Law No 9 protects Dubai property sector
Law No 9 protects Dubai property sector
In a bid to shield property developers from investors who cancel their contracts before the completion of real estate projects, the Government of Dubai has issued Law No. 9 of 2009. In the aftermath of the global recession, there is an acute shortage of liquidity in the region and beyond. Consequently many investors are trying to cancel their purchase contracts. This is bound to have a disastrous effect on the property market as developers are largely dependant on investor payments to fund their projects. Despite cancellation of 25% of Dubai’s developments, some 30,000 units are scheduled to be made available in 2009 and 45,000 in 2010, says Rera, the real estate monitory agency in Dubai. At the peak of the market, more than 145,000 new units were expected to be released during the same period.
Why Law No. 9?
Dubai’s Real Estate Law No. 9 is actually an amendment of Article 11 of Law No 13 that came into effect in August 2008. Although the erstwhile Article 11 detailed the procedure to be abided by the property developer in the event of a contract cancellation by a purchaser for the sale of an off-plan unit, there was no mention of the ruling being applicable to contracts signed before it came into effect. Law No. 13 stipulated that in the event of the cancellation of a project by the developer, the developer is entitled to 30% of the amount paid by the buyer.
Law No. 9 relates to all buyer-developer contracts for off-plan units, regardless of when they were signed. Under Law No. 9, if the purchaser fails to make an instalment payment, the developer must notify the Land Department or the Real Estate Regulatory Authority (Rera). Following the notification, the Land Department issues a written notice to the buyer informing him/ her of the breach and advising to remedy the default within 30 days, after which the developer could cancel the contract. Now, if an investor wants to cancel his contract with a developer he/ she must approach the court.
One of the most important aspects of the law is the fact that it is retroactive, which means that any other agreements spelt out in contracts and purchase documents are no longer valid. According to the new rule, only developers have the right to cancel contracts. But contrary to the widespread belief that Law No. 9 protects only the developers, legal experts state that it is actually highly beneficial to buyers. The canceled contract should have the written approval of the Land Department, in the absence of which it will have no value in court. Secondly, the Land Department must attach with the letter a technical report from the site. Also Law No. 9 introduces a reference scale for purchasers who default on their payments.
The new law benefits buyers and investors immensely because prior to its implementation there was no agency monitoring purchaser-developer transactions in Dubai. According to the ruling, all payments must be conducted under the auspices of the Dubai Land Department. Law No. 9 could be viewed as a continuation of Dubai government's efforts to cleanse its hitherto unbridled real estate market, that began with the introduction of Escrow Account Law (in 2007) which made it mandatory for property developers to have trust accounts with rera-approved banks.
Law No 9 – Refund Sliding Scale
The law clearly stipulates that:
- If the developer has completed 80% of a project, it can keep the full amount paid and request purchaser to settle the remaining amount of the contract price. If not possible, it can request the property be sold at auction.
- If the developer has completed at least 60 per cent of project, it may revoke contract and deduct up to 40 per cent of the purchase price of the unit as stipulated in contract.
- If the developer has completed less than 60 per cent of project, it can revoke contract and deduct 25 per cent of purchase price as stipulated in contract.
- If construction has not yet started, the developer may revoke contract and deduct up to 30 per cent of amount paid by purchaser.
Refund sliding scale for defaulters
