14 November, 2011

Dubai real estate contracts

Dubai real estate contracts

Grave legal mistakes have been caused by a badly drafted contract, also known as the sales & purchase agreement (SPA). To avoid repeating mistakes made by investors in the past, try not to put pen to paper on so-called ‘reservation forms’, as you may never see the SPA with all the details, despite it being a legal requirement.

Dubai real estate contracts traditionally favoured the developer or seller’s position, however in today’s market the buyer has more room to negotiate a contract. If the developer proposes a format make sure you read the fine print and insist on changes if necessary to end up with a balanced agreement.

There are no templates or standard contracts in the UAE and you should feel free to negotiate your own terms and to propose your own drafts.   RERA did develop some SPA suggestions - an example contract is on their website – but these are just that, suggestions, and not mandatory clauses.

Buying off-plan
Off-plan purchases are the most risky. Above all, you should check for clauses which waive a developer’s responsibilities in case of force majeure – they should not, for example, include bad economic times.

If a clause liberates the developer from failure to provide utility connections because the master-developer is in charge of this, add a clause saying the developer must have alternative plans in place to provide these and any other facilities listed in the contract.

Demand a fixed handover date and detailed compensation notes with timelines and figures regarding late delivery of a property or failure to complete.

Contracts should detail the design and materials used for the unit and the size including how it was measured and there should be no clause which allows the developer to change these at will. Services to be provided and their fees should also be clearly detailed. 

If your unit is in a mixed-used development, i.e. residential, hotel and retail - who owns, who is responsible and who pays for what should be clearly detailed. Dubai’s Real Estate Regulatory Authority (RERA) now stipulates that this document must be attached to an SPA.

The contract should include the dispute resolution platform. Try to negotiate for arbitration (DIAC) it offers a wider scope than the Dubai Courts. If the development is in the DIFC mention the DIFC Courts as venue.

It could be a good idea to include a clause stating that the investor has a right to receive a monthly statement of his monies deposited in the Escrow account.

Payment plans must be linked to a construction schedule.  You should work towards an agreement where failure by the developer to adhere to the schedule by any wide margin would allow you to cancel the contract or be entitled to compensation.

Include a clause that if a construction delay occurs no further money is to be paid towards the unit until the developer has caught up with construction.

If your property is being bought with a mortgage you should demand that the developer pay all related construction fees applicable after the original handover date has passed, in case of late delivery to your mortgage provider.

Your contract should include the right to cancel the mortgage negotiating a time frame in which continuing to make payments becomes unreasonable. In other words, the developer would have to take over the mortgage and refund the investor what he has already spent on the mortgage. 

The contract should make sure no other fees appear out of nowhere on handover other than those specified in the contract upon signing.

The above is based on the most common disputes investors have had with developers over recent years. A developer’s reaction to your requests could indicate whether buying a particular property is inviting trouble.

Buying completed property
As far as completed property is concerned it is important to understand the role of the person conducting negotiations as this is unlikely to be the owner of the property but either a real estate broker or an owner’s authorised representative

Recent scams have resulted in money never reaching the actual owner of a property so it’s important to establish that the person who is conducting negotiation has actual authority to represent the landlord.

It’s also important to establish the real purchase price.  Middlemen often cite the price much above the actual purchase price, hoping to pocket the margin, in addition to the commissions. 

As today is a buyer’s market, you should ensure that the price you are being offered is the actual market price.  This requires some due diligence and possibly going to different real estate agents.

Payment terms are critical – no money should change no hands until all due diligence has been done and the proper documents have been signed.  Read the contracts closely and ensure that you understand and are comfortable with every clause.

If you don’t understand something, do not sign off on that clause until you have received clarification. 


 
 

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