Investor can cancel off-plan contract

Property projects that face delays in starting or fail to complete can be cancelled by the Department of Municipal Affairs (DMA) as per the new property law issued in Abu Dhabi, a top UAE law firm said in a note issued on Monday.

Investors can also seek termination of off-plan sales contracts in cases where there has been a gross breach by the developer, Al Tamimi & Company said, which has worked with the team responsible for drafting this new law.

The new law, which aims to regulate the real estate market in the capital, will take effect from January 2016.

“A developer may be removed from the development register if, among other things, it fails to commence construction within six months of the date on which it has received approval to sell off-plan units,” the note said.

“The DMA can also cancel a real estate project if the developer fails to start building the project within six months from the agreed commencement date or if it fails to complete the project within the agreed timeframe,” it added.

The law also sets out clear guidelines for the DMA to follow in dealing with developers when there are delays in meeting project milestones, which is to ensure that investors' rights are protected and legal proceedings are not delayed.

“In this regard, where there has been a gross breach of the contract by the developer, the investor may be able to terminate the off-plan sale contract. Similarly, the law sets out the consequences of delays in starting construction of the project or failing to complete the construction.

“In these circumstances, the DMA may be entitled to cancel the project and distribute the amount kept in the escrow account in accordance with the priorities set out in the law.”

Al Tamini, however, states the DMA may take into account circumstances where the delay has not been caused by a breach of the developer's obligations, for instance, if a competent authority has confiscated the land on which the project is to be constructed.

“Regulation of off-plan sales is intended to be one of the cornerstones of the law. This is where a purchaser is granted real estate rights over a unit that is proposed to be built in accordance with floor or complex plans,” the note added.

According to the law, a developer will not be allowed to sell units off-plan unless, among other things, it proves that it owns the project land and has opened an escrow account for the project.

Besides, the law includes requirements for opening an escrow account, paying money from the escrow account, and terms and conditions for advertising and marketing an off-plan project.

“It is, therefore, essential that developers of off-plan projects take steps to ensure that they are in compliance with the new law as soon as practicable, but in any event within 12 months from the date on which the law comes into force,” the law firm said.

Under the new law, developers will be prohibited from collecting registration fees from investors, and developers will be allowed to charge administrative fees, which are approved by the DMA. Moreover, developers will have to register units sold off-plan in the interim real estate register, the note mentioned.

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