Facing off-plan property consolidation issues?

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My wife and I have invested in 2 properties with a reputed developer in Dubai.  The first property is 85% mortgaged with our down payment for the rest of the value.  The second property is fully self financed by us.  The properties were supposed to be handed over by end 2008.  We were UAE residents at the time of purchase of both properties and have moved out of UAE for good in 2008 before recession in UAE.

The first property is still not completed and handed over to us and the second project was delayed due to so many defaults by other investors.  The Developer approached me to swap the second property with other available properties that is under construction.  Since we felt that there is no point in going for one more property, we opted for consolidation of two properties to merge with the first property to make it fully paid as we were promised that the first property will be completed and handed over by 3rd Quarter 2010.  This decision was made by us on 15th June 2010.  The problem is that since we have paid all our down payment dues promptly to the developer against both the properties and 85% finance also released to the developer on first property by 15/6/2010, we have actually ended up overpaying to the developer on first property by AED 85,000 approximately. Our EMIs to the financing bank since June 2010 have been prompt towards the first property.

The issue for me is that I am trying to recover the refund due from the developer since June 2010 and they are not refunding the same quoting the case as pending with RERA for approval.  On the other hand, they are not willing to respond to me properly on the handover and completion date of the first property.  We have made several telephone calls and written e-mails to the developer but not received any positive response so far.

As regards to finance, we have so far paid 10 EMIs out of 300 at a rate of 8% profit which we feel is too high in comparision to the current market rates and when the value of the property is slashed to such an extent.  We do not want to continue paying my EMIs henceforth as we feel atleast we could save on the future commitments.

Does RERA take more than 10 months for providing approval on cancellation or swapping of a property as quoted by developer?  We would like to know the legal options available to me to recover the excess payment made to the developer and on discontinuing our EMI payments to financier under the above situation.

If a developer offers consolidation from one off-plan property into another off-plan property, it is up to the developer to formalize that agreement and it should not require RERA approval.  The issue of refunding the difference due to the consolidation, however, may require RERA approval, if it involves withdrawing money from the escrow account.  This is so because RERA has announced that all of the Dubai’s escrow accounts are now under its supervision and management.  Therefore, releasing money from the escrow account would require RERA’s approval.

Also, from the practical standpoint, it may be unrealistic to expect for the developer to actually refund cash.  Most developers are strapped for cash.  It is more realistic for them to refund the difference in the form of an offset from future payments.  And such future payments exist in every case, even in those cases where the property has been fully paid for already.  Besides the payment of the purchase price, developers require that investors pay a series of other payments once the property is handed over.  For example, today, such additional payments include 2% property registration fee, handover administration fees, service fees, deposit for service fees, deposit for cooling fees, master community service fee and the like.  All in all, these additional payments can amount to a significant sum.  To offset these charges against the refund does not require RERA approval.  It is important, however, to document this agreement with the developer as soon as possible, before any changes take place, internally or externally.

The issue of late handover and developer’s lack of update on the status of handover are more complicated.  Reputed developers should respond, in one way or another.  If the developer does not respond, however, it is important to take a proactive role in determining the status of the developer and the project, be it through visits to the developer or RERA.  If the developer continues to fail to reply, there is cause for concern.  It is possible to petition RERA to have them contact the developer and request response.  Alternatively, if the contract provides for timelines on the completion date and those timelines have already passed, there may be a legal case against the developer for failing to deliver the property timely.

Regarding the terms of financing, the best way forward is to approach the bank directly to ask them to restructure the mortgage in line with the current state of the market.  Thus far, however, banks have not been overly receptive to such negotiations, but it is not unlikely that the trend should change soon.  Many borrowers have signed up for terms which they cannot carry under today’s market conditions and, unless the banks offer to refinance, borrowers may be forced to default.  Banks should start re-evaluating their corporate strategies and offer more realistic rates to avoid massive defaults.

 

My husband and I booked two one-bedroom apartments/units in a project in Jumeirah Village Dubai at an agreed price of Dh764,880 and Dh758,250 each.
We booked on February 19, 2008, with an initial 10% down payment. The agreement was signed on the May 25, 2008, in which it was specified that we pay them a total of nine installments till they hand us over possession on the anticipated date of June 1, 2010 (extendable till December 2010 by the seller).
We, therefore, promptly started paying the installments and completed payment of four installments for each unit (last installment was paid on February 19, 2009).
After that there was complete silence on the part of the seller. We then made our own enquiries and found out that the project was stagnated and no ground breaking had taken place.
Therefore we decided that we were losing on our investment capital and therefore decided to re-invest in our homeland.
Finally on November 8, 2010 (almost 21 months later) we received an email from the seller asking us to make further payments towards the project according to a new payment schedule.
Now, we are no longer in a position to further invest in this property and naturally would like to retrieve the investment that we have already made. As we all know the market price for such property has dropped drastically.
Therefore is there some kind of agreement that we could possibly come to with the seller?
Although we would ideally like to retrieve our investment, we could possibly consider the possibility of “clubbing” together the two units, i.e. asking the seller to take back one of the apartments and combining the installments paid on each towards one apartment (total of eight installments).
What options do we have?
 

The recourse in a situation where the project is significantly delayed and the developer requests further payments depends on a number of factors.
They include, for example, the language of the contract, nature of the developer, status of the project, amount invested and type of violations.
In general, however, irrespective of which one of these factors or a combination of factors may be at issue, a voluntarily refund by the developer is highly unlikely.
This is because in reality developers do not have money to refund.
Even if the developer has committed a series of breaches of the applicable laws and contractual violations, unless he voluntarily agrees to refund, the investors will have to enforce their rights against him in court.
Court proceedings, however, are expensive and time consuming. In many cases, the cost of litigating a case may exceed the amount to be claimed. Litigation is also inherently uncertain.
And even if the court enters judgment in favor of the investor, the developer may not have the money to refund.
Therefore, in many cases it is better to negotiate with the developer on some compromised terms.
But this too is subject to the type of developer and project involved. Developer’s willingness to negotiate may be simply limited.
If the project is in advanced stages, it may be more difficult for the developer to accept a consolidation of units, as the developer requires more money quickly.
Also, consolidation means that the developer will now have unsold inventory on his books, for which there may not be a market.
Thus, often, for the developers it seems more acceptable to lower the price on the property than to offer consolidation. Consolidation is especially difficult if it involves different projects.
This is because for the developer to accept cancellation of sales in one project implies that the project will not go ahead. But to cancel the whole project requires consent from many investors, which is extremely difficult to obtain, in addition to Rera approval. This may be one of the reasons as to why developers are so reluctant to consolidate investments.
That being said, there are terms which should be mutually beneficial.
For example, if the properties are in the same project, the developer may be more willing to consolidate. If not, the developer may be more amenable to reducing the price, to bring it more in line with the current market price.
More favorable payment terms should also become subject to negotiation. This may even include the option of developer providing financing.
Otherwise, one could negotiate better quality unit, with higher specifications, for example.
Any one of these terms and/or a combination of them should be discussed with the developer before making any payments.
If an agreement is reached then it should be carefully and timely memorialised in an agreement, which would become an amendment to the governing sales and purchase agreement.
Depending on the situation at hand and especially depending on the amount outstanding, some investors find it is more beneficial for them just to walk away from the investment than to pour more money into the project in which they have no confidence. Any such decisions should be carefully studied and properly memorialised, to avoid any future liabilities.


I purchased a property from the secondary market in Jumerah Village triangle in 2008 for Dh1.35 million and took a mortgage for 13 years at nine per cent from an Islamic mortgage provider.
The mortgage lender is not ready to increase my term as I am 53-years-old. The property is also not completed to date and I haven’t started paying Dh14,000 pm until I have the keys but the balloon payment at that time of handover is expected to be  Dh140,000. 
The property value has depreciated substantially.  Pleas advice what happens if I refuse to take the property or if the developer invokes the force majeure clause? What options do I have?
 
Any case involving banks and mortgages is a complicated one.  This is because most mortgages involve issuance of post-dated cheques to secure them. 
Therefore, the line between, what would otherwise be a civil matter for breach of contract, blurs quickly into a criminal
matter for bouncing a cheque. 
Objectively speaking, the responsibility should lie with the bank and the developer/seller, especially where the developer/seller is also the bank, such as the case at hand. 
Leaving the conflict of interest aside (i.e. banks acting as developers/sellers), it is reasonable to expect that it should have been incumbent upon the bank /developer to, not only deliver the promised financing as represented, but also monitor the disbursement of funds towards that project, to ensure that it accords with the construction progress. 
In most cases, however, neither holds true. 
The banks have retracted their promise to finance. 
They had also advanced funds towards the projects, which are not being built, resulting in mortgagees paying interest in the meantime for something they have no use of.
What makes this issue particularly complicated, however, is the
mortgage. 
Most mortgages are secured by post-dated cheques, which are, if bounced, amount to a criminal offense, punishable by a jail
sentence. 
Therefore, investors in such situations are advised to be careful.  They should either negotiate directly with the developer/bank new terms or consult lawyers to ensure that their rights are adequately protected.
Specifically, Article 401 of the UAE Penal Code criminalises
issuance of a cheque “which has no return, or a deposit that is
sufficient, and able to be drawn or taken back after giving the
cheque.” 
Similarly, under Article 402 of the Penal Code, it is a crime to issue a cheque when “a provision is less than the balance
[that] exists for him and that can be drawn.” 
This is an especially difficult provision because, in many cases, investors who have bounce cheques in such circumstances do not do so with a malicious criminal intent. 
They simply cannot honour their payments because of the change in their financial circumstances. 
Many investors have been caught in this predicament because of the financial crisis.
In such event, in addition to having civil remedies for breach of
contract, the developer and the bank can now invoke criminal remedies for bounced cheques. 
Criminal cases are viewed as having more leverage because there is a real threat of jail sentence. 
Some banks, such as Tamweel, have invoked this remedy in the past, depositing cheques knowing that they will bounce.  Developers who hold PDCs can also do the same.
Today, there are a few options available, though most of them are still untested.  First, investors are advised to try to re-negotiate with the banks the terms of their mortgages.  So far, the banks have not been very accommodating in this regard.  But many seem to have at least temporarily stopped bouncing cheques and reporting them to the police, thereby providing for more time to negotiate.  Two, if the dispute is with the developer (vs. the bank), bounced PDCs issued to the developer are now subject to the exclusive jurisdiction of a Special Judicial Committee in Dubai Courts established by Dubai Decree No. 56 of 2009 who oversees matters related to real estate based
bounced cheques (“Cheque Committee”).  Under this Decree No. 56, developers can no longer report cheques to the police.  It is now up to the Cheque Committee to review and determine the merits of the case.  This takes the case out of a criminal realm, back into a civil
one. 
This Cheque Committee, however, does not seem to have authority to deal with bounced cheques related to mortgages.  Three, investors who have mortgages with Amlak and Tamweel can now refer their disputes to a Special Judicial Committee Related to Amlak and Tamweel, under Dubai Decree No. 61 of 2009.  Under this Decree No. 61, investors can now bring a case to the Amlak/Tamweel Committee to have them negotiate with those banks. 
This Committee does have jurisdiction to stop the cheques, pending resolution of the case.

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I am an investor in a project in Dubai Sports City. The developer is demanding Dh2,000 for Oqood registration (Dh1,000 for registration and Dh1,000 for administration). We feel this is the start of a worrying trend regarding completion fees, as they are also insisting on connection fees for electricity /water/ sewage etc.  
 
The issue of so-called “completion fees” is increasingly becoming a prevalent one.  In many cases such fees are a surprise, as they were not previously agreed on. In other cases, they seem disproportional to the nature of what they are meant to cover.  In general, once accumulated, they add up to a substantial amount, which is often a point of especial discontent given the gross delays in delivery and poor quality of many properties.
Also, many question as to whether these fees are fees authorised by the relevant government authority, ie Dewa and collected by the developers on behalf of the government or whether they are just another method for developers to collect additional revenue. 
With regards to the legal bases to contest such fees, there are a number of things property owners should consider. First, it is important to review the underlying sales and purchase contract to determine whether any such fees were provided for and agreed on.
If some of these fees had been initially disclosed, it may be more difficult to argue now as to their inappropriateness. That being said, there is an argument to be made that, even in those circumstances, such fees should either be waived all together or heavily discounted to account for the gross delay in the delivery or poor quality of the property. 
Then, it is paramount to request a detailed and complete list of all of the fees before paying, so as to avoid any further surprises. 
Depending on what those fees are, there may be ways to verify them with the government authorities responsible for the services the fees are meant to cover, otherwise known as the actual service providers. 
Also, fees paid to such third-party (i.e. not developers) service provider could be paid directly in the name of that service provider, such as Dewa and chilled water bills.  The problem here, however, is that in many cases developers have negotiated to manage collection of such fees on behalf of the service providers.
In such cases, there is almost always a premium that is added on the bill to allegedly compensate developers for handling collection of fees for the service provider. 
The Land Department registration fees, however, should be paid directly to the Land Department.  If the developer insists otherwise, the issue should then be raised with the Land Department. 
There are some administrative fees payable to the developer for their internal administration that the Land Department authorises. 
It is important, therefore, to establish clearly which fees are for what.  And more importantly, try to have in writing a detailed account of all of the fees and confirmation of their finality. 

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I had invested with a reputed developer in a 2 B/R apartment in Tecom, which was delivered over a year late on 01/07/2009.
The developer billed me for maintenance charges @ about Dh18 per sq ft (Dh. 25k approx for 1337sqft). During the first year of the handover, while the firsy tenant was occupying the apartment, the paint on the master bedroom walls started to peel off due to water leakage from the toilet. Slowly, it spread to other walls in the apartment as well and many walls in the apartment became extremely “wet” due to the leakage.
I started my follow up with the developer from May 2010 (week 1), and continuously kept chasing the facilities department to rectify the problem for over two months and it was only in end July 2010 that the developer managed to resolve the issue.
Meanwhile, the existing tenant decided to leave the apartment due to the numerous visits and disturbances created by the facilities department.
Therefore, I was unable to show the apartment to new tenants due to the condition of the apartment.
Finally, I also had to drop the rent by over Dh6000 just to accommodate the new tenant, as I did not want the apartment to be vacant.
Moreover, my apartment was also lying vacant for half a month due to the delay in completing the job by the facility department.
 
I had paid the developer Dh17,000, as part of the first instalment for maintenance charge for 2009-2010. Now the balance is pending, and the developer is asking me to pay the balance maintenance fee of Dh 7,000. Please confirm my rights in this case and how I can be compensated for the agony and the harassment that I had to go through to get my apartment in proper living condition. Please note the rent loss and the drop in the rent that I had to accept, due to this issue.
 
Besides the above issue, request you to kindly clarify landlord’s rights on the following points :
a) Are the developers authorised to charge any rate for maintenance charges, before the Owner’s Association is formed? Are they not required to take any approval from the Land Department or Rera?
b) The developer has refused to pay the one per cent title deed registration as per the Law 21 of 2006, and says that it has to be paid by the buyer (as it was part of the T&C of SPA). Is the developer liable to pay the share of the title registration fee as per law?
c) Can the above maintenance fee be adjusted against the rent loss/developer’s share of title deed registration fee etc. in case there is no recourse?
 
  
1: At least as of September 2010, all service charges must be approved by Rera. This is mandated by the Rera Circular of 2010, which states that all “annual service charges must be approved by Rera.”
Furthermore, prior to collecting services charges, all developers are required to: 1) register the project and all units with the Land Department, 2) call owners to a General Assembly meeting to elect the Board and 3) register the Owner’s Association with Rera.
Therefore, legally speaking, only those developers, who have registered Owners Associations and obtained Rera approvals, are allowed to issue service charges.
In reality, however, most developers continue to issue service charges without having complied with the Rera requirements.
In such situations, it is advisable that the owners communicate developer’s non-compliance to Rera, be it through the Interim Board or by individual owners.
 
2: Under the law, the seller and buyer are each responsible for paying one per cent of the sale price to register the property. In particular, under Article 4 of Law No. 21 of 2006, “the purchaser shall be charged a fee equal to one per cent of the sale price and the seller shall be charged one per cent of the same amount.”
Many sales and purchase agreements and reservation forms, however, contain a clause requiring the buyer to pay the seller’s 1 per cent, thereby holding the buyer responsible for the full 2 per cent of the sale price.
Legally speaking, such contractual provisions should be invalid as they contradict the express language of the law.
Parties should not be allowed to contract around the law.
In practice, developers are holding buyers responsible for the full 2 per cent of the sale price, relying on the contract.
Rera’s position on the matter is that it will enforce the parties’ agreement, thereby requiring the buyer to pay the full 2 per cent registration fee.
Rera’s rationale is that since buyers agreed to that condition, they should honour it.
From the legal standpoint, Rera should enforce developers’ compliance with the law and not endorse the practice of contracting around it.
From the practical standpoint, however, Rera’s decision may be motivated by the urge to get the market moving.
Many developers do not have the money to pay the one per cent for every unit that is being registered, which would amount to a rather significant sum given the number of units in each development.
If the developers do not have the money, whatever the reasons may be, then requiring them to pay their share will simply stall the registration. Many registrations have been held back because of this already. Therefore, Rera’s approach may just be a practical one.
Some may argue, however, that, as the regulatory authority, Rera should be regulating precisely these sorts of matters. And if the developer does not have the money to pay to Rera, then the penalty should lie on the developer and the matter be left between the developer and Rera.
Rera’s justification is that it is simply holding the buyer to its side of the bargain.
 
3: Many owners’ reluctance to pay service charges stems from the fact that the quality of maintenance, which is supposed to be covered by the service charges, does not correspond with the amount of the services charges.
Even more frustrating for many owners are numerous construction defects in their individual units.
Depending on the extent of the construction defects, the expense of repairing them can be significant.
In many cases, it even exceeds the amount of the annual service charges.
As a result, the owners feel aggrieved for having to pay the developer, what may some consider, exorbitant services charges, while at the same time having to pay additional expenses for repairing the defects, which should have been covered by the purchase price.
Developer’s liability for construction defects is governed by the UAE law. Developers’ warranty for installation defects is one year and structural defects ten years.
Most of the issues experienced by many home owners today should be the responsibility of the developer, as they relate to construction defects.
The practical advice is to negotiate with the developer to offset the cost of the repair of such defects against the service charges.
But this will only apply as long as the developers are still the ones collecting the services charges.
Once the Owners Associations take control, along with the authority to issue service charges, such offset will not be possible.
Then, the only recourse will be to bring a legal action against the developer in court.

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I am an American national who has been living in Dubai for the past three years.  About two years ago, I leased (purchased) land in Nad Al Hamar, Dubai, for 99 years.
The land had a structure for a villa which was not complete, and we had plans to tear it down and build a new villa.
We were visiting the property one day when another person showed up claiming that he was the owner and that the same person we had purchased the land from had sold it to him as well.
The person has told us that it is his property and that we should get out. We have tried to get in contact with the seller for a year but he just ignores us.
The other party is also suing him for selling to two different people, and we would like to do the same.
We have a loan note and a contract for the property with a value of Dh4 million. We would like to get our full money back for the property, the commission paid, any additional money paid towards the land during the time of ownership for maintenance and miscellaneous costs, as well as any fees or damages which have occurred from this.
I would like to know how we would get our money back and what you think would be the right course of action to go about getting this done.
 
The same property being sold to several individuals is a problem that might have been caused by lack of title deed for the property.

The purpose of the title deed is to keep an official record of the property ownership history.

Title deed serves, among other things, to establish that there are no competing interests or to record priority of interests to the property.

In Dubai, title deeds are supposed to be held by and registered with Dubai Land Department (DLD).

Before purchasing the property, title deed search should have been performed to ensure that the property was owned by the seller.

Immediately after buying the property, the new purchaser should have registered the transaction with the DLD, by updating title deed to reflect the new purchaser’s right of ownership.

If this has been performed, then the purchaser whose name is registered on the title deed should prevail, especially if it can be shown that the transaction occurred before the seller sold it to the other purchaser.

In this event, the advice is to seek DLD’s assistance first.  If that fails, a case could be brought against the second purchaser to establish clear title.  Another case can be brought against the seller for damages.

If, however, the property does not have title deed and it was not in any way registered with the DLD, then a case should be brought against the seller for, among other things, misrepresentation and possibly fraud, along with a claim for damages.

A claim for damages, however, may be to some extent offset due to, what the court may hold as, lack of due diligence on the part of the purchaser.

In other words, the court may penalise the purchaser for not having performed the title deed search, of the equivalent therefore, and for subsequently failing to register the property with the DLD and/or update title deed.

Another complicating factor could be the location of the property.

If foreigners are not allowed to own property in Nad Al Hamar, then the second (local) buyer would prevail, even if the property is registered with the DLD on the name of the first buyer.  

In this case, the buyer should bring a case against the seller for, among other things, rescission of the contract and misrepresentation.

What is particularly surprising in this case is that the buyer has a mortgage over the property.  Prior to offering the mortgage for the property, the bank should have performed its own title search and, more importantly, registered its interest to the property on the title deed and/or with the DLD.

Therefore, the bank itself is at fault as well.

And the issue arising with the mortgage should be addressed directly with the bank, bearing that in mind.

In this even, the bank could bring its own case against the seller for damages and/or against the second buyer for clear title.

Given that most mortgages are secured by post-dated cheques and based on practice thus far, it is more likely that the bank would prefer the borrower to do all the fighting.

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I am due to take on a completed property later this year (May or June) in Abu Dhabi. 
I will have to pay handover costs/ builders’ profit and then monthly mortgage repayments. 
I have a Dh2m loan from an Islamic home mortgage provider @ 7.9 per cent interest. 
The property has lost 50 per cent of its value and the rental income will be 50 per cent of the monthly repayments. Do I have the option to not complete and remain in the country?
Will the mortgage company take back the property (as the security on the loan) and recover their costs and I lose the 10 per cent deposit?

Today, hundreds of borrowers find themselves bound by mortgages worth double and more the current value of the properties, e.g. negative equity.

This is a problem that many countries, and especially the United States, face today.  In most countries, there is a foreclosure law that allows banks to cease the property if the borrower defaults, intentionally or otherwise.

Some foreclosure laws allow the bank to pursue the borrower for the balance of the mortgage.

But in most cases, this practice is not followed, as it is too expensive and legally complicated.

Banks prefer to foreclose on the property and write off the loss.

In the UAE, however, defaulting on the mortgage is far more complex.

One reason is that the UAE does not have a well-established foreclosure law and/or foreclosure practice.  The other reason, and one that is of most concern to borrowers, is that mortgages in the UAE are secured by post-dated cheques.

If a borrower defaults on his/her payments, then the bank has the right to cash the post-dated cheques.

And if that cheque bounces, which it will, since the borrower default due to the lack of funds, it becomes a criminal offence.

This is because in the UAE, a bounced cheque is on its face a crime, punishable by immediately jail sentence.  Therefore, a commercial transaction quickly moves into the criminal realm.

It is this threat of the bounced cheques that all borrowers fear.

Many have left the country already because of it.  And many more are considering leaving for the same reason.

It is not in anyone’s benefit for borrowers to default completely and leave the country and/or have them be jailed.

It is far more beneficial for the banks to refinance on more palatable to the borrower terms or foreclose on the property, write off the loss and re-sell later.

Yet, this not a practice that the UAE banks have followed thus far.

That being said, it is advisable to first negotiate with the Islamic mortgage company to either refinance the property or to foreclose on it.

The advise, therefore, is that should the negotiations with the mortgage provider not yield any positive results, borrowers could bring a case before the special committee set by the Dubai government for the two Islamic mortgage providers and seek their assistance.

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 In February 2008, we secured a mortgage with a leading international bank (with representative offices in UAE) to purchase a villa off-plan from one of the sub-developers in the Jumeirah Golf Estate development. We made 25 per cent down payment on the property mortgage and have been making regular (and increasing) monthly mortgage payments subsequently. The villa was due for completion on December 31, 2009.

The property has not been completed and today we received notification from the sub-developer that “due to events beyond their control related to the obligations of the Master Developer (Jumeirah Golf Estates LLC), they are now unable to provide a completion date for our property. They are also invoking the Force Majeure clause in the contract which absolves them from liability due delays in completion relating to events that have occurred which are outside of their control. The sub-developer has copied the CEO of RERA on their communication to us. What course of action would you recommend to individual investors and/or to the sub-developer to resolve this matter?
 

Developers are increasingly beginning to cite force majeure as an excuse for performing under the contract. Some cite Master Developer’s failure to build the infrastructure as the reason. Others cite the global financial crisis as the reason. Yet, others simply cite force majeur as an excuse for not performing, without explaining the circumstances.
Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation to perform when an extraordinary event or circumstance beyond the control of the parties occurs. Such extraordinary circumstances normally include
war, strike, riot, crime, or an event described by the legal term "act of God," such as flooding, earthquake, or volcanic eruption. These are the circumstances which prevent one or both parties from fulfilling their obligations under the contract.
Force majeure, however, is not intended to excuse
negligence or other malfeasance. It does not excuse non-performance, which is caused by the usual and natural consequences of external forces. For example, when predicted rain stops an outdoor event. Or where the intervening circumstances are specifically contemplated.
Master developer’s failure to build the infrastructure is not a force majeure event. This is not an event that could not have been contemplated. When developer and/or Master Developers sold projects, they knew that the infrastructure did not exist. Building that infrastructure was a contemplated event. Including such event in the definition of force majeure would defeat the purpose of the contract. Developers’ failure to have the infrastructure built, therefore, is not a force majeure, unless there is an intervening act of God event.
The global financial crisis does not qualify as an intervening act of God event. Economic and financial setbacks are predictable events in commercial transactions and should be accounted for. Developers’ failure to properly budget for such event is a commercially poor decision, but not an unforeseeable event beyond their control.
Dubai Courts have, at least on one occasion, already held that the financial crisis does not constitute force majeure.
Therefore, in such instances, developer’s failure to deliver as per the contract would constitute a simple breach of contract. This would be actionable in court. Depending on who the breaching party is, the court in which such an action can be brought varies. In the event where Nakheel is the developer concerned, for example, Nakheel being a subsidiary of Dubai World, the proper forum for brining a legal action is the special Dubai World Tribunal in the DIFC Court.
 

I have a two-bedroom apartment in Old Town, which I purchased in October 2007. We took a mortgage from an International bank. The apartment is currently leased through a real estate consultancy, with the lease expiring end of October 2011. We are no longer UAE residents, having relocated to the US in late 2009.
Between the strengthened CHF (vs. US$) and the property market collapse in Dubai, we no longer see any realistic possibility of the property value recovering enough in dollar terms to repay the principal. We are interested in knowing if the bank can go after other assets in the event that we default, or if they are limited to taking the property itself.  According to the mortgage terms & conditions in the "security" section, it appears that the property is the only thing the bank can take... but it's all a bit unclear.

Cases where a property is secured by a mortgage are always more complex.   One of the reasons for this is that such transactions involve at least three parties: bank, purchaser and developer.  Each one of them has a series of direct and indirect crisscross contracts, inextricably tying all three parties.  The other difficulty is that, in the U.A.E., mortgages are secured by post dated cheques, which, if bounce, constitute a criminal offense.  Therefore, a commercial matter can quickly become a criminal one.  When a case turns criminal, it takes the borrower out of the realm of commercial negotiations and places him at risk of a jail sentence, unless the bounced cheque is settled.  This creates great inequality between the parties, thereby removing incentive for the bank to renegotiate the conditions of the mortgage with either the borrower or the developer.  But re-negotiation of mortgage terms is sometimes necessary and beneficial, to account for the change in circumstances, be it due to the economic downturn, market decline or borrower’s financial status.
In a case where a mortgage is provided by an international bank and it does not involve post dated cheques, it remains to be a commercial matter.  This means that the mortgage can be re-negotiated as a commercial transaction, without the borrower facing criminal charges and jail sentence.  Such relationship creates a more balanced ground for parties to attempt to renegotiate.  And for the borrower, who is tied by the mortgage secured by the property, which is now well below the amount of the mortgage, re-negotiating with the bank should be the first strategy.  In such circumstances, the borrower should first approach the bank and request to amend the terms of the mortgage to account for the reduced value of the property.  For an international bank, this will not be a first time experience.  Irrespective of what the terms of the mortgage provide, an amicable negotiation should always be a course of first resort.  For banks, it may be better to re-negotiate, then to lose a secured source of revenue, albeit below the original amount.  The bank’s willingness to do so, however, depends on the bank’s own policies, its insurance, the state of the real estate market where it is invested, terms of the underlying mortgage contract and the like.  In many instances, banks refuse to negotiate, unless they feel real threat of a default.  Often, the proof of real threat necessitates that the borrower defaults, for the bank to consider the request seriously.
In the event that the bank refuses to re-negotiate and/or the borrower defaults, the borrower’s liability is governed by a variety of factors.  One, it is subject to the terms and conditions of the mortgage.  If the borrower’s liability is limited to the property, then walking away from such depreciated property may be the desired approach.  This is not always an easy choice for the borrower, however, insofar as it means that he is leaving on the table the down-payment and interest paid thus far, both of which can be significant.  Depending on the location of the borrower and the bank, forfeiting the property may also reflect negatively on the borrower’s credit in the long run.  What may complicate the matters even further are the foreclosure laws, if any, of the country in which the property is located.  In the UAE, the enforcement of the foreclosure laws is still at its infancy.  This may, in turn, account for the bank’s reluctance to re-negotiate the mortgage or its hesitance as to the appropriate way forward.  Whatever it may be, for an international bank, this will be a drawn-out, expensive and almost unprecedented process.  This is especially so because such banks are subject to strict international banking, regulatory and legal restrictions, which are further exacerbated by the multi-jurisdictional nature of the parties involved.   In short, therefore, it is more likely that in such circumstances, the banks will limit the borrower’s liability to
the property secured by the mortgage.  But this does not mean that borrowers should simply walk away from the property without first attempting to re-negotiate with the bank.

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I purchased a property to be developed by a publicly listed property development company in Dubailand.The builder was supposed to deliver the project by March of 2010 and now its been told that it has been indefinitely delayed due to delays from the master developer and they cannot give a new delivery date.
They has been consistently taking payments towards the project under the pretext that this is as per the RERA rules. I have paid 65 per cent towards this project with no delivery dates promised. What are my options here realistically? Can I force the developer to refund my full payment due to their inability to satisfy their commitments? Are there options to renegotiate this contract for a lower value due to these contractual issue? Are there options to make the developer only ask any further paymens after the completion of the project and when they are ready for handover?

A delay in the delivery of a project, especially a significant delay, can amount to a purchaser’s right to rescind the contract and his entitlement to receive a full refund.  Some contracts specifically provide that, should the developer fail to deliver by a certain date, the purchaser may rescind the contract and receive his money back.

Contracts, which do not specify such remedy, may still be subject to the same recourse under the U.A.E. law. Thus, in cases where a developer significantly delays the project and, especially, where construction is barely, if at all, proceeding, the purchaser can rely on the UAE law to terminate the contract.

Specifically, under Article 272 of the Civil Code, “[i]n bilateral contracts, if either party fails to satisfy his obligations under the contract, the other contracting party may, after giving notice to the debtor, apply for the performance or its termination.”  Also, under Article 82 of UAE Commercial Transactions Law, Law No. 18 of 1993, “if a date for the performance of the contract has been fixed and such a time has expired without performance on the part of the debtor; thereafter, the creditor shall not be obliged to accept the performance.”

Developers are increasingly beginning to cite force majeure as an excuse for performing under the contract.  In particular, they cite the master developer’s alleged delay in the delivery of the plot as one of the reasons.  Legally speaking, this argument, however, should not carry much weight.  Developers should not have had the right to sell the property prior to master developer having handed it over to them.

Therefore, under the law, in such circumstances, the investor may have the right to rescind the contract and request a full refund.  In practice, however, enforcing that right against the developer almost always means having to file a lawsuit.  Very few developers, if any, offer refunds voluntarily.  For many, the reason is that they simply do not have the funds to do so.

Because of this, it may be more commercially reasonable to negotiate with the developer to transfer the credit into another, but viable, project.  Some developers are finally starting to offer such options.

In doing so, however, many continue to try to hold investors committed to nearly the same prices and specifications, in an effort to raise more money.  The advice for investors is to insist that the developer:
1) reduce the selling price to bring it more in line with the current market price, 2) consolidate or reduce the size of the investment, so that a greater percentage is paid off, 3) offer better quality property and/or 4) set a more favorable payment plan for the remainder of the price.  Because in such cases, at least legally speaking, developers are in the wrong and, thereby, are in the weaker position, investors should vigorously negotiate on terms that are more favorable to them.  While some developer may still not yield, investors should, at the very least, try.

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In July 2008 I booked a unit in a project in Jumeirah Village with one of the leading private developer’s in Dubai for which I have received the contract, going forward as per the Payment Schedule. I have paid 25 per cent of the original price (OP), but due to market situation and the notification issued by RERA in December 2008 stating that the developer cannot take more than 20 per cent of the OP if they haven’t started off with their construction therefore I stopped making further payments. But on the other hand I had even requested for a Payment Extension for which they never gave me a response, so keeping this is in view the Rera’s notification and the other scenarios I stopped making further payments as there was no progress of the project given on their official website and on Rera’s official website. Then later in the month of January 2009 I received a Default Payment Notice and on top of it they even sent me a termination letter but whereas as per my understanding I am still on the safe side as I have already paid 25 per cent of the OP and still there’s no progress regarding the project keeping in view the Rera’s notification. And now since past few month’s they are giving me options for switching to some other project and stating that they have put this Project on hold and don’t know when they will start off with it or cancel it.

How can I ask for a refund from the developer as they haven’t started off with the project and they have put the same on hold ?

If the project is officially cancelled by the developer or is on hold, then, legally speaking, the developer is obligated to refund the full amount.  Developer’s cancellation of the project amounts to a termination of the contract because the developer cannot deliver the very essence of the contract.  Therefore, in such circumstances, the developer does not have a legal right to obligate the investor to shift theinvestment from a cancelled project into a different one.  Even if the project was not officially cancelled, but construction has not begun for over two years, despite the payment of 20%, there is a legal case for the investor to cancel the contract.  This is because, among other things, such gross delay in delivering the project, along with violation of Dubai Law No. 8 of 2007, requiring developers to start building within 6 months after receiving approvals, amount to a material breach of the contract by the developer.  Under the U.A.E. federal law, if one party to a contract cannot perform its obligations, the non-breaching party has the right to terminate that contract.  Specifically, under Article 272 of the Civil Code, “[i]n bilateral contracts, if either party fails to satisfy his obligations under the contract, the other contracting party may, after giving notice to the debtor, apply for the performance or its termination.”  Therefore, from a legal standpoint, in such circumstances, the investor has a strong argument to rescind the contract with the developer and request a full refund.

In practice, however, unless the developer voluntarily agrees to refund, the investor will have to enforce that right.  This means filing a legal action with the court.  This is expensive and time consuming.  In many cases, the cost of litigating a case may exceed the amount to be claimed.  Litigation is also inherently uncertain.  And even if the court enters judgment in favor of the investor, the developer may not have the money to refund.  The reality of most of Dubai’s real estate developers is that they do not have money to refund to the investors.

Therefore, in many cases it is better to accept some sort of a compromise.  Depending on the amount invested, it may be more commercially reasonable to shift that investment into a different project, provided the terms of that investment are viable.  Having something is better than nothing.  A refusal to accept a transfer from one project into another, leaves the investor with the only option of filing a court action.  In some cases, it may be financially more sensible to file a court action, be it because of the amount invested and/or because of the unreasonable new terms of the transfer.  In many cases, however, accepting a transfer into a different, but viable, project is a better alternative.  This is a practical side of things.

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I had purchased a property in Jumeirah Village South and paid 10 per cent of the purchase price as down payment and also arranged an Islamic mortgage with Emirates Islamic Bank who hold the Escrow account of the project, as both, the developer and bank had jointly promoted the project during its launch in Jan 2008.

In Feb 2009, I received a revised schedule from the developer informing the delay in the project and immediately followed with another schedule in April 2009 as per the sale and purchase agreement invoking the force majeure clause, citing delay in Land Department approval. However, at the end of Dec 2010 they have only completed the ground floor and verbal information from the developer is that they are not continuing the project as only 40-50 investors are continuing on the project of the 156 odd apartments and hence they are forcing investors to shift to another project which is also not completed (expected completion is April-May 2011).

The bank is strangely silent to all our complaints so far and have continued to pay the instalments even though we had written a letter requesting to stop payments to developer as the project is not as per schedule. We do not want to shift our payments to any other project as we had specifically bought these apartments for self-occupation and not as investors to re-sale

Since this is an Islamic mortgage and escrow is also with the same bank, kindly suggest the way forward as we need to come out of this project at the earliest.

 

If the project is cancelled, then, legally speaking, the developer is obligated to refund the full amount.  Developer’s cancellation of the project amounts to a termination of the contract because the developer cannot deliver the very essence of the contract.  Therefore, in such circumstances, the developer does not have a legal right to obligate the investor to shift the investment from a cancelled project into a different one.  Under the U.A.E. federal law, if one party to a contract cannot perform its obligations, thenon-breaching party has the right to terminate that contract.  Specifically, under Article 272 of the Civil Code, “[i]n bilateral contracts, if either party fails to satisfy his obligations under the contract, the other contracting party may, after giving notice to the debtor, apply for the performance or its termination.”  Therefore, from a legal standpoint, in such circumstances, the investor has the right to rescind the contract and request a full refund.

In practice, however, unless the developer voluntarily agrees to refund, the investor will have to enforce that right.  This means filing a court action.  This is expensive and time consuming.  In many cases, the cost of litigating a case may exceed the amount to be claimed.  Litigation is also inherently uncertain.  And even if the court enters judgment in favor of the investor, the developer may not have the money to refund.

Therefore, in many cases it is better to accept some sort of a compromise.  Depending on the amount invested, it may be more commercially reasonable to shift that investment into a different project, provided the terms of that investment are viable.  Having something is better than nothing.  A refusal to accept a transfer from one project into another, leaves the investor with the only option of filing a court action.  The other alternative is to wait until the project is built, if there is a chance of it.  Where at least some construction has been done, there is more likelihood that one day construction will resume.  Therefore, if the investor wants that very project, because he/she bought it for self occupation, it may make sense tonegotiate with the developer to stay in the project on some amended terms.  For example, some of the terms that could be negotiated are: reduction in price, more favorable payment plan, bigger size, better view and so on.  Such negotiations, however, are subject to developer’s agreement, one.  And even more importantly, they only make sense if there is a viable chance that the project will restart.

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I bought a flat in a project in Sports City. The property was meant to be handed over to us by December 2008, however, it is now more than two years of delay. Even the profit charged by Amlak on my mortgage is accumulating. Can I request for a full refund of the amount including interest. I have approached the builder who has refused to refund any amount. Do you think I have a valid case to fight for?

In general, the delay in the delivery of the project, especially a 2 year delay, does constitute a reason to rescind the contract, with a full refund.  This can be governed either by the contract itself that provides for a right to rescind beyond certain delivery.   Even if the contract does not provide for such remedy, however, which is the case in many existing contracts, the law does.  Under the UAE contract law, a breach of such a material term as a delivery of a property (by developer) gives the non-breaching party (investor) the right to terminate the contract and entitlement to a full refund.  Therefore, legally speaking, there is a case to be made for termination and refund.  In practice, however, unless the developer voluntarily agrees to refund, the only recourse to enforce this remedy is through filing a formal legal action.

Filing a formal case is an expensive and time-consuming proposition.  It is also, inherently, uncertain, especially in a developing market such as the U.A.E.  Therefore, deciding on whether it makes sense to file a case depends on what is at stake.  Specifically, if the amount already invested is substantial enough to warrant further expense to try to salvage at least a portion of that amount, then filing a case may be justified.

What amounts to a “substantial” amount invested should be weighed against legal costs and attorney’s fees.  The legal costs are usually high.  They include a court fee of 7.5 per cent of the value of the case or a maximum of Dh30,000, per contract, that is paid at the outset before filing of the case.  Translation costs are also not to be underestimated, since every document submitted to the court has to be translated into Arabic.  Then, there are attorney costs, which vary greatly, but most require an upfront payment.  Most of the time, the minimum expense of litigating a case is Dh150,000.  Therefore, whether it makes sense to pursue litigation depends on the amount that is being claimed.  Furthermore, given the unprecedented and ever evolving nature of such disputes in the UAE courts, it is difficult to determine the likelihood of winning on the merits, especially where highly influential individuals are concerned.  Mortgages further complicate the matter because mortgage repayments are on going and subject to additional interest payments, plus they are secured by post dated cheques.

To counter-balance the risks of post-dated cheques, there is now a specialized Amlak-Tamweel Bounced Cheque Committee established in the Dubai Courts to help investors deal with disputes related to mortgages with either Amlak or Tamweel.  Thus, the best options forward are as follows.  One, to negotiate with the developer directly on some sort of a compromise, be it in the form of a reduced price, revised payment plan or consolidation.  At the same time, those who have mortgages, should refer their cases to the Amlak Cheque Committee to seek their assistance in resolving the dispute.

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 Is it an option for me to take the apartment possession on condition that the developer bears and settles all the interest accumulated because of the delay?

Investors whose projects are being handed over delayed, should definitely negotiate with the developers to offset the damages incurred in connection with the delay against any outstanding payments due to the developer.  Many investors have suffered damages because their properties are being completed years later than contracted for.  While such delays may give investors a cause of action for breach of contract, thereby warranting rescission of the contract and full refund, it is not a realistic outcome in most cases.  This is because most developers do not have money to refund, either because they have already spent it on building the project or simply mismanaged it.  Whatever the case may be, having something is better than nothing.  Therefore, accepting the project, albeit late, may be the only viable alternative.  That being said, however, investors should use the delay to negotiate with developers an offset against outstanding payments to compensate them for the damages suffered.  The damages, in turn, vary.  In cases where investors have been paying a mortgage on a delayed property, they should try to negotiate with the developer to have those interest payments offset against the last instalment or service charges.  Some contracts specifically provide for the developer to pay interest or penalty for the delay.  Whatever the case may be, it is reasonable for investors to ask to be compensated for the delay.

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 If I refuse to take the apartment possession, can the developer/ bank drag me to court? If yes, do I need to hire a lawyer? Who bears the cost of the lawyer? And if the judgement is against me, would there be any penalty on me?”

There may be many reasons why an investor can refuse to take possession of the property.  It could be because the property was significantly delayed.  It could be because the quality of the property is well below what was contracted for.  It could be simply because the property is now worth much less than the original sales price and, as such, it is now not commercially reasonable to own it at that price.  Whatever the case may be, investors’ rights and remedies in refusing to take possession of the property, in many cases, depend on the underlying contractual arrangement with the developer.  Some contracts allow investors to rescind the contract if the property delayed beyond a certain period of time.  In such cases, for the developer to sue the investor to force performance is a contractually weak case.  Most contracts, however, are drafted in favour of the developers, giving them an infinite time to complete the project without penalty.  Whether a developer and or bank will file a lawsuit against the investor to force him to take possession of the property depends on how successful they think they will be.  In general, however, any one can file a lawsuit against anyone.  The rationale for doing so depends on what is at stake.  If developers and/or banks believe that they can force investors to take possession, despite the time involved in litigating the case and the money incurred to do so, then they may file a legal actionagainst the investor to force him to act.  In most cases, however, this is not a realistic or commercial viable option.  Litigation is expensive and time consuming.  Litigation is always inherently uncertain.  Furthermore, if the investor does not have money to pay for the property, even if the developer wins the court case, he cannot force the investor to pay money that the investor does not otherwise have.  Also, there are many more investors than developers.  For developers to sue all of the defaulting investors may have the effect of paralyzing his business.  Also, even if the developer wins, he will have to pay his own lawyer fees as Dubai Courts do not award legal fees as damages.

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Where do I file a case against my developer who hasn't started the project despite us paying more than 35 per cent of the cost?

A real estate dispute for a property in Dubai should be filed in the Property Court of Dubai Courts.  If the real property is in a different Emirate, then the case can be filed in that Emirate. Notwithstanding, depending on the location of the transacting party (i.e. seller), the investor may have a choice of the Emirate in which to bring a case. If the seller, for example, is a Dubai company, for a property in Abu Dhabi, the investor may have a choice to file a case in either Dubai or Abu Dhabi. In general, however, investors are advised to consider carefully financial repercussions, as weighted against the legal uncertainties, of filing formal legal actions. They should diligently weigh the pros and cons in pursuing that course of action, to justify the expense and the time required to pursue a formal legal action.

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If I lost my job and can't settle the loan, nor can I sell the property, what action can the bank or developer take?

Cases involving loans and mortgages are difficult ones because they inevitably involve post dated cheques (“PDC”), which, in the UAE, if bounced, become a criminal offense. Namely, securing a loan in the UAE requires issuance of PDCs.  Any transaction that involves PDCs is a complicated one because if the investor defaults, it quickly shifts from being a civil matter to a criminal one.

Thus, in the case where an investor who took out a loan, secured by PDCs, loses his job and is, therefore, unable to carry on paying the loan, the bank can deposit the previously issued cheque to cover that payment.

If the investor does not have enough money in the account to cover that cheque, then he is, in essenece, in breach of the UAE Penal Code.

Article 401 of the U.A.E. Penal Code criminalizes issuance of a cheque “which has no return, or a deposit that is sufficient, and able to be drawn or taken back after giving the cheque.”

Similarly, under Article 402 of the Penal Code, it is a crime to issue a cheque when “a provision is less than the balance [that] exists for him and that can be drawn.”

Therefore, a case, which started out as a routine commercial matter, now becomes a criminal matter.  This is an especially difficult provision because, in many cases, investors who have bounce cheques in such circumstances do not do so with a malicious criminal intent.

They simply cannot honour their payments because of the change in their financial circumstances.

Many investors have been caught in this predicament because of the financial crisis.

In such event, in addition to having civil remedies for breach of contract, the developer and the bank can now invoke criminal remedies for bounced cheques.

Criminal cases are viewed as having more leverage because there is a real threat of jail sentence.

Some banks, such as Tamweel, have invoked this remedy in the past, depositing cheques knowing that they will bounce.

Developers who hold PDCs can also do the same.

Today, there are a few options available, though most of them are still untested.

First, investors are advised to try to re-negotiate with the banks the terms of their mortgages.
So far, the banks have not been very accommodating in this regard.

But many seem to have at least temporarily stopped bouncing cheques and reporting them to the police, thereby providing for more time to negotiate. Two, if the dispute is with the developer (vs. the bank), bounced PDCs issued to the developer are now subject to the exclusive jurisdiction of a special judicial committee in Dubai Courts established by Dubai Decree No. 56 of 2009 who oversees matters related to real estate based bounced cheques (“cheque committee”). Under this Decree No. 56, developers can no longer report cheques to the police. It is now up to the cheque committee to review and determine the merits of thecase.  This takes the case out of a criminal realm, back into a civil one. This cheque committee, however, does not seem to have authority to deal with bounced cheques related to mortgages. Three, investors who have mortgages with Amlak and Tamweel can now refer their disputes to a Special Judicial Committee Related to Amlak and Tamweel, under Dubai Decree No. 61 of 2009.  Under this Decree No. 61, investors can now bring a case to the Amlak/Tamweel committee to have them negotiate with those banks. This committee does have jurisdiction to stop the cheques, pending resolution of the case. 

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I am a property buyer in distress and find the articles in the 24/7 very useful. I invested in an apartment in in Downtown Dubai three years ago, which was marketed by a leading bank in the UAE. The sales and purchase agreement was also issued by it. However, after a year or so, the project was transferred to another company in which the bank is a shareholder. Due to the downturn the bank has stopped all mortgage lending for over two years and buyers like me have paid 40 per cent and are unable to make further payments. The project is 85 per cent complete and ready for handover in March 2011. What are my rights as a buyer? What happens if I am unable to make any further payments?

Any case involving banks and mortgages is a complicated one.  This is because most mortgages involve issuance of post-dated cheques to secure them.  Therefore, the line between, what would otherwise be a civil matter for breach of contract, blurs quickly into a criminal matter for bouncing a cheque.  Objectively speaking, the responsibility should lie with the bank and the developer/seller, especially where the developer/seller is also the bank, such as the case at hand.  Leaving the conflict of interest aside (i.e. banks acting as developers/sellers), it is reasonable to expect that it should have been incumbent upon the bank /developer to, not only deliver the promised financing as represented, but also monitor the disbursement of funds towards that project, to ensure that it accords with the construction progress.  In most cases, however, neither holds true.  The banks have retracted their promise to finance.  They had also advanced funds towards the projects, which are not being built, resulting in mortgagees paying interest in the meantime for something they have no use of.  What makes this issue particularly complicated, however, is the mortgage. Most mortgages are secured by post-dated cheques, which are, if bounced, amount to a criminal offense, punishable by a jail sentence.  Therefore, investors in such situations are advised to be careful.  They should either negotiate directly with the developer/bank new terms or consult lawyers to ensure that their rights are adequately protected.

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How can one find out if a developer has gone out of business and what the status of his projects are?  Some three years ago a friend bought an off-plan property. The developer never sent her the signed contract and so she cancelled all the post-dated cheques.  Shortly, thereafter, the company's website disappeared and no phone number of the company worked anymore.  But, the company is still listed on the Rera website.  Has my friend become a bounced cheque criminal under Dubai law?  How can she find that out?  Can she be arrested if she is visiting Dubai/UAE or transiting through Dubai airport to another destination?

The only “official” way to find out whether a particular developer has gone out of business and/or progress of a project is through Rera.  That being said, in many cases, the investor community may have better and more updated intelligence as to which of the developers have absconded and/or the status of a particular project.  Therefore, doing one’s own due diligence is always highly encouraged.  If there is discrepancy between what the “real data” show and what is reflected on the Rera website, it is advisable to bring that information to the attention of Rera, so that it can update its records accordingly.  In the meantime, if an investor had issued post-dated cheques to, what may be, an absconded developer, is it crucial that that investor checks thepolice and/or immigration records to ensure that he/she is not on the blacklist for a bounced cheque.  Under the recently passed Dubai Law Decree No. 56 of 2009, such real estate cheques should not be treated as criminal offense.  Instead, they are subject to a Special Bounced Cheque Committee, part of the Dubai Courts.  Therefore, should there be an issue of an improperly deposited cheque, investors are advised to bring it to the attention of the Cheque Committee.

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I have invested with a reputed developer who has projects in Business Bay, JLT and International City. None of the projects are completed. I had an office and a studio in the same tower and because of the credit crunch we consolidated the office to studio. So now the studio is fully paid - that is Dh475,000 in Business Bay. The estimated completion date was first quarter 2010, but I don’t see any development there since last two years. The tower is still on shoring and pilling. I went to land department to ask them about the status of the project they gave me a printout and said that there is no work happening and the project was on hold and that I should go to the court.  What do you suggest?

This is an important issue to highlight.  On the surface, it appears that the investor negotiated a favourable “settlement,” by getting the developer to agree to consolidate his investment.  It is an alluring proposition, one that may lead many investors astray.  This is because, in reality, if the developer has not shown any signs of devilry, then that “settlement” was simply a “paper shuffling” exercise.  It is a transfer of “nothing” into a new kind of “nothingness.”   Investors should consider any such “settlements” carefully, supported by due diligence.  This is especially so, since settlements inevitably involve giving up rights under the original contractual terms and agreeing to new terms, which are likely to be less favourable than the original terms.

Now, despite, what may have seemed like a favourable “settlement, the investor’s position has not really changed.  He has paid, but has received nothing, with no foreseeable future of a promising outcome.  Unless the developer acts voluntarily in refunding investor’s money, the investor has to take legal action to enforce his rights.  Developer do not refund voluntarily, however.

While Rera often seems to be the first choice of venue to appeal to, Rera is only a regulatory authority and not a judicial one.  To enforce his rights, the investor must either file a court action or an arbitration claim, depending on the underlying contract.  Unless the contract specifies arbitration, the default forum is Dubai Courts, and, in particular, its Real Estate Court.  To decide whether to file a legal action in Dubai Courts or in the appropriate arbitration forum, investors should assess the amount at stake.  Bringing a formal legal action is expensive and time consuming, not to mention the mental anguish that accompanies it.  It involves significant payment to the Court or the arbitrator, along with translation fees.  And that is in addition to lawyer fees.

The outcome of any litigation, in the meantime, is inherently uncertain, not to mention the time that it takes to follow it through.  Therefore, the decision to pursue a formal legal action is a personal one, depending on one’s financial interest at stake.  What is clear, however, is that to enforce one’s right against the developer, the only meaningful way forward is through a formal legal action, unless the developer acts voluntarily.

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As per my payment plan, I had to pay a certain amount in instalments and after the completion of the unit, I have three more years to pay the remaining amount in instalments. But the developer has changed the completion date by one more year. If the completion date has been extended, the remaining amount must be started after the completion?

As per Rera regulations, all developers were required to submit revised instalment payments to coordinate with some form of construction milestones.  Rera was required to approve all such payment plans.  Therefore, all payments should now be linked to some sort of construction progress, irrespective of what is stated in the original sales and purchase agreements.  In such event, investors should request the developer to provide with a Rera approved revised payment plan. 

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Can investors file a criminal case against a developer who has not started a project or opened an escrow account?

Investors can file a criminal case against a developer on the bases that it has not started a project and/or opened an escrow account, but only if the reason for developer’s default is criminal in nature and there is evidence to prove it on its face.  This is not an easy burden of proof, however. 

Some of the causes of action that may give rise to criminal liability include misrepresentation and cheating under the UAE Civil Code and Penal Code.  Also, under Dubai Law 8 of 2007 (Escrow Law), criminal sanctions will be imposed where a developer either: 1) “knowingly offers to sell units in bogus property development” or 2) “embezzles, uses or squanders payments delivered to him for the purposes of construction of property developments, and misappropriates such sums.”

For a case to be considered criminal, however, there has to be undisputed or clear evidence of the criminality, sufficient to convince the public prosecutor to accept the case as a criminal matter.  Thus, for example, if there is a written statement from a developer admitting that he had never had any right to the property, but yet represented to the public otherwise, such written evidence may be sufficient. 

More often than not, however, such evidence does not exist, at least at the outset.  Instead, further investigations must be conducted.  This often arises in cases where a contract is at issue, therefore necessitating contract interpretation.  In such cases, a public prosecutor will transfer the case to the Civil Court.  At that point, the Civil Court will lodge an investigation, often by hiring an expert, to determine the nature of the claim.  If at any point in the process, the Court finds that a developer’s conduct was of a criminal nature, it will transfer the case back to the prosecutor.  The prosecutor will then open a criminal case. 
 
Many investors have tried to file criminal cases against developers.  This is done as leverage, mainly, as criminal cases rarely yield monetary compensation to the investor.  Increasingly, however, the public prosecutor transfers such cases to the Civil Court, requiring investors to start from ground zero.

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How can investors obtain title deeds for their properties?

Many owners of ready properties in Dubai do not hold title deeds to their properties, often even for years after the hand-over.  Absence of title deeds, however, is an issue not to be underestimated.  Without a title deed, the purchaser of the property has no binding and clear proof of ownership. 

Title deed refers to a legal document, registered with the relevant government authority, that shows one’s right of ownership to a property.  The purpose of title deed is to ensure that the property is registered to the rightful owner.  It also serves to ensure that the property has clear title, i.e. that it is not owned by anyone else or encumbered by any other interests.  This is why it is important that titled deeds are maintained in a centralized government database.

A proper title deed registry should include the history of all owners to that property and any superseding right-holders.  For example, if a property is mortgaged by a bank, that bank’s interest will be recorded, in addition to the owner’s name.  This way, when the owner sells the property, the new purchaser will know that before the seller is paid, the bank’s mortgage must be settled. 

In Dubai, title deeds are supposed to be issued by the Dubai Land Department. But the system has been flawed.  Hundreds of homes in Dubai, which have been handed-over for more than a year, still do not have title deeds.
The DLD continues to promise owners that it will begin issuing title deeds in a few months.  But those few months keep getting extended and soon become years. 

The DLD blames developers for their alleged failure to produce documents necessary to issue title deeds.  But it is unlikely that developers are the only ones to blame.  After all, the DLD, being the regulatory agency, has the authority to penalize developers and enforce compliance.  

A further complication is that the criteria for issuing title deeds in Dubai are unknown.  Some of the criteria, according to the DLD, are that developers confirm that the property is properly completed and purchasers have fulfilled their obligations.  But what documents or approvals are required to support those disclosures is unknown.  What is known, however, is that developers’ participation and cooperation in the process is imperative.  So, if developers refuse to do so, purchasers remain without proof of ownership, although they have fully paid. 

Contrary to popular belief, sales and purchase agreement (“SPA”) and receipts of payment are not proof of ownership.  They are simply evidence of a contractual arrangement between the developer and the owner.  Neither are letters from the developers certifying that the owner has complied with all obligations. 

Absence of title deeds presents a series of problems.  One problem is that the property may be uninsurable.  Two, it may be more challenging to sell it.  Three, in the event the property is rented and the renter defaults, the owner may not be able to enforce his rights against the renter because to file a case in the Rent Committee requires proof of ownership.

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What is the property registration fee?  How is it calculated and paid?

A property registration fee refers to a fee charged by and paid to the DLD.  The registration fee in Dubai is governed by Law No. 21 of 2006, Amending Some Provisions of the Land Registration Fees Law No. 7 of 1997.  Under Article 4 of Law No. 21 of 2006, the registration fee is 2% of the “sale price,” of which 1% is paid by the purchaser and 1% by the developer.  There was a time when developers required purchasers to pay the entire 2%.  That practice was later outlawed by the DLD.  But the problem arises when the developer does not pay his 1% share, forcing purchasers to pay both shares in order to secure his interest in the property.  In such situations it should be incumbent on the DLD to enforce the laws by requiring the developer to pay his share.  Yet, the DLD often cites with developers by allowing them to pass their payment obligation to purchasers. 

Even more alarmingly are reports that the DLD now requires that the fee is calculated not from the “sale price,” as per the law, but rather from the “market price.”  This so-called “market price” is determined by the DLD.  It is always above the “sale price,” resulting in a higher registration fee to the DLD.  There are reports of several transactions having been cancelled because of this practice. 

It is unclear as to what gives the DLD the right to change the law.  Also, it is unclear as to who in the DLD has the authority and qualifications to determine the “market price.” 

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Why is it so prohibitively expensive to file legal action against developers?

The Dubai Court’s practice requiring that a separate lawsuit is filed for every contract at issue is a prohibitively expensive practice.  Every suit requires a payment to the Court of 7.5% of the contact value or a maximum of Dh. 30,000.00.  In most cases, it is Dh 30,000. 

So, if the purchaser wants to enforce his rights for 5 units under separate contracts, even if they are with the same developer, he is required to file 5 separate cases and pay Dh150,000.00 in court fees alone.  In some cases, the Court requires that the fees are paid per the number of units involved, even if they are all covered by the same contract.  This can happen in cases where a purchaser buys the whole floor. 

In addition to the hefty court fees, pursuing separate actions is more expensive as it requires more resources.  This is not to mention the problem of potentially having inconsistent judgments. 

Furthermore, because proceedings in Dubai Courts are in Arabic, all documents have to be translated, thereby resulting in hefty translation fees.  Lawyers’ fees are in addition to court fees and translation fees. 

Because many investors in Dubai bought multiple units from the same developer, they find it unfair to be forced to break down their claims.  They transacted with one party.  They made one payment, which was then re-distributed to different units.  The units are on the same floor, thereby in the same stage of construction or non-construction.  So, effectively, they have one claim against one developer. To be required to file multiple claims under such circumstances is widely perceived as being unjust.  This tactic discourages investors from pursuing their claims against developers, thereby allowing developers to avoid liability. 

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Ludmila Yamalova is Managing Partner of HPL Yamalova & Plewka JLT.

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