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Disputes Resulting from a Real Estate Developer’s Breach of its Obligations Towards the Buyer

The real estate sector in the Emirate of Dubai provides promising investment opportunities that were and still are attractive to investors. As such, the legislator has been keen to develop and implement legislation that contributes to the growth and prosperity of this sector. 

The article discusses the contractual relationship between the real estate developer and the buyer, as well as the disputes which may arise as a result of the developer’s breach of its obligations towards the buyer.

Laws Regulating the Relationship Between the Developer and the Buyer

The legal relationship between the buyer and the developer is regulated by the Law Concerning Guarantee Accounts of Real Estate Developments in the Emirate of Dubai No. 8 of 2007 as well as Law No. 13 of 2008 Regulating the Interim Property Register in the Emirate of Dubai, as amended by Dubai Real Estate Amendment Law No. 19 of 2017. 

Article 4 of Law No. 13 of 2008, cites that neither a Master Developer nor Sub-Developer may start a project or sell its units off plan before having possession of the land on which the project is to be developed and obtaining the required approval from the Authorities. 

Thus, the real estate developer is obligated to construct real estate units on land which he owns or has the right to build on. Furthermore, in terms of the contract concluded between the developer and the buyer, the developer is obligated to transfer its ownership to the buyer in accordance with the terms and conditions agreed upon in the contract, in return for the buyer’s commitment to making payment/s according to the various stages of completion of the development. 

This type of sale is referred to as an off-plan sale and it is a modern method whereby the common interests of both parties to the real estate relationship are upheld, since the buyer is able to purchase the real estate unit in installments which suit his pocket, and the real estate developer may obtain the necessary financing for the establishment and implementation of real estate developments through the aforesaid payment arrangements with the buyers without having to approach financial institutions for assistance.

However, despite the agreement entered into between the buyer and the developer, circumstances may arise where the development is unexpectedly canceled by a decision made by the Real Estate Regulatory Agency (RERA). In order to protect the rights of the buyers in such cases, Article 11 of Law No. 13 of 2008 was amended by Dubai Real Estate Amendment Law No. 19 of 2017 by inserting paragraph (b) which states that if the development is canceled pursuant to a decision of RERA, the Developer must refund all payments made by the buyers in accordance with Law No. 8 of 2007 Concerning Guarantee Accounts of Real Estate Developments in the Emirate of Dubai. 

Law No. 8 of 2007 requires the account trustee to take the necessary measures to preserve the rights of depositors in a manner that guarantees the return of the amounts paid by such depositors in the event of any emergency circumstances which lead to the failure to complete the development, including the cancellation of the project by the RERA.

Law No. 13 of 2008 provides that the rules and procedures it provides do not apply to land sale agreements not involving Off-Plan Sale. Therefore, Land sale will continue to be governed by the terms of the land sale agreements concluded between the parties thereto. Furthermore, the rules and procedures stipulated will apply to all Off-Plan Sale agreements concluded prior to or after the commencement of this Law.

Article 11(f) of Law No. 13 of 2008 permits the buyer to resort to court or arbitration, in the event that the real estate developer abuses in using the powers conferred to it in terms of this law. This is a strong indication of the legislator’s desire to ensure fairness and achieve a balance between the interests of the real estate sector as well as the rights of the public.

Also read 

Delay in Possession Handover of Real Estate: Compensation to Claim from Developer

Dispute Resolution

Since it is usually preferable to attempt to settle matters amicably between the parties before resorting to legal action, dispute resolution is an alternative mechanism that may be used to resolve any conflict which may arise between the buyer and the developer. 

The Dubai Land Department (DLD) may intervene, at the request of one of the parties, and conduct an amicable settlement process between the real estate developer and the buyer in the event of a dispute. Should a settlement arrangement be reached, it will be evidenced by means of an appendix to a contract signed by the parties. 

Should the attempts at an amicable settlement fail, the party harmed by the breach of the offending party may proceed with litigation by sending a legal notice to the offending party and filing a lawsuit to recover his losses, which will also include compensation, attorneys’ fees and all other expenses.   

Also read 

Litigation for Investments in Delayed Real Estate Projects

Cancellation of the Development

The Canceled Real Estate Projects committee was established by the DLD. The Committee is specialized in supervising canceled projects and all canceled developments are listed with the committee. In the event of listing, the full amount paid can be claimed by a prejudiced buyer.  In addition, RERA, which is a division of the DLD, may take disciplinary action against the developer.

Hassan Humaid Al Suwaidi., LL.B. is a Senior Partner in HHS Lawyers. He has 20 years of experience dealing with high-value and complex cases. Frequently featured in local and international legal directories and commended for his ability to attain favorable outcomes for clients, Hassan has been involved in some of the largest legal settlements. A major part of his work is providing expert legal advice on UAE legislation and acting for individuals and businesses during disputes and litigation. Read more