are supposed to be made by buyers within the agreed period of time.
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Registration with the Dubai Land Department (DLD)
Dubai’s regulations require that any off-plan property sold by a developer must be registered in the Interim Real Property Register maintained by the Dubai Land Department (DLD), which provides legal protection for both parties involved in the transaction.
The Legal Framework
In Dubai, sale of properties that are off-plan is regulated by Law No. 13 of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai as well as subsequent amendments made in Law No. 19 of 2017. These laws provide a definite framework concerning registering off-plan properties and rights and obligations of buyers and developers alike.
Buyer Default and the Interim Real Property Register
All off-plan property sold by a developer must be registered in the Interim Real Property Register kept by the Dubai Land Department (DLD), so this registration ensures its legal status and buyer’s rights protection.
Consequences of Buyer Default
When a buyer does not make payments required to be made at certain times to the developer, it amounts to non-compliance with conditions stipulated under Sale Purchase Agreement (SPA) entered between parties. In such cases, specific actions can be taken by developers:
- Notice to the Land Department
The developer can inform the DLD about the failure of the buyer to pay the purchase price. As a result, DLD issues notice to the buyer giving them 30 days to perform.
- Friendly Settlement
Dispute resolution between developer and buyer can be done by DLD before issuing any 30-day ultimatum.
- Percentage Completion Certificate
If after 30 days the buyer does not make payments as required, DLD will issue a certificate to the developer confirming completion percentage for off plan property.
- Developer’s Legal Steps
Afterward, depending on the percentage of construction of the off-plan property, the developer (seller) may sue the purchaser without going to court or arbitration within jurisdiction in Dubai.
The following are among the developer’s options in case of non-payment of the purchase price by the buyer:
- Retaining the sum paid by a purchaser by not terminating the SPA and claiming from the purchaser to pay the balance amount of the purchase price,
- Sale of property through auction through DLD; refund of any excess money to the purchaser (if any), upon sale of the auction within the stipulated time,
- Unilaterally terminate the SPA and retain a certain percentage of the purchase price, based on a percentage of completion of the off-plan property, and refund the balance amount to a purchaser within the stipulated time, as mentioned in Article 11 of Dubai Law No. 19 of 2017 on Interim Property Register.
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How to Mitigate the Risk of Buyer Default
Below are some ways to mitigate the risk of buyer default:
- Conduct Proper Due Diligence: Buyers should undertake proper due diligence in regards to the developer’s repute, track record, and financial steadiness.
- Avoid confusion from a clear payment plan: The SPA must clearly stipulate payment schedule including installments, deadlines and late payment penalties if any.
- Financial Planning: Buyers should carefully evaluate their ability to meet the payment plan all through the duration of construction.
- Create an Exit Strategy: Resales under specific conditions may be included as part of the SPA.
Seeking Legal Advice
In regards to buyer payment defaults, one should know that there are certain probability risks when it comes to off-plan property investment in Dubai. In this light, one must understand regulations on the real estate of the Dubai Land Department.
Our legal team at HHS Lawyers in Dubai can help you with this. Our real estate lawyers are knowledgeable about both buyers and developers in the Dubai property market. The details contained in the Sale and Purchase Agreement will guide you through the process. Moreover, our property lawyer can assist mitigate the risks associated with buying off-plan (under construction) properties. The lawyer will ensure you fully understand your rights and obligations as the buyer outlined in the SPA.
Whether you are a buyer or a developer, our property lawyers in Dubai will enlighten you on what Dubai Land Department guidelines have to say about off-plan property investments, helping you make well-thought-out decisions that will protect your investment. Don’t let your off-plan venture be a chance encounter.
Get in touch with HHS Dubai Lawyers right now for legal advice from our experts on your issue.
