We're going to have an ongoing feature on Crane Country where we take questions from the public and get lawyers to answer them. So
ideas!
This week, we talk to
, the head of the property practice for
Ashurst
.
We asked him two questions (based on reader suggestions):
1. How to renegotiate a lease down now that rental rates are declining?
2. What does someone do if they bought an off-plan apartment but are worried about a variety of things, including the slow market, job insecurity and the ability of the developer to build the project?
: I am a tenant of a two bedroom flat under a one year lease in Dubai. My lease is coming to an end. I want to stay but I have seen that rents are coming down. What can I do about renewing my lease at a lower rent?
: If you are a tenant who paid a rent within 25 per cent of the market rent in 2008 then, by law, your rent, on a renewal, should not increase in 2009. However, with the market slowing, rents have reportedly fallen, in some areas substantially so. The first thing to do is establish what the market rent for your flat should be. The property market is notoriously opaque and imperfect. This can make it difficult to find out about the rent you should be paying for your flat.
The Real Estate Regulatory Agency (Rera) website is regularly updated with an official rental index. This should give you an idea of what the rent for your property should be. You can also look at listings in newspapers and on the internet to help with forming a decision as to what a fair rent for your flat will be. Also there are independent valuers who publish indices. Once you have decided what you think your rent should be it is time to take it up with the landlord.
If neither you nor your landlord take any action and you remain in occupation at the end of your lease then the lease shall be renewed for further one year term, at the same rent. This is not what you want.
You must start a formal lease renewal. On a renewal the parties may agree on the new rent, but if they can't agree the matter may be referred to the Judicial Committee, which will decide a fair rent. If you want to take advantage of this you must notify your landlord, not less than 90 days prior to the expiry of your lease, unless both you and the landlord agree to waive this requirement. Landlords, in a falling market, may be happy to do this as they will be keen to ensure that their property is income producing and they keep a tenant in to help cover the costs of ownership. Accordingly, the first thing to do, once your have decided on your target rent, is to talk to your landlord in good time to try and set a new rent.
The bargaining power is, to some extent, with the tenant. This is because tenants have security of tenure so that a landlord can only, absent any breach on the part of the tenant, evict a tenant on the expiry of the lease if he serves not less than 12 months prior written notice and wishes to either demolish the property, or undertake substantial renovation, or use the property for his (or next of kin of first degree) use or sell the property.
This means, so long as the tenant is realistic and informed in deciding on what he thinks the rent should be and is confident in the decision making powers of the Committee, the tenant is in a strong position for negotiations with the landlord.
: In November 2008 I entered into a Reservation Agreement to buy, off plan, a one bedroom flat at a development in Dubai. I paid the initial two payments due under the payment plan. There is a third payment coming up next month. I am worried about my job, the real estate market and the developer. What should I do?
: The first thing to do is to check to see if the agreement you entered into is valid at law. Under law 13 of 2008 any sale of a unit off plan is void if it is not registered on the Interim Real Estate Register. Furthermore the developer is not permitted to enter into an informal contract, which the Reservation Agreement may well be, for the sale of an off plan unit in a development that has not been approved by the relevant authorities. Any such contract would, again, be void.
You also need to be aware of Law 8 of 2007, commonly known as the Escrow Law. This provides that all developers should be registered with the Dubai Land Department and prevents the sale of off plan units prior to such registration. Any developer selling off plan needs to have opened up a guarantee account into which sums paid under the off plan sales agreements should be deposited. These should only be drawn down for the purposes of completing the particular project. This should help protect against a developer absconding with the payments made. You can check with RERA to see if the developer is registered and if there is a guarantee account.
The next thing to do is to check the Reservation Agreement and any sale and purchase agreement that may have been issued subsequently. The terms of Reservation Agreements varies dramatically. Some are binding contracts to buy the unit, others are merely a document where a payment is made to hold a property until the full sale and purchase agreement can be drawn up. The terms of this agreement, along with any sale and purchase agreement governs your legal relationship with the developer. This agreement may permit you to cancel, usually at the expense of the initial fee paid. Absent any express provisions in the contract you cannot unilaterally cancel your contract with the developer. If the developer is in default of the contract terms you may be in a position to get the contract cancelled. However many agreements were drafted heavily in favour of the developer so it may not always be possible to cancel the contract, even if you think the developer has acted unreasonably or unfairly.
If you are in default, in that you fail to make the third payment, the developer may seek to cancel the contact. This must be done by service of notice by the developer on the Department of Lands & Properties. The Department will then give you 30 days notice to fulfil your payment obligations. If you fail to do this then the developer may cancel the contract. If this happened you should, currently, get 70% of the monies you paid, back. Clarity on this widely misunderstood provision is being brought to the market by a new law to deal with how much money should be returned to you. This new law will be activated very shortly. The amount returned depends on the level of completion of the development. If construction has not commenced, for reasons beyond the developer's control, the developer will get to keep 30% of the monies paid. If less than 60% has been completed the developer will keep 25% of the purchase price (not the monies paid). If the project is between 60% and 80% completed the developer will get 40% of the purchase price and if it is more than 80% the developer will get all monies paid and can request settlement of the outstanding amounts under the contract. Alternatively if RERA cancel your contract, usually due to developer inactivity, then all monies paid over by you will be returned.
If construction has not started you should also be aware of a regulation passed by RERA on 30 December 2008 whereby a developer is restricted from collecting more than 20 percent of the payments due until it has started construction. The effect of this regulation has not yet been clarified.
Now armed with this knowledge the three best practical tips are:
- Talk to your developer. They may be more accommodating than you imagine. Your unit may be well advanced and the project may not be suffering delays or cancellations. They maybe happy to restructure your payment programme or reduce the purchase price.
- Talk to RERA. They should be able to give you an independent views of the developer and the project. They can cancel projects and demand the return of all monies paid out.
- Talk to a lawyer. If you are worried in any way about your rights you should take independent legal advice.
