Dubai Land Department answers questions on Law No. 9

Lovells did and interesting Q&A with the Dubai Land Department yesterday about the implications of Law No. 9. The full interview is after the jump.


Lovells' Q&A with the Dubai Land Department

There has been considerable debate in the real estate sector following the issuance of Law No 9 of 2009 amending Article 11 of Law No 13 of 2008 on the Interim Register in the Emirate of Dubai (to view the English translation of the law please click here).  This law concerns specifically the issue of termination of sale and purchase agreements (SPAs) for off-plan units and the damages payable.

Mohammed Kamal, the head of real estate for the Middle East at Lovells' Dubai office, recently met with Emad Farouq, Senior Legal Counsel at the Dubai Land Department (DLD) to discuss the implications of the recent law and what is in the pipeline from the DLD and Real Estate Regulatory Authority (RERA).

ML: Law No 9 of 2009 is now in force. Can you please explain the main implications of this law and how it affects the termination of SPAs for the sale of off-plan units?

EF: This law seeks to impose a new regime for the termination and payment of damages for SPAs for the sale of off-plan units which will apply retrospectively to all prior SPAs.  It will amend the provisions of Article 11 of Law 13 which previously stated that upon termination the maximum damages payable to a developer would be 30% of monies paid to date.  The law will also override the administrative circular which was issued by the DLD in 2008.  Under Law 9, the developer will be entitled to damages strictly according to the progress of construction for the project regardless of what has been agreed in the SPA.  There are 5 categories of damages ranging from no damages (i.e. developer will refund all monies received), in cases where RERA cancels the developer's project, to entitlement to retain all monies received and recover any shortfall if the developer has completed 80% or more of the construction.  The intention behind the law is to create a balanced and fair mechanism for the termination of SPAs and assessment of damages.  The vast majority of SPAs and arrangements in the market are either vague or unfair, or both.  Therefore it was absolutely essential to intervene to provide certainty in the real estate sector going forward.

ML: Can you explain the developer's obligations under Law No.9?

EF: Generally the developer is obliged to issue notices for termination of SPAs through the DLD.  The DLD will assess the merits of the case and then decide on whether the developer is justified in terminating the SPA and will also assess the status of construction of the project in order to identify which category of damages will apply.  It is important to note that although a developer may be entitled to resell a unit, it must account to the purchaser for any surplus monies it receives once it has received any damages it is entitled to i.e. the developer cannot be unjustly enriched.

ML: Under Law No 13 of 2008, there is a requirement for all sale and purchase agreements to be registered by 30 October 2008. Has this deadline been extended?

EF: Yes, the deadline has been extended but will be confirmed through the Executive Regulations which are being reviewed.  Currently, the DLD will allow registration of SPAs after the deadline, provided there is a valid reason for the delay.

ML: What is the Land Department's view on the recent Property Court judgment concerning the master developer, Mizin?

EF: In this case the Property Court (which is a division of the Dubai Courts) considered an agreement which was not registered on the interim register under Law 13 of 2008 as null and void and ordered Mizin to refund all monies paid by the purchaser.  It is clear that the Property Court has taken a literal interpretation of Law 13 and in this case has made a decision which is in favour of the purchaser.  The DLD considers the decision to correspond with our understanding of the interpretation and application of Law 13.  In particular, it confirms that if an agreement is not sufficiently registered under the law, then it will be considered null and void and is not enforceable as a binding agreement.  Registration is conclusive evidence of rights relating to property, whether they are registered in the real register or the interim register.

ML: Does Law No 9 cover terminations of SPAs for both sales of plots and off-plan units?

EF: Law 9 is intended to cover sales of off-plan units only.  SPAs for plots will not fall under the categories for damages under Law 9 and the parties will need to rely on the provisions related to termination and damages under the SPA and, if necessary, issue proceedings in the Property Court to settle any disputes.

ML: Can you confirm what will be covered under the Executive Regulations following Law No 9?

EF: The Executive Regulations under Law 9 are intended to provide guidance on the procedures and practical application of Law 9, amongst other issues.  The Regulations will predominantly cover the procedure for termination of SPAs and payment of damages.  They will also confirm the rights and obligations of a developer when reselling a unit upon termination and refunding any excess monies to the purchaser.  The Regulations will also cover the grounds for cancellation of projects by RERA.  RERA may also request an independent third party expert report to assess the status of construction for a project.

ML: What other laws and regulations can we expect to be issued in the coming months by DLD and RERA? e.g. Strata law regulations

EF: The draft Strata regulations are being considered and will clarify the status of master community declarations, owners' associations and the management and operation of common property.

We also expect further laws and regulations from DLD/RERA concerning Real Estate Investment Portfolios, Trust Law, Granted Land and Land Development laws and regulations on the restriction on developers collecting no more than 30% of the purchase price before commencement of construction and the requirement for developers to have paid for the land and obtained title and completed 20% construction before it can sell units off-plan.

ML: And the future?

EF: Law 9 has been much anticipated by the real estate market and it now paves the way for a swift resolution to property disputes.  The Executive Regulations must ensure that a fair balance is created between the rights of the developer and the purchaser and it will be crucial that the Property Court demonstrates consistency in the application of Law 9.  Recent reports in the media have indicated that approximately 520 cases have been registered with the Property Court in 2009 and we expect many more to follow.  It is expected that the Property Court will also be supplemented with a mediation centre in order to reduce the number of cases.

For more information, contact Mohammed Kamal, head of real estate for the Middle East.