Ask-a-lawyer: Rera, the Land Dept and the evolving market

As part of our ongoing Ask-a-lawyer series, we have asked

Ludmila Yamalova

, a partner at

, to address some questions we have received from readers.

more questions and we'll get them answered!

Here were the questions:

1. What are the general trends in the new regulations coming out from the

and Real Estate Regulatory AGency?

2. If the developer I bought a property from has either gone out of business or been arrested for fraud, what options do I have to get my money back?

: What are the general trends in the new regulations coming out from the Land Department and Real Estate Regulatory Agency (Rera)?

: The Land Department is beginning to play more of a mediation role. Specifically, it has recently introduced its own mediation center, chaired by

Ahmed Edriss

, under the purview of the Legal Department. The purpose of the mediation center is to assist parties to resolve disputes amicably, out of court. This is an encouraging development as it provides parties with another forum to voice their concerns and to have a third party, hopefully a neutral one, assist them with a reaching a settlement.

In conjunction with this, the Land Department is now encouraging not only developers but also investors to approach it in connection with their disputes. This is important because previously the general understanding was that only developers are allowed to approach the Land Department in case of cancellations and investors had to go straight to court if they wanted to cancel a contract.  This was largely driven by the language of Dubai Law 13, Article 11.  According to Article 11, "in the event that the purchaser defaults....the developer should notify the Land Department..." Insofar as the language of this Article does not expressly offer purchasers the same option of approaching the Land Department, purchasers had been told to go directly to court if they had any grievances. Now, the Land Department expressly welcomes both sides.

Significantly, under new Law 9, the cancellation process outlined in Law 13, Article 11, prohibiting developers from cancelling contracts single-handedly, is now expressly made retroactive. This means that the date of when a particular contract was signed is irrelevant.  What is important is the date of the cancellation. This was implied in the previous version of the law. But now the Land Department has expressly said that any cancellations, irrespective of when a contract was signed, must go through the Land Department. In particular, if a party wants to cancel an agreement, it must approach the Land Department and file a claim. Then, the Land Department officially notifies the defaulting party and gives it 30 days to rectify the default. Therefore, any cancellation/termination notices that come directly from developers, and there are many of them, are "null and void," as per the Land Department.

The Land Department is becoming more active with regards to cancellations of projects. Law 9 now gives Rera an expressed authority to cancel projects that are deemed unviable. This will be done following a status report by Rera. To this end, Rera plans to set up a special committee of experts, developers, engineers, accountants, etc., to make determinations of projects feasibility.  On the basis of this, Rera has already cancelled 27 projects. This development is especially interesting to many investors as it mandates that for all cancelled projects, developer must refund all of the monies paid, without deductions.

The new Law 9 now outlines a series of rules as to developer's right to purchasers' monies in case of cancellations. This is different from the previous Article 11 which provided for a blanket rule allowing developers to keep 30% of monies paid in case of cancellations, irrespective of the status of the project. The new law correlates developers' right to retain money to construction progress. The fairness or unfairness of this law will depend on its application and implementation. On the one hand, it makes sense for developers to retain large amounts of money if a project is in advanced stages. On the other hand, if the project is delayed by 2 or 3 years, even if it is over 80% complete now, it may not be fair for developers to retain all monies in case of purchaser's default. Next, in case of projects where construction has not even begun and the developer is allowed to retain 30% of monies paid if such delay was beyond developer's control, the definition of what is "beyond the developers' control" is essential. These sorts of questions are part of the implementation of Law 9, which are supposed to be flushed out in the upcoming regulations by the Land Department.

The Land Department is becoming more active in working with the investor community, which is significant and encouraging.  For the longest time, investors felt that the door to the Land Department was open only to developers. That is quickly changing. As the investor community becoming more engaged, the Land Department too is more receptive to working together.

: If the developer I bought a property from has either gone out of business or been arrested for fraud, what options do I have to get my money back?

: This is somewhat a complicated issue and is being worked out at the moment. But in general, the options are as follows.

One, an investor should notify immediately the Land Department/Rera that the developer has either gone out of business or been arrested. In this case, Rera is supposed to begin a formal investigation and work out a strategy for dealing with that particular developer. The legal section of Rera, headed by

Khawla Madani

, oversees at least some of these cases. So, an investor may approach them directly.

Two, investors should immediately initiate contact with whoever is left at the developers' office. Changes are the business will continue to run as usual, at least for a while. That has been the case with at least some such developers. The owner/director of the company is often accessible even while in jail and is able to conduct business from within jail vis-à-vis his team on the outside. I have been involved in a few of such negotiations.

Three, depending on the claim, investors can initiate legal action, either civil or criminal. This step is very important to preserve one's claim. So, even if the developer has gone out of business, a court or the Criminal Investigation Department (CID) may be able to seize, through various legal means, developer's personal assets. In case of fraud, the CID and the police tend to operate quickly and may be able to seize control over the developer's business and even personal assets to ensure preservation of whatever assets left for the benefit of investors.

In cases where a developer is in jail, it is advisable to wait to make any further payments to the developer until there is more clarity as to the fate of that developer. Here, it is important to stay active with Rera and the developer itself to understand the situation and, based on that, seek legal advise as to an appropriate course of action.