Legal expert Dr Habib Al Mulla says Dubai's real estate market could suffer because of what he describes as "judicial vacuum".
He believes there is conflict between the roles of a number of organisations responsible for the sector.
And he says many aspects of the real estate law are unclear and out of step with developments in the sector in Dubai.
In an exclusive interview with Emirates Business, Dr Al Mulla – founder and Managing Partner of a Dubai-based law firm that bears his name – calls on those responsible for the sector to end the confusion.
—How would you describe the legislation that applies to Dubai's real estate sector?
—The problem with legislation in the real estate market is similar to the problem with legislation in the UAE in general. Legislation is enacted after a period of economic activity or growth and is designed to rectify the situation that has developed.
Dubai experienced a real estate boom without full legislation being in place leaving a judicial vacuum in place. Although the period passed off peacefully there was a risk of disasters in the absence of adequate legal procedures and regulations. But now we are entering a stage where there is more organisation and we have seen the introduction of escrow accounts.
I wish such accounts had existed at the beginning of the period of real estate growth because they are the only guarantee for investors in the sector.
—What do you mean by judicial vacuum?
—Development of projects starts with construction. During this phase, disagreements between developers and contractors arise and are referred to the courts. Then comes the completion phase of the project – this is when the property is delivered to the secondary developer and client. Disagreements can arise even at this stage between the developer and the first or second beneficiary.
Recently a proposal to set up a committee to settle real estate disputes was put forward and it was followed by the idea of setting up a property court. The first idea is good, but the responsibilities of the committee are still unclear plus the committee has not yet been established even though its launch was announced in December. What is surprising is that after the decision to set up the committee was issued the courts refused to hear real estate cases, even though the committee had not yet been formed. Courts should not refuse cases before the committee is set up.
—But the Real Estate Regulatory Agency (Rera) deals with these kinds of complaints and disagreements.
—Yes, Rera was dealing with these disputes. Then the property court was established. But there is a question mark here, because a specialised court means federal legislation. Legislation in the real estate field should be federal according to the constitution. The civil procedures law is applied in all kinds of courts, and the real estate court would not be allowed to introduce special measures.
—Are we heading for a legislation or a litigation crisis?
—The legislative reality of the property sector is like a fireball thrown by one responsible body to another without taking into consideration the requirements of justice. The setting up of the property court ignores the rights of people to resort to [general] courts to settle disputes as it gave the property court the right to look into arbitration decisions.
—How is Rera's complaints procedure working out?
—Complaints are registered at Rera only on certain days and this is not practical. In addition not all complaints are accepted and receipts indicating that the complaints have been received are not given to clients.
—How would you resolve this crisis?
—If we are not able to set up specialised courts without federal legislation then let us leave it to the normal courts. General law is enough and we can add to it and develop it instead of robbing the legal system of the ability to handle issues in a comprehensive and thorough manner.
—What can investors in real estate sector, especially small ones, do?
—I have not found a solution and have failed to resolve some clients' cases because I do not know where to go. I went to the executive council, as it is the party that will form the committee, without success. As for normal courts, they rejected the cases. So I went to Rera, where I was told that such disputes were not their area of responsibility. In fact there is no solution. All means have been blocked and what is left is resorting to the media to raise this issue.
—Why are all deals in the real estate sector contracts of submission?
—Legally speaking, contracts in the real estate sector, especially those between developers and buyers, are not contracts of submission. But realistically speaking they are since the buyer has no right to negotiate and has no other option but to accept the conditions as they are. And I see this as a real crisis that requires urgent intervention by officials as this could negatively affect Dubai's real estate growth.
In more developed countries there are laws to protect the consumer. Legislators here should intervene in the real estate sector to set general rules protecting consumer rights.
—But does repeated intervention by legislators not conflict with the principles of a free economy?
—A free economy does not mean non-intervention by legislators. It means parties having the freedom to enter into contracts in a way that does not harm their interests. And what is happening now is that there is a large group of consumers who are suffering injustice at the hands of developers because of the absence of a legislative tool.
—Do some of these practices amount to criminal acts?
—These practices are not criminal as crimes have to be defined in law, and as long as there is no legal text defining certain acts in this way they are not crimes. But they can be called negative practices or violations.
—What are the most significant negative practices that your firm comes across?
—Some developers are not sticking to contracts in terms of finishings, space and the positions of properties – and the buyer can do nothing. Suing can cost the buyer more than the return on the investment. Some developers annul their contracts with buyers and issue new contracts at higher prices – this happens with both small and large developers.
—Where can real estate legislative reform start?
—Clarity is the best solution. Vagueness threatens the sector, whether it is related to laws, procedures or the acceptance or rejection of complaints. All this cannot be left to personal opinions.
—Do you prefer local or federal legislation?
—The constitution stipulates that legislation on real estate ownership should be federal. But federal legislation can be flexible by giving freedom to the emirates to establish procedures and execute the law in accordance with their own special circumstances.
PROFILE: Dr Habib Al Mulla, Founder and Managing Partner of Habib Al Mulla and Company
Dr Habib Al Mulla has a PhD from Cambridge in the United Kingdom, an LLM from Harvard and a BA in Shariah, civil and criminal law from the UAE University.
He is licensed to appear in all courts in the UAE and specialises in commercial and corporate transactions, internet technology, intellectual property rights and banking.
Al Mulla is a member of the Federal National Council and former Chairman of the Dubai Financial Services Authority.
He founded Habib Al Mulla and Company in 1984 and the firm has become one of the largest of its kind in Dubai.