New Dubai law protects freehold buyers

On 13 March 2006, the Dubai property law was issued by His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. Law No.7 of 2006 stipulates that freehold is limited to UAE and GCC citizens and companies wholly owned by them, as well as public shareholding companies.This law includes 11 chapters comprising 29 articles explaining the definitions, general rules, the implementation system of property hold, and the jurisdictions of the Dubai Land Department.

To safeguard the consumers’ interest, the government of Dubai has come up with another law, Escrow account law in July 2007.

Under Law No. (8) which was published in the Official Gazette stipulates;

Installment payments for off-plan property will be paid into guarantee accounts (also known as Trust or Escrow accounts) that are authorized by Dubai Land Department with an approved bank. The capital in the account will only be released to the developer once certain construction milestones are met. 

Earlier, before Law No. 8 was decreed, the developers' use of buyers' money was unregulated. The legislation could very well culminate in a greater institutional investment in Dubai real estate

Full text of the Law

LAW No. (8)

CONCERNING GUARANTEE ACCOUNTS OF REAL ESTATE

DEVELOPMENTS IN THE EMIRATE OF DUBAI

We, Mohammad Bin Rashid Al Maktoum - Ruler of Emirate of Dubai

After perusal of:

- United Arab Emirates Federal Law No. (5) of 1985, as amended

concerning Civil Transactions,

- Law No. (7) of 2006 concerning Real Estate Registration in the Emirate

of Dubai,

- Rule No. (3) of 2006 concerning allocation of areas where foreigners can

own properties in the Emirate of Dubai,

Do hereby promulgate the following law:

Chapter (1)

Definitions & General Provisions

Article (1)

This Law may be cited as (Law no. ( ) of 2006 concerning Guarantee

Accounts of Real Estate Developments in the Emirate of Dubai.

Definitions

Article (2)

In implementation of the provisions of this Law, the following terms and phrases shall have the meanings appearing parallel thereto, unless otherwise provided by the context.

Emirate : Emirate of Dubai

Department : Department of Lands

President : President of the Department

Director : Director General of the Department

Register : Register prepared by the Department for registration of developers.

Guarantee Account : Guarantee account of a property development in which sums paid by buyers of units on the plan or by financiers of developments are deposited.

Concerned Authorities : concerned government or semi-government licensing authorities.

Developer : A natural or corporate person licensed to carry on property development business in the Emirate, including a main or minor developer.

Property Development :Projects involving construction of multi-storeyed buildings or compounds for residential or commercial purposes.

Property : Everything that is permanently fixed in its space and cannot be shifted without destruction or alteration in appearance.

Unit : A partitioned part of a property which a developer sells to third parties.

Article (3)

Provisions of this Law shall be applicable to a who sells units on the plan of the Emirate’s property developments that are not yet completed, whetherunder or in the process of construction, and who receives payments from buyers or financiers against such units before completion of the developments.

Article (4)

A special register known as (Register of Developers) shall be prepared atthe Department to register names of developers licensed to carry on property development business in the Emirate. No developer may carry on such business in the Emirate unless being registered in the Register.

Article (5)

A developer shall not advertise in local or foreign media, or participate in local or foreigner exhibitions, for promotion of sale of units or properties on the plan or in the process of construction in the Emirate, until having obtained a written permit from the Department. The Director shall issue the necessary decisions to regulate the terms and conditions of advertising in media and participation in exhibitions.

Chapter (2)

Establishing A Guarantee Account

Article (6)

Without prejudice to provisions of Article (3) of this Law, a developer wishing to sell units on the plan shall apply to the Department in order to open a guarantee account and shall enclose the following documents:

1- Trade license and certificate of registration of membership in Dubai

Chamber of Commerce & Industry.

2 - Title deed of the plot intended for development.

3 - Letter of approval in relation to the development and issued by the main

developer.

4 - Architectural designs and layouts approved by concerned authorities

and the main developer. 

5 - A balance sheet approved by the development’s consultant about sums

payable to creditors of the development.

6 - Building permit issued by concerned authorities

7 - Copy of a sale contract between the developer and the buyer.

Article (7)

A guarantee account shall be established according to a written agreement between a developer and the Department through which sums paid by buyers of units on the plan, or paid by financiers, shall be deposited in a special account opened under the name of the property development in an approved bank in the Emirate.

The agreement shall determine the conditions of account management, the rights and obligations of contractual parties and other terms and obligations.

Chapter (3)

Management of a Guarantee Account

Article (8)

The Department shall enter into a contract with an approved, experienced and qualified auditor to manage a guarantee account under its supervision. Spending from deposited sums shall be according to the conditions of contract  and the provisions of this Law, and the guarantee account shall be governed by criteria of financial and accounting control that are in force in this regard.

Article (9)

Depositors or their representatives may examine their own accounting records and request copies thereof. The representative of official authorities may also examine the records as well as obtain copies thereof.

Article (10)

In the event that a developer mortgages a development to obtain a loan from financing establishments or companies he shall have to deposit the mortgage sum in the guarantee account. Disposal of a mortgage sum shall be according to provisions of this Law.

Article (11)

A developer may apply to the auditor for spending from a guarantee account after submitting a certificate issued by the consultant of a development describing completed stage and the requirement of a subsequent stage. The auditor shall have to inform the Department in writing about sums paid to the developer.

Article (12)

Without prejudice to Article (11), an auditor shall disburse payments due to a developer within 7 working days from the date of request for payment or the date of completion of required documents.

Article (13)

The Department shall keep 10% of the value of a development in the guarantee account for a period of one year after a developer has obtained a certificate of completion. The held sums shall not be spent until the units are registered in names of buyers and title deeds are issued under their names.

Chapter (4)

Penalties

Article (14)

Without prejudice to any penalties provided for in any other law, a penalty

of incarceration and payment of a fine not less than 200,000 Dirhams, or

either one of them, shall be imposed on anyone who:

1 - Carries on property development business in the Emirate without a

license.

2 - Submits false documents or misstatements to concerned authorities in

order to obtain a license for carrying on property development business.

3 - Offers to knowingly sell units in bogus property developments.

4 - Embezzles, uses or squanders payments delivered to him for the

purposes of construction of property developments, and misappropriates such payments.

5 - Any auditor who deliberately prepares a false report about the result of

an audit he conducts on a developer’s financial position, or conceals

significant facts from his report.

6 - Any consultant who knowingly approves false documents about a

property development.

Article (15)

If proved that a developer is unable to execute a development, the

Department shall take necessary legal actions to protect rights of third

parties.

Article (16)

1 - A developer shall be cancelled from the Register in any of the following

events:

1 - If he declares his bankruptcy.

2 - If he cancels his license.

3 - If carries on prohibited business in the Emirate.

4 - If he repetitively violates provisions of Article (5) of this Law.

Chapter (5)

Final Provisions

Article (17)

Existing developers at the time when provisions of this Law are

applicable shall adjust their status in accordance with the provisions

herein.

Article (18)

The Department may collect management fees against services offered

in accordance with this Law.

Article (20)

This Law shall be published in the Official Gazette and shall be effective

from the date of publication.

Mohammad Bin Rashid Al Maktoum

Ruler of Emirate of Dubai

Promulgated in Dubai on Tuesday 10th of October 2006, corresponding

to 18th of Ramadan 1427 AH.

The above stated amendments on the draft law was made on 12/12/2000