Developers start to challenge cancellation

A few developers in Dubai have challenged Real Estate Regulatory Agency’s (Rera) decision to cancel their projects, says a top legal expert.

“We are aware of some developers challenging Rera cancellations, as is their right under Decree 6 of 2010. The cancellation of any project has significant negative repercussions on developers, both financially and to their reputation and brand image. Developers are ready to take prompt and effective action to appeal any purported termination,” Shahram Safai, Partner and Head of the Real Estate Team at Afridi & Angell, told Emirates 24|7.
 
The law firm, however, says a developer has to repay the unit purchasers from his own pocket if the escrow account has insufficient funds to make a full refund.
 
“The refund is to take place within 14 days of the date of the cancellation, or where there are insufficient funds in the escrow account to make a full refund, the developer is bound to repay the unit purchasers from its own pocket. This must take place within 60 days of the date of cancellation although Rera may extend that time period.”
 
According to the government of Dubai’s recent bond prospectus posted on the London Stock Exchange, Rera, the regulatory arm of Dubai Land Department, has cancelled 217 property projects as of May 31, 2011.
 
The emirate has witnessed completion of 129 projects since 2009, with 237 out of 450 projects likely to be completed in due course.
 
Currently, there were 455 registered developers and 893 registered brokers in Dubai as of May 31, 2011.
 
Meanwhile, 114 projects have been registered under the Tayseer (government-guaranteed funding project).
 
Asked how investors were generally informed about the cancellation of projects, Safai said that the Under Decree 6 of 2010 ("Decree 6"), there is no requirement that unit purchasers are advised by Rera of the cancellation of a project.
 
“It remains to be seen what action will be taken by Rera to publicise the cancellation of projects and whether letters will be issued to each of the unit purchasers.”
 
However, when a unit purchaser's sale and purchase agreement (SPA) is registered in the Oqood system, the Land Department will have a record of the unit purchaser's contact details. It is possible that the Land Department/Rera will use those records to advise unit purchasers.
 
Content of the notice
 
Afridi & Angell expects the cancellation letters issued by Rera to the developer will state the name of the developer, the project, the reason for cancellation and any previous action taken by the agency prior to cancellation.
 
“Decree 6 provides that, following cancellation, the developer must provide a full refund to the unit purchasers. It is not expected that the cancellation letter from Rera to the developer will repeat this obligation.”
 
Asked what percentage of developers of cancelled projects have returned the full amount to unit purchasers, Safai said: “It remains to be seen what percentage of unit purchasers will receive a full refund from the developer of monies paid.
 
“We expect that this will vary from project to project. The refund is to take place within 14 days of the date of the cancellation, or where there are insufficient funds in the escrow account to make a full refund, the developer is bound to repay the unit purchasers from its own pocket. This must take place within 60 days of the date of cancellation although Rera may extend that time period.”
 
Investors can’t seek cancellation
 
As there is no mention of the fact that investors can petition Rera for cancelling a project, there is no formal procedure in the law whereby unit purchasers can ask Rera to cancel a project.
 
“In practice, however, Rera may take notice of the petition, and then exercise its own right to investigate the project. If it determines that the project complies with the criteria set out in Decree 6, the agency could then proceed to cancel the project,” Safai informed.

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What happens to an investor if the project is cancelled?

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