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48 | DUBAI LAW WORDS | Claire McCarthy


DISTRESSED


www.opp.org.uk |MARCH 2011


t is quite simple. For those who wanted to sell their property whilst it was still under construction, the market in Dubai rapidly became as good as dead after the crash of 2008. Construction delays here are ubiquitous, not least because a lot of developers in the city have always been reliant on investors keeping up with their payments in order to fund the building costs. And many investors have simply not been able to keep up with their payments … either because they have lost their jobs or they have not been able to secure fi nancing. In addition, developers themselves have had diffi culties getting fi nancing. Contractors have gone bust or have not performed, and the process to appoint new ones has been lengthy and drawn out. Some master developers, who are responsible for the infrastructure (including the roads surrounding a project), have failed to deliver, which has only exacerbated the diffi culties faced by developers. Clients who put their money into projects like this have got nowhere, fast. Islamic fi nance is another issue. There may be a contractual entitlement to a refund, but that right is in favour of the bank, and the bank may be refusing to get involved.


So ... is it all doom and gloom? Should the investor just write off his investment and hope not to be sued for


Dubai’s timely lesson I


the balance of the purchase price? No. Not at all! As the months have passed since the crash, we have found that investors who were initially inclined to “wait and see”, are now coming out of the woodwork, wanting to instigate litigation proceedings, with a view to obtaining a cancellation of their contract, a refund of monies they have paid to date, a refund of their court/ arbitration costs and compensation. But before proceeding with litigation, it is always advisable to try to resolve things amicably with the developer fi rst. For example, the developer may be prepared to offer a refund without the need to go to court/arbitration, although admittedly this is very rare. Alternatively, the developer may be willing to offer a swap to a property that is nearer to completion. The benefi t of this is that once the swapped property is complete, the investor can use it, rent it out, or sell it. There is still a market in Dubai for completed properties, although property prices have dipped signifi cantly in recent months. Alternatively, the developer may be willing to offer a discount on the purchase price, as a concession for missing the agreed completion date for construction. Unfortunately, the sad truth here is that the majority of developers are resistant to offering anything at all to their investors. For those who have a good case, litigation


may be the only attractive option. A number of investors seek legal advice to gain clarity on the strength of their position. For those who have kept up to date with their payments to the developer, and where the developer has barely commenced construction, and the contractual completion date has passed, the investor would appear on the face of it, to have a good case for getting a refund.


If his sale and purchase agreement states that disputes can be referred to the Dubai International Arbitration Centre (“DIAC”), then this is a further advantage as proceedings will be in English and should be less costly than court proceedings.


There are many factors to consider, including what was agreed in the sale and purchase agreement, correspondence from the developer prior to the conclusion of the sale and purchase agreement (which evidences for example the promise of fi nancing or a sea view, that is now not being offered), notifi cations from the developer of the occurrence of an alleged force majeure event, provisions of Dubai law and federal law. So … is now a good time to buy a completed property in Dubai? For those who are taking a long term


view, and who wish to live in their property or have it as a holiday home, I would say yes, now could be a very opportune time to buy a completed property in Dubai. Prices have fallen considerably, and it is very much a buyers’ market.


Dark skies | have been blanketing the Dubai property sector for several years now


Aside from the purchase price, the two main fees payable are the Land Department transfer fee and the broker’s fees. The Land Department’s transfer fee is 2% of the purchase price. Sellers would prefer that the buyer pays the full 2%, but there is no reason why that should be the case. A fair compromise would be that it is shared 50/50. Likewise in relation to the broker’s fee. If there is a real dearth of buyers and the broker is keen for


When too many people went off plan in Dubai, never thinking that the good times would end, it was only a matter of time before a market correction would bring everyone back to earth with a thud. It was a classic gold rush. Dubai-based legal consultant Claire McCarthy picks her way through the lessons learned.


Claire McCarthy (claire.mccarthy@ jamesberrylaw.ae) is a solicitor of the Supreme Court of England and Wales and has practised as a legal consultant in Dubai for more than two years.


the sale to go through, he may even be prepared to negotiate on his fee. It is important that any memorandum of understanding, which is essentially the contract between the buyer and seller, is drafted by a suitably qualifi ed and legally-trained property solicitor … so that nothing is left to chance. For example, where the seller has a mortgage, he will often expect the buyer to redeem it as part payment of the purchase price, a few days prior to completion. It is important that this is handled correctly so that the buyer does not take reckless risks. The best place for a deposit to be held pending completion would be in a law fi rm’s client account, rather than in a seller’s hands or in a broker’s bank account. And fi nally, think about the client’s inheritance position. In the UAE, succession of real estate is a grey area. Jurisdiction in such matters falls to the Sharia Court where things are dealt with on a case-by-case basis. This wide discretion, coupled with uncertainty of the law itself can leave expatriates with an unfavourable succession solution if no advice is obtained. Anyone thinking about purchasing property in Dubai should ensure, at the very minimum, that a valid will is in place which defi nes the individual’s nationality, religion, family circumstances, and the location of the assets owned.


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