Afridi & Angell inBrief
His Highness, Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice Presient, Prime Minister and Ruler of Dubai, recently issued Decree No. 21 of 2013 concerning the formation of a special judicial committee (the “Committee”) for the liquidation of cancelled real estate projects in the Emirate of Dubai and the settlement of relevant dues.
The Decree comes at a time of government activity to better protect the rights of investors and is one of a number or proposed changes to Dubai real estate law.
The main aim of the special Committee is to consolidate the process for investors to seek compensation against developers for cancelled real estate projects. It aims to further facilitate quicker proceedings, particularly since legal proceedings have not only been lengthy but also expensive.
Formation and Powers of the Committee
The Committee shall consist of one or more panels, provided that the members of each panel consist of at least three judges from the Dubai Courts, including the Chairman. The Committee has the power to:
In exercising its powers, the Committee may seek the assistance of experts and consultants, in particular those from the Dubai Land Department. The Committee may appoint auditors (at the cost of the developer) to audit the financial position of the cancelled real estate project. Decisions of the Committee are final and binding and may not be appealed.
Court Cases Referred to Committee
One of the most ground breaking provisions of the Decree is that all courts in the Emirate of Dubai (including in the Dubai International Financial Centre) shall no longer consider any case or claim relating to cancelled real estate projects – all such claims must now be considered by the Committee. In addition, the courts are required to refer any current cases before them to the Committee. Cases or demands brought before the Committee shall eb exempt from court fees.
A Step in the Right Direction?
The Committee was established in an attempt to unravel the many cancelled real estate projects that exist in Dubai after the real estate crash of 2008. Moreover, the Committee would appear to give those unfortunate investors who have long since written off their investments a fast tracked and cost effective forum to recover, at least, some of their losses.
However, the Decree and establishment of the Committee raises some questions and practical issues.
Any prospect of recovery for investors relies upon there being sufficient assets to liquidate. One of the most valuable assets of any developer of a cancelled real estate project is the land on which the real estate project is constructed. However, in many cases the developer does not own the land until completion of the project. In such instances, the prospect of liquidating just the under-construction building to repay hundreds of off-plan investors who have invested hundreds of thousands of dirhams seems unrealistic.
Also, investors expect the Committee to repay them from funds in the escrow account, the bank account set up to specifically protect the investors in the event of failed construction. The reality is somewhat leak with escrow accounts. Many escrow accounts are fully depleted due to land payments, marketing costs and early development and construction works. In circumstances where the two main assets of any cancelled project (i.e., the land and funds in the escrow account) available for liquidation by the Committee are insufficient to repay an investor, the chance of an investor recovering his or her investment is unlikely.
The Decree specifically relates to “cancelled” projects rather than “on hold” projects. Investors seeking recovery of their money from developers in projects deemed “on hold” by RERA will still have to pursue developers through court action or arbitration, thereby protracting the process and increasing costs.
The Committee will need to deal with over two hundred cancelled real estate projects in Dubai as well as thousands of cases relating to cancelled real estate projects currently going through the Dubai courts. How quickly and effectively the Committee deals with such cases will go a long way in re-establishing confidence in a market which is still partially suffering from the wounds of the 2008 crash.
The Decree is a clear signal to international property investors that RERA is taking practical steps to deal with rogue developers of days gone by; introduce transparency and protection for investors; and in turn, propel Dubai from a market of short term speculators to a more established and stable real estate market.
Afridi & Angell – Our Real Estate Services
Afridi & Angell’s real estate lawyers provide strategic advice and legal services with respect to the sale, purchase, and development of real estate (including jointly owned property (i.e., strata) matters)), as well as any related litigation and arbitration. We offer innovative solutions to both developers and investors in relation to cancelled projects. Under the newly issued Decree No. 21 of 2013, we can liaise with and facilitate representation before the new Committee, the Dubai Land Department and RERA.
For more information, feel free to contact any one of our lawyers. We welcome the opportunity to be of service.
Shahram Safai, partner – email@example.com
The content, comments and opinions included in this document are intended solely for information purposes. They should not be regarded or relied upon as legal advice.