Dubai Development Legal Requirements - Al Zahmy
It can be said that the most important real estate requirements lie in the conditions developed for the real estate developer business in Dubai, as it is the main cornerstone of all real estate development. The real estate developer is defined under law as: “Any natural or juristic person licensed to purchase and sell properties with a view to developing the same with such definition including the main developer or sub-developer.” In addition, real estate development is defined as “Development of multi-storey buildings or complexes for residential and commercial purposes.” The Government of Dubai developed clear and simple conditions for licenses. It supported these conditions with strict requirements to determine the duties and liabilities of the parties involved in the real estate development together with safeguarding the same by imposing strict penalties against those who breach such provisions. These actions ensure transparency and bolster confidence in the real estate sector and reflect its significance and magnitude for those who strategically plan to invest in a city. The development of the real estate sector remain promising despite the magnitude of challenges, as evidenced by detailing subheadings and relating the same to laws as set out in this concise essay.
First - License Obvious and Affordable Conditions
In order to proceed with a real estate development project, the real estate developer shall comply with the provisions of the law governing the off-plan sale of the real estate properties. This is the most substantial element of real estate development as it represents an investment and commercial business by offering real estate units to investors against installments with a view to achieving profits together with a parallel endeavor to convince banks of the profitability of financing real estate development projects.
The local lawmaker in Dubai determined the legal umbrella governing such business in the Land Department of the Government of Dubai, which is responsible for maintaining a special register for real estate developers and determining the banks in which the developers and financers can deposit the installments of the real estate units under the account of the real estate project. Accordingly, since inception, the real estate developer has to open the escrow account, in which the amounts paid by the purchasers or financers of the real estate units sold off-plan are deposited.
Article (3) of Real Estate Development Escrow Account Act (8) of 2007 stipulates that the provisions of this law apply to those who sell units off-plan and receive payments from purchasers. Further, Article (4) emphasizes that no developer may engage in such business, advertise in local or foreign media or participate in exhibition for promoting real estate units or properties sold off-plan unless it is registered in and licensed by the Land Department in Dubai represented by its director general.
Article (7) of the Act stipulates in relation to the real estate escrow account that any developer who wishes to sell units off-plan must submit a request to open an Escrow Account and attach the following documents therewith:
- A certificate of membership in the Dubai Chamber of Commerce and Industry;
- Trade license;
- Title deed of the plot to be developed;
- A copy of the contract concluded between the master developer and the sub-developer;|
- The initial architectural designs and engineering drawings approved by the Competent Entities and the master developer;
- A financial statement of the estimated cost and revenues of the project approved by a certified chartered auditor;
- An undertaking by the sub-developer to start the construction works of the project upon having obtained the approval of the master developer for off-plan sale, or an undertaking by the master developer if there is no sub-developer; and
- A standard sale contract between the Developer and the purchaser.
All such established conditions are required for opening the escrow account that shall be contemporaneously accompanied by an agreement made in writing between the real estate developer and the escrow (the bank in which the payments made by purchasers of units sold off-plan or by the financers of the project are deposited). Such agreement shall determine the account management conditions, rights, and obligations of the contracting parties with a copy thereof being deposited with the Land Department.
It is important to shed light on the above conditions because they protect developers due to the governmental control on such account and ensure that the amounts collected from investors for purchasing units sold off-plan are only applied towards the real estate project. These conditions also ensure the real estate developer is honest in relation to such development and the cash it received for such purpose.
Second - Strict conditions for the performance of the mutual obligations of the real estate developer and investors who purchase real estate units off-plan in consideration of installments pro-rata with the completion rate and the hand-over of the real estate unit
We will tackle some of the real estate developer’s obligations by answering the following ever-pressing question:
When is the real estate developer deemed late in the performance of its obligation to complete the project?
Real estate developer delay in the performance of its obligations to complete the project is a very material issue as an expected risk associated with building and construction agreements with their diversified requirements. Such requirements include the approvals to be obtained from governmental bodies and the duties of the developer, the main contractor, and subcontractors. Therefore, a specific body shall be nominated to bear solely such liabilities and risks in consideration of the investment advantages, margins of profits, and speculations. Accordingly, the lawmaker has not left this issue to the will of developers or investors or to be determined at the discretion of courts with their conflicting assessments based on the human discretion for assessing the extent to which the real estate developer complied with the general obligations under contract or tort principles.
In recognition of such importance, the Government of Dubai has specifically determined the standards relating to the issues that the real estate developer may encounter whilst executing the real estate project. It suffices to demonstrate such cases in order for interested parties to realize their clarity and sufficiency and so that those interested in the real estate domain can be familiar with their legally protected rights. The specialists may refer to the resources referred to herein.
Whereas the review of the real estate law indicates the cases where the real estate developer is deemed in default in the completion of the project, Article (21) of the Executive Council Resolution No (6) of 2010 approving the Executive Regulations of Law No (13) of 2008 Regulating the Interim Real Estate Register in Dubai expressly states the reasons deemed beyond the reasonable control of the real estate developer, as follows:
- If the plot where the project is to be constructed is expropriated.
- If a government body has frozen the project for re-planning reasons.
- If a building remains or manuscripts are discovered within the site of the project.
- If the Master Developer makes alterations to the project site entailing the alteration of the project boundaries and area in a manner affecting the performance of the sub-developer’s obligations.
- Any other grounds to be estimated by the Agency.
Third - Strict Penalties for Violations
Each reviewer of the legal texts realizes that the powers vested in dealers and investors are subject to providing a secure, safe and stable investment atmosphere where the investor has broadest credit powers by entering into off-plan sale agreements with investors together with concluding banking finance agreements with banks and financial institutions to finance the real estate project. Accordingly, the lawmaker has ensured the proper guarantees for both investors and banks. In this regard, Article (16) of the Real Estate Development Escrow Account Act (8) of 2007 stipulates that:
Without prejudice to any penalties stipulated by any other legislation, an imprisonment sentence and a fine of at least one hundred thousand Dirhams (AED 100,000), or either penalty, shall be imposed on those who:
- Engage in Real Estate Development activity in the Emirate without a license;
- Provide the Competent Entities with incorrect documentation or information in order to obtain a license to practice the Real Estate Development activity;
- Knowingly offer for sale Units in fraudulent Real Estate Development projects;
- Steal, appropriate, or forfeit any amounts of money delivered to them for the purpose of implementing Real Estate Development projects;
- As for auditors, deliberately preparing a fraudulent report upon auditing the financial standing of the Developer or deliberately failing to disclose material facts in their report;
- In the case of consultants, knowingly certifying fraudulent reports on a Real Estate Development project; or
In the case of Developers, dealing with a real estate broker who is not registered on the Real Estate Brokers Register maintained by the Department in accordance with Bylaw No. (85) of 2006 concerning the Real Estate Brokers Register in the Emirate of Dubai.
Furthermore, Article (17) stipulates that the real estate developer shall be deregistered and punished with penalties set forth in Article (16) in the cases where:-
- It is declared bankrupt;
- It fails, without an acceptable reason, to commence construction works after the lapse of six (6) months from the date on which he was granted permission to sell Units off-plan (as may be estimated by the Land Department in Dubai);
- The license granted to the Developer by the licensing entity is revoked;
- It commits any of the violations stipulated in items 2, 3, 4 and 5 of Article (16) of this Act; or
- It violates any of the laws and bylaws regulating the activity of Real Estate Development in the Emirate.
We hope we have managed to make the real estate legal concepts a bit clearer for developers and investors together with adding information to the legal culture for all interested parties.
Mr. Osama Bashir
Legal Counsel - Al Zahmy Advocates & Legal Consultants
Call +971 50 327 5790