Agent escrow accounts can ensure payment of commission to brokers

Enforcing the real estate agent trust account law in Dubai will ensure real estate agents receive their commissions on time, according to a legal expert.

“Escrow accounts could play a role to ensure that brokers get their commissions on time from developers/buyers and sellers,” said Axel Jacob, Legal Consultant, Fichte & Co.

“If the money in any real estate transaction is paid to a third party acting as an escrow agent, the escrow agent could then be authorised on the basis of the presented agreements to pay the commission directly to the broker and deduct it from the amount that is to be paid to the developer.”

In an interview earlier with Emirates Business, Iseeb Rehman, Managing Director, Sherwoods Independent Property Consultants, said the company had an outstanding of more than Dh10 million in commissions due to the company by developers, which it was planning to write off.

Richard Bell, Senior Associate, Dispute Resolution Group, Clyde & Co, said: “The recourse available to a real estate broker who has not received his or her commission will depend on the terms of the brokerage contract. If the brokerage contract provides for disputes to be resolved by the courts, then disputes will be heard by the Property Court. If the brokerage contract provides for arbitration, the dispute will be referred to arbitration in accordance with the arbitration clause.”

Georgina Chan, Associate, Hadef & Partner, said: “For verbal agreements, where no agreement has been made or in instances where no dispute resolution clause is set out in the agency agreement, the injured party must file a civil claim in the Dubai Court of First Instance seeking recovering of all monies owed.”

Ali Al Jarman, Founder, Prestige Advocates & Legal Consultants, said with respect to the time frame involved in passing a judgement it all depends on the claimed amount.

Excerpts:

What is the legal recourse for real estate agents who have not received their commission?

Bell: The recourse available to a real estate broker who has not received his or her commission will depend on the terms of the brokerage contract. If the brokerage contract provides for disputes to be resolved by the courts, then dispute will now be determined by the Property Court. If the brokerage contract provides for arbitration, the dispute will be referred to arbitration in accordance with the arbitration clause. If the broker obtains a court judgment or an arbitral award against the defendant developer, seller or purchaser, that judgment or award can be enforced through the courts against the assets of the defendant, including against any land, buildings or chattels.

Jacob: There is no special regime for real estate agents to pursue their commission claims. They have to follow the same general rules as any other creditor who requires legal recourse to collect debts from his debtors. Under normal circumstances you would have to sue the developer or any other debtor who owes you commission in accordance with a particular agreement at the court in whose jurisdiction the developer or debtor is situated, unless the parties to that agreement have agreed on another jurisdiction or on arbitration.

Chan: The recourse available to an indebted real estate agent will depend on what has been agreed contractually with the debtor buyer/seller/developer. If the terms of an agency agreement contain a dispute resolution clause, then disputes ought to be dealt with according to the terms of the contract whether it is by way of arbitration or the court. For verbal agreements, where no agreement has been made or in instances where no dispute resolution clause is set out in the agency agreement, the injured party must file a civil claim in the Dubai Court of First Instance seeking recovering of all monies owed.

Jarman: The real estate agents only have one way to recover their commissions; by filing a court case against real estate developers and individual buyers and sellers.

Is arbitration a way to get back their outstanding receivables?

Bell: While we are aware that some brokers have referred cases to the Property Court and to the arbitration, it is not possible to say how many as details of the number of cases filed with the court are not published and arbitration proceedings are normally conducted in private and subject to rules of confidentiality.

Jacob: Arbitration is conducted by arbitration tribunals, usually consisting of one or three arbitrators who derive their authority to decide a case solely from a prior arbitration agreement between the involved parties, ie, the parties submit themselves under the authority of the arbitration tribunal. Courts may come into the picture when it comes to enforcing an award or appealing it. Where there is an arbitration clause contained in the commission agreement, whether it refers to the rules of the Dubai International Arbitration Centre or any other set of arbitration rules, or where the parties subsequently agree on submitting their dispute to arbitration, the same is a valid choice of dispute resolution.

Chan: If the terms of an agency agreement contain a dispute resolution clause referring disputes to arbitration under the rules of the particular arbitration centre then all matters will ordinarily be dealt there. In Dubai, there are numerous arbitration centres including that in the Dubai International Financial Centre and the Dubai International Arbitration Centre, each of which has its own procedural rules governing the arbitration proceedings.

The arbitrator is appointed by the Dubai Court following an application being made by one of the parties.  This type of arbitration is known as court arbitration.  It is generally unwise to go to arbitration for straightforward debt recovery matters, as the arbitration proceedings can be costly. Furthermore, after an award is given at arbitration it must be ratified through the Dubai courts for enforcement.

Jarman: In some cases, we find that both parties have agreed about arbitration in the agreement in this event the plaintiff can first file the case before Dubai Court and ask the court to refer the case to an arbitration court to settle the dispute provided that there is an arbitration clause in the agreement.

Can an arbitration award or Dubai court decision be challenged?

Bell: Where a broker obtains an arbitration award for outstanding brokerage fees, in most cases, there will be no right of appeal. Before an arbitral award can be enforced against a defendant in the UAE, however, the award must be ratified by the civil court (the Court of First Instance). Under UAE Civil Procedure Law, an arbitral award can be annulled at the ratification stage on certain procedural grounds.

Jacob: An arbitration award is usually final and binding. That is one of the advantages of arbitration, that it ideally accelerates the resolution of a dispute. If a party who has agreed on an arbitration clause brings its case in front of the Dubai Courts, the court will not entertain the case if the other party protests and refers to a valid arbitration clause. However, depending on the set of arbitration rules agreed upon and the seat of arbitration chosen by the parties, procedural laws of the state of the chosen seat may allow a judicial recourse to the extent the arbitration procedures may have violated procedural rules.

Chan: Awards given at arbitration are appealable only on very small grounds. This differs to an order given by the Dubai Court of First Instance, which can be appealed to the Court of Appeal and ultimately to the Court of Cassation.

Jarman: The arbitration decision is final.

 What is the time frame involved in passing of a judgment?

Bell: In the case of an arbitration, as a general rule of thumb, it will usually take between one year and 18 months from the filing of the claim for the arbitral tribunal to render an award.

Jacob: Judgments in an appeal against an arbitration award are normally restricted to the question whether the arbitration tribunal had jurisdiction and/or whether the procedural rules have been adhered to.

Chan: Depending on the complexity of the claim, a claimant in arbitration proceedings can expect their claim to be dealt with between six months and one year from the date of commencing the arbitration and between two and three years for the award to be ratified through the UAE courts.

Jarman: It depends on the claimed amount, if it is between Dh20,000 and Dh200,000, the case shall take two stages: first instance and appeal, and these stages may take from four to five months. But if the claimed amount is above Dh200,001, here the case can take three stages (first instance, appeal, cassation) and it may take from five to eight months. If there is an arbitration clause in the agreement, there is no time limit about that, but the law gives the arbitration court six months to issue a judgment and if this need more time, both parties must give approval to review the terms.

 Are you dealing with cases where agent commissions are outstanding?

Bell: Not at present.

Jacob: We are representing some clients with claims for outstanding commissions at the Dubai Courts. We have no ongoing arbitration in this regard.

Chan: Although our firm acts for a large number of registered real estate brokers, we are not currently dealing with any debt recovery matters on their behalf. However, we are dealing with many arbitration cases in other industries.

Jarman: Yes, we have a number of cases in Dubai Court in addition to the Arbitration Court.

Are you aware how many judgments were given in agent-developer/client case?

Bell: No. The number and type of judgments given by the UAE courts are not published.

Jacob: We are not aware of any statistics in this regard. Every case is different and chances of success depend on the contractual agreement and the available evidence.

Chan: A court or arbitrator will decide a matter in consideration of the facts and supporting evidence on a case-by-case basis.

Jarman: There are a number of cases in Dubai Court regarding commission disputes and the judgement depends on the documents and the contracts of each party.

What can Rera do to ensure that brokers can get their commissions on time from developers and their clients?

Bell: We are aware, that in conjunction with the Land Department, Rera may act as a facilitator in disputes between developers and brokers to assist the parties in reaching a negotiated settlement. Rera has no formal powers to force developers or sellers or purchasers to pay a broker’s fees.

Jacob: Escrow accounts could play a role. If the money in any real estate transaction is paid to a third party acting as escrow agent, the escrow agent could then be authorised on the basis of the presented agreements to pay the commission directly to the broker and deduct it from the amount that is to be paid to the developer.

Chan: Rera is the regulating body for registered real estate brokers and does not have the legal right or ability to enforce the terms of a contractual relationship between a real estate broker and its client.

Jarman: Rera cannot do anything about the commission disputes. They only can advise to register this dispute in the court directly.

What is the cost involved for the real estate agent who would like to take this legal recourse?

Bell: In terms of legal costs involved in pursuing a claim, costs will vary greatly depending on its complexity, the type of dispute resolution procedure specified in the brokerage contract.

Jacob: Standard court fees will apply such as seven per cent of the claims amount but maximum Dh30,000.

Chan: N/A

Jarman: Dubai Court fees will be charged and it equals 7.5 per cent of the total price of the agreement (maximum of Dh30,000).

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