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November 28 2008
On August 31 2008 the Law Regulating the Interim Real Estate Register in the Emirate of Dubai (13/2008) came into effect. The law aims to boost investor confidence and protection within the Dubai real estate market by making pre-registration with the Land Department mandatory for all off-plan sales contracts for real estate units.
Pursuant to the new law, any off-plan sales which are not registered will be invalid. If the Land Department discovers that a developer is not complying with the provisions of the new law (or any other applicable law), it will prepare a case report and refer the case to the relevant authorities for investigation.
The new law is part of the Dubai government’s initiative to introduce consolidation and transparency policies into the real estate sector by:
Investor protection began with the enactment of the Law on Escrow Accounts (8/2007), which requires that all developers that wish to sell property off-plan first obtain permission from the Land Department and then open and maintain a project-dedicated escrow account with an approved account trustee.
The aim of the new law is to supplement this financial protection with new mechanisms to enhance and support contractual protection before the project is completed and a final title certificate or deed is obtained. The new pre-registration system will work alongside the existing project registration system established by the Real Estate Regulatory Agency as a consequence of the introduction of the Law on Escrow Accounts.
Article 3 of the law establishes a new Interim Real Estate Register, in which all contracts for the sale of real estate and other dispositions off-plan are to be recorded before being transferred to the Real Estate Register. Any off-plan sale or other disposition that transfers or restricts title or any ancillary rights will be void if not recorded in the Interim Real Estate Register. Further, developers have been given a period of 60 days from the date following the enactment of the law (by October 30 2008 at the latest) to register in the Interim Real Estate Register any sales contracts that were made prior to the law coming into force.
Article 6 provides that real estate units that are marked as sold off-plan and are registered in the Interim Real Estate Register may be sold, mortgaged or otherwise legally disposed of.
Article 4 provides that no developer may commence a project or sell its units off-plan before taking possession of the land on which the project is to be built and obtaining the necessary approvals from the competent Dubai authorities. This is a major cause of concern for developers, given the existing practice of launching projects and marketing off-plan sales prior to plot handover. However, the Land Department has advised that a concluded sale and purchase agreement evidencing ownership of the land and registration of that agreement at the Land Department under the existing system will be sufficient.
Article 10 further provides that the developers or broker cannot conclude informal contracts for the sale of real estate properties off-plan in projects that have not been approved by the competent authorities. Any contracts made without such approval will be void. These provisions are clearly intended to ensure that a developer does not go to market with a project or enter into any sales commitments until it is at an advanced stage of readiness to start development of the project.
The Interim Real Estate Register maintained by the Land Department effectively replaces internal registers that to date have been maintained by developers for recording off-plan property sales. By assigning this task to the Land Department, which is the authority in charge of the real estate public registry system, the Dubai government seeks to boost investor confidence and ensure that contractual rights to units purchased off-plan are adequately recorded and protected.
Article 7 states that developers can no longer charge transfer fees on the assignment, resale or other disposition of units marked as sold off-plan. However, they can charge administrative charges which are designed to cover their costs upon approval by the Land Department.
Once a project is complete and a completion certificate has been issued, Article 8 requires the developer to register the project in the main Real Estate Register maintained by the Land Department. This process will include the transfer of title of all units sold off-plan to their respective purchasers. If the developer fails to do this, upon providing evidence that it has complied with its contractual obligations, a purchaser may request that the Land Department transfer the title to the unit marked as sold off-plan from the interim register to the Real Estate Register and place it in the purchaser's name.
If a purchaser defaults on any of the terms of an off-plan sale contract with a developer, under Article 11 the onus will be on the developer to advise the Land Department of this breach. The department will then issue a notice to the purchaser granting it 30 days to comply with its contractual obligations. If the breach is not rectified within this 30-day period, the developer may terminate the contract and return all amounts paid by the purchaser, minus a deduction that does not exceed 30% of the moneys paid by the purchaser, which the developer is entitled to retain. Notably, a percentage of the moneys paid by the purchaser is retained rather than a percentage of the purchase price.
Pursuant to Article 12, developers are no longer entitled to claim additional money from a purchaser where a unit turns out to be larger on completion. However, where the unit turns out to be smaller, the developer must compensate the purchaser for the difference, unless the difference is minor. According to market standards, tolerance is somewhere around 3%. However, it remains to be seen whether it will be possible for developers to define such terms in off-plan sales contracts to protect themselves in case of any unforeseen variations in the completed development.
The new law confirms the Dubai government’s intention to create efficient transparency policies in Dubai's booming real estate sector and boost investor confidence in the property market by adopting international best practices. Institutions are the ‘rules of the game’ in a society and regulation is one of the many instruments of public intervention used in the real estate and other urban markets.
For further information on this topic please contact Tony Maalouli at ProConsult Advocates & Legal Consultants by telephone (+971 50 625 8284) or by fax (+971 4 329 8733) or by email (email@example.com).
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