Will non-disclosure by developer make a SPA void?

Failure to provide a disclosure statement post January 13, 2011, under the directions of the Strata Law, is likely to have serious implications for a developer with the sales and purchase agreement even being declared “void”.

“If the developer fails to provide a disclosure statement, then the directions state that the sale and purchase agreement is ‘void and of no effect’.  There is some question as to whether or not the sale and purchase agreement is void only at the election of the purchaser or whether it is simply void and of no effect at all,” Clyde & Co said.

“Either way, the net result is that the parties may face issues in enforcing their respective rights under the sale and purchase agreement and that can have aknock on effect with any bank involved if they are relying on the sale to go through unconditionally,” the international law firm added.

Dubai-based Hadef and Partners also believes that the relevant sale and purchase agreement will be void and of no effect if a developer fails to provide a purchaser with a disclosure statement.

“ Although it remains to be seen how the courts will apply this in practice, clearly this requirement is of critical importance. It is possible a purchaser will be able to get out of a sale and purchase agreement without application to the courts,” the Dubai-based law firm said.

Under the Direction for General Regulation Concerning Jointly Owned Properties, adisclosure regime is required to be met when selling proposed units.  Proposed Units are units in a project, which will be a Jointly Owned Property and that is either under construction or, if completed, where title has not yet issued and the seller of the unit is the developer.

The intention behind the disclosure requirements is to ensure that purchasers are provided with adequate information to make an informed decision when deciding whether to purchase a proposed unit and to prevent developers from making inaccurate representations regarding their developments.

“Transitional provisions were introduced and the level of disclosure required to be met by the developer has increased since the issuance of the directions, with fulldisclosure required from January 13, 2011, for all projects,” the firm said.

In November, this website reported that developers will be liable to pay compensation to purchasers if the disclosure statement, which becomes mandatory from January 13, is incomplete or inaccurate in a material way.

Clyde & Co believes developers will now be required to commit significant resources at the outset, carefully planning the project prior to launching to the market.

“The disclosure requirements bring Dubai in line with other sophisticated jurisdictions and will assist in making Dubai an attractive and secure place to invest in the future,” it added.

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