Facing property handover delays? What are your legal options?
Frustration in handover of projects marketed off-plan and investor options in instances of substantial delay are by no means extraordinary grievances laid against developers in Dubai. Arguably, delay in handover in such cases is a foregone conclusion with imagined completion dates approaching and subsequently expiring without acknowledgment, notice or delivery, much to the dismay of investors.
Investor options in circumstances of substantial delay, where a project has not been cancelled and no element of force majeure appears answerable for painstaking periods of inactivity, are fairly clear cut contractually, with investors well-protected under UAE law. However, careful consideration of contract terms and advance due diligence prior to purchase may negate future litigation where alternate avenues are available prior to, and over the course of, project development.
As a general rule, off-plan sale and purchase agreements (SPAs) are required to make specific mention of the expected completion date of the project as well as address the positions of the parties in the instance of default, particularly, for our purposes, where the developer fails to meet its deadline in respect of handover obligations. In practice, a period of delay is accepted, often providing the default position in the absence of developer notice of completion by the intended date.
The Dubai Land Department (DLD) website helpfully provides a project tracking service which offers assistance to investors in their monitoring of project progress over the related period. The timeline is expressed per percentage and allows a means of measurement without the need for constant update by the developer.
Where progress of the project becomes stagnant and handover dates are extended beyond that contemplated per the contract, investors who have fulfilled their contractual obligations instinctively seek redress for delay and demand fulfillment of the contract terms, alternatively liquidated damages. However, it is important to note that even where force majeure lacks, the developer may not be directly to blame.
There is a vast array of reasons that a project may be frustrated inclusive of other party involvement, contract variation and delay in receipt of required approval. If an SPA considers such circumstances, the parties may navigate the process easier and hold responsible parties liable. Evaluation as to reasonable duration is critical in order to ensure that all available options are exhausted before resorting to litigation.
In addition, investors should opt for alternate dispute resolution options within the contract terms. Proceeding directly with cancellation and/or claim for liquidated damages may not be in the interest of the parties while a provision for alternate dispute resolution may allow for negotiation and mediation that may incentivise the degree of delay suffered in order that the developer is afforded reasonable opportunity to complete the project while satisfying the investor.
In streamlining the SPA as above and performing the necessary due diligence, investors should note the protection afforded legally over the course of contracting and concluding purchase in off-plan projects.
Firstly, in assessing whether to purchase a premises off-plan, it is important to identify whether the project has been appropriately registered with the relevant authority. In terms of Law No. 7 of 2006, all real estate projects in the emirate of Dubai are required to be registered with the Real Estate Regulatory Agency (Rera). Prospective investors may, therefore, refer to the DLD website in order to confirm appropriate registration has taken place and that the developer with whom they seek to contract is properly licensed.
Secondly, investors purchasing off-plan should be mindful of escrow requirements. In terms of Law No. 8 of 2007 concerning Escrow Accounts of Real Estate Developments in Dubai, any developer who intends to sell off-plan is required to open a separate escrow account for the project with an accredited agent of the DLD. All amounts paid by investors toward the project are to be deposited in the escrow account and subsequent transactions are recorded and accounts audited periodically.
Finally, it is crucial to scrutinise the terms of the SPA. Over and above the ordinary contract considerations worthy of review, consideration of time constraints and completion dates provided is necessary to ensure that the timeline provided is fair and reasonable in the circumstances. Developers are often eager to set ambitious completion dates to cater to the market interest which may seem prima facie achievable but are ultimately unenforceable. Therefore, an understanding of those variables surrounding the completion dates may assist in ensuring fair workable contract terms are recorded.
Streamlined contracts and extensive due diligence at the outset may provide investors welcome clarity and encourage patience where projects are slow and time seems to no longer be of the essence.