Ask-a-lawyer: The new visa law and construction milestones

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The new visa law has been a topic of intense discussion in recent weeks. Some property executives have said it will help the market rebound because it brings certainty to home buyers. Others have said that its conditions - the home has to be at least Dh1m and the visa only lasts six months a a time - would prevent the law from spurring new sales.

I turned this week to

Poonam Rai Nagi

, an associate at

to get her interpretations of the law. She answered questions about how the visas work and what the government is trying to achieve with the law.

She also gave some insight into the issue of payment plans linking up with construction milestones, which she calls "probably the most topical issue in Dubai at the moment".

See her answers after the jump ... and feel free to send more questions to Crane Country

Question

: How do the new six-month multiple entry visas for expat property investments work?

Poonam Rai Nagi

: As of the June 1, 2009, a new federal law has been introduced to entitle foreign owners of property across the United Arab Emirates to a renewable six-month multiple-entry visa. The new resolution amends Article 33 of the executive regulations of the law for entry and residency of foreigners.

As well as the duration being limited to six months, there are a number of conditions and financial constraints that must be met to allow investors to take advantage of the (limited) benefits that the new visa rules offer.

The Department of Naturalisation and Residency have set out that applications for this visa will only be considered for those individuals who:

- Wholly own a property worth over Dh1m. The property itself must also be ready to move into, as well being able to accommodate the family of the individual investor. (This directly precludes all property currently under construction and those purchased for use other than a family home)

- Earn at least Dh10,000 per month or the equivalent in a foreign currency. The visa does not allow the individual to work in the UAE.

- Obtain health insurance for the duration of their stay.

- After meeting all the above conditions, must obtain the title of the property from the Property Registration authority for that particular emirate prior to the grant of the visa.

The cost of the visa is Dh2,000 and the individual can apply for their family members to be also given a visa. After spending the six month period, the individual must leave the country for one month before re-entry.

Question

: What happens if my property is for less than Dh1m?

Poonam Rai Nagi

: With property prices already having come down considerably in Dubai in the past nine months and sellers finding it difficult to find purchasers, this could have been an opportunity to encourage investors to purchase at under the AED 1,000,000 mark. Further with the prices falling as they are, it may be the case that at the time of the application, the property satisfies this condition but during the processing of the application, it does not. The rules are silent in this respect and so it is assumed that any property worth less than AED 1,000,000 will not meet the requirements and the application could be rejected on that basis.

Question

: What is the government trying to achieve with the new visa?

Poonam Rai Nagi

: The new visa appears to be an attempt to restore the much needed confidence for foreign investment in Dubai's property market. It clears the confusion over which emirates offer visas for their property investors, as well as unifying the application requirements. Investors, to whom the rules apply, will have greater certainty and opportunity when travelling to manage their properties.

However, for growth to be in the near future for Dubai, an approach that is open to as many different categories of investors is needed, including those that have identified payment of rent as being irrecoverable. There is nothing in the new multi entry visa to encourage expatriates currently working and renting in Dubai to purchase their own property. A level of protection and confidence for these workers and potential investors would more suitably be achieved through a system similar to the Canadian Federal Skilled Worker model which allows for eventual permanent residency.

The category of people who could benefit from the multi entry visa belongs to a fairly small pool of businessmen. In the current global financial recession, with property markets having performed poorly across the globe, investors may consider purchasing a family home in Dubai with the risk of redundancy and then being required to leave the country on expiration of a visa as a high risk strategy.

Upon further consideration of these rules, it appears that the intention was not in fact to encourage people to invest in the UAE. Brig Gen Nasser al Minhali (Acting Director of the Department of Naturalisation and Residency) has stated that they are to assist "politicians or businessmen who wish to have a place in the UAE to live in and they cannot leave their businesses in their home countries and stay in the UAE the whole time" and that "it is not meant for people who want to invest or work here, such people could gain residency through other types of visas".

It is clear that the visa rules will be of some benefit but the extent to which this particular law will be successful in having a real effect in the recovery of Dubai's real estate sector is debatable. Given the market's skepticism, there may not be a sufficient number of wealthy individuals enticed to purchase property in Dubai based on the limited benefits the visa offers.

Question

: What part of the law says that a developer has to meet its construction milestones? Is there a federal law that says that if a business doesn't keep its end of the bargain, that I do not have to meet my end?

Poonam Rai Nagi

: The obligation on a developer to meet its construction milestones is probably the most topical issue in Dubai at the moment. However, for the purposes of this Q & A, the brief answer is that it falls into two basic categories:

1. Rights under the Contract

The obligation in the sale and purchase agreement ("SPA") to build the property in accordance with the time period that the contract provides (as the same will no doubt be subject to extension) and therefore if the Developer fails to do so, it will be in breach of contract. Some SPA's (although not many that we have seen) include a right for the purchaser to terminate in the event that the Developer has failed to "meet his Part of the bargain" in respect of construction but the time period for this is usually quite far ahead and only after the Developer has been allowed to exhaust all options to extend the completion deadline under the SPA. There are therefore two possibilities, either a breach of the "timetable for construction", or a breach of the contractual completion date. Please note that the majority of contracts that we have seen do not refer to a definite timetable for construction. Instead they simply refer to payment milestones linked to construction. In either event, even though the Developer may clearly be in breach of the specific terms of the SPA, in the event that they refuse to negotiate and refund the monies to the purchaser then the purchaser would need to take a legal case against the Developer to enforce their rights.

2. Rights under the Law

If no documents have been signed or if only a booking form has been signed with the Developer and this does not contain any details of the construction timetable or if the SPA signed does not specifically provide for a remedy for a purchaser in the event of breach by the Developer of its construction milestones (as seems to be the case in a lot of contracts in Dubai) then any remedy for the purchaser will be governed by the laws of Dubai and the UAE. As has been documented, the new Law No 9 of 2009 and Law No 13 of 2008 do not contain the right for the purchaser to request cancellation or termination of the contract. A purchaser who has therefore entered into a contract and who feels that a Developer has failed to "perform his part of the bargain", would look to the provisions of the Civil Code of the UAE for assistance. Specifically, Article 272 applies and states the following:

(1) In contracts binding on both parties, if one of the parties does not do what he is obliged to do under the contract, the other party may, after giving notice to the obligor, require that the contract be performed or cancelled.

(2) The judge may order the obligor to perform the contract forthwith or may defer (performance) to a specified time, and he may also order that the contract be cancelled and compensation paid in any case if appropriate.

The purchaser could try and negotiate with the Developer direct that notwithstanding the fact that there is no contract in writing or that if there is, that document does not specifically deal with the issue of rights to terminate in the event that the Developer fails to construct, that the developer is in breach and should give the purchaser a refund. However, the likelihood is that the purchaser once again, would need to take a legal case against the Developer to try and enforce their rights under the law.

The only other option for the purchaser if they did not want to consider legal action would be to approach Rera ask them to intervene to ensure that the payment plan for the property is aligned to construction milestones. If Rera agree to intervene and they are able to agree an approved payment plan linked to construction then it means that the purchaser does not need to make further payments until the construction progress has reached the required stage set out in the approved plan. However, it is worth noting that strictly speaking, there is currently no law that states that the payment plan should be linked to construction. As such, if a Developer refused to co-operate with Rera and/or the purchaser either by initially meeting with Rera at all or after such a meeting, refusing to comply with the construction plan, then it seems that the purchaser would have to resort to legal action as above. Therefore the assistance and approach offered by Rera in relation to payment plans and construction progress in this way are actually simply their policy in respect of these matters and are not binding law. Accordingly, in the absence of a new law or specific reference to these issues in the new regulations that are due to be published shortly and which are ancillary to Law No 9, a purchaser must understand that Rera's policy and guidelines are not legally enforceable.