Tag: Real Estate

What’s happened?

 

After much media coverage regarding the potential change in the law concerning properties owned in common in Dubai, Law 6 of 2019 was introduced on 4 September 2019 (the New Law).

 

The New Law is an important development for Dubai as most real estate is held by way of property owned in common. That is, a real estate development that has been subdivided into apartments, offices, retail units and/or common areas.

 

We expect that the New Law will have a positive impact on the real estate market in Dubai as increasingly disputes under the Previous Law (including those between unit owners and association managers) were effecting property values.

 

The New Law repeals Law 27 of 2007 Concerning Ownership of Jointly Owned Property in the Emirate of Dubai (the Previous Law). However, developers, management companies and owners committees have been given a six month transition period from 4 September to comply with the New Law.

 

In this InBrief we look at the major changes that will impact owners of units in Dubai.

 

New management system

 

Under the Previous Law all owners of units automatically became members of the owners association of their building when they purchased their unit. The owners association, through its board, was then entrusted with the management, operation, maintenance and repair of the common areas of the building, and they could delegate these responsibilities to an association manager to perform.

 

The New Law replaces this management system with a three tiered system set out in Article 18 as follows:

 

First Category – Major Projects:

 

For real estate projects that are considered to be major projects by the Director General of the Dubai Land Department (DLD), the New Law provides that the developer shall now be responsible for the management, operation, maintenance and repair of their common parts and the utility services (Article 18(a)(1)). The developer may appoint a management company to carry out these responsibilities on its behalf (Article 18(c)). The management company must be approved by the Real Estate Regulatory Agency (RERA) (Article 2).

 

An owners’ committee must be formed for each Major Project with its members selected by RERA which shall not exceed nine members (Article 18(a)(1)). The functions of the owners committee are set out in Article 24 and include:

 

• verifying that the management company manages the common parts;
• reviewing the annual budgets for the maintenance of the common property and making recommendations; and
• receiving complaints from owners and submitting them to RERA if the management company fails to address them within 14 days of being notified.

If the developer is found to be incompetent or unable to manage the common property under this first category in a manner that ensures their sustainability and serviceability, the Executive Director of RERA may appoint a specialised management company to manage and operate the common property (Article 37).

 

Second Category: Hotel Projects:

 

For real estate projects that are licensed for use as a hotel establishment, the New Law provides that the developer shall appoint a hotel project management company approved by RERA to manage the common parts (Article 18(a)(2)).

 

If the hotel project management company wishes, an owners’ committee may be formed for each Hotel Project with its members selected by RERA which shall not exceed nine members. However, Article 18(a)(2) provides that even if an owners’ committee is formed, it is not entitled to interfere in the management of the hotel project or the common areas thereof.

 

If the hotel project management company is found to be incompetent or unable to manage the common property under this second category in a manner that ensures their sustainability and serviceability, the Executive Director of RERA may appoint a specialised management company to manage and operate the common property (Article 37).

 

Third Category: Real estate projects other than the major projects and hotel projects:

 

The common parts in these projects shall be managed by specialised management companies, which shall be selected and engaged by RERA in accordance with the controls and regulations set by a decision to be issued by the Director General in this regard (Article 18(a)(3).

 

An owners’ committee must be formed for each real estate project with its members selected by RERA which shall not exceed nine members (Article 18(a)(3)). The functions of the owners committee are set out in Article 24 and include:

 

• verifying that the management company manages the common parts;
• reviewing the annual budgets for the maintenance of the common property and making recommendations;
• receiving complaints from owners and submitting them to RERA if the management company fails to address them within 14 days of being notified; and
• importantly, this owners committee has the power to request RERA to replace the management company and provide RERA with advice on the selection and appointment of the new management company (Article 24(5)).

 

If RERA finds that the management company is incompetent, inefficient or unable to manage the common property under this third category RERA shall appoint an alternative management company to manage the common property (Article 38).

 

Obligations of Master Developer

 

The Master Developer is required to manage and maintain the common facilities in the Master Project through a written agreement with a management company that has been approved by RERA (Article 19).

 

If the master developer is found to be incompetent or unable to manage the common property in a manner that ensures their sustainability and serviceability, the Executive Director of RERA may appoint a specialised management company to manage and operate the common property (Article 37).

 

Responsibility of Developer to rectify defects for ten years (Article 40)

 

Similar to the Previous Law, the Developer is still under an obligation to:

 

• repair or correct any defects in the structural parts of the common property for a period of ten years from the date of the certificate of completion for the project; and
• repair or replace defective fixtures in the common property for a period of one year from the date of handing over the unit to the owner. Fixtures are defined as including mechanical and electrical works, sanitary fittings, sewerage and others.

Removal of JOPD – New bylaws / building management system

 

Under the Previous Law, a Jointly Owned Property Declaration was required to be registered with RERA which governed the use of the common areas and units, and set out the duties and obligations of the owners, occupiers, and the developer.

 

The New Law has now removed the concept of a Jointly Owned Property Declaration and replaced it with the following: the “bylaws of the complex”, the “bylaws” and the “building management system”.

 

Bylaws of the complex

 

The bylaws of the complex are defined in Article 2 as “the terms and conditions governing the development and operation of the master project and the common properties and common facilities therein, including the planning and construction standards of the complex.”

 

Bylaws

 

The bylaws are defined in Article 2 as “the rules and provisions governing the owners’ committee, which shall be established and adopted in accordance with the provisions of this Law.”

 

The building management system

 

Prior to selling any units, the developer must establish a building management system for major projects and hotel projects which must be approved by RERA (Article 20).

 

The building management system is defined as “The document prepared in accordance with the regulations issued by the Department and recorded in the Common Property Register, which state the procedures for maintenance of the common parts, and the percentage of owners’ contribution in the costs related thereto, including the equipment and services existing in any part of another building”.

 

Legal effect of bylaws, bylaws of the complex and building management statement

 

These documents all form part of the title deed and must be complied with by every occupant, owner, owners committee and the developer of the project (Article 6).

 

Filing requirements

 

The developer must prepare and file the bylaws and the bylaws of the complex within 60 days from the date of the certificate of completion for the project.

 

However, the building management system shall not be filed by the developer – instead it will be filed by RERA.

 

Service charges 

 

Similar to the Previous Law, owners are required to pay to the management body his share of the service charge to cover the expenses of the management and maintenance of the common parts (Article 25(a)).

 

However, the management body may not collect any service charges unless they have obtained the prior approval of RERA to the budget allocated for the service charge (Article 27). RERA will appoint a legal auditing officer accredited by it for this purpose (Article 27).

 

Utilisation charges

 

For prefabricated, under construction buildings or vacant land plots, the Master Developer may collect a utilisation charge from the owner or sub-developer of such land, subject to the approval of RERA.

 

New common property register

 

A new “common property register” shall be established by the DLD which shall contain the following (Article 4):

 

1. “Land plots owned by the developers, on which the common properties shall be constructed;
2. units allocated for independent ownership in the common property sold by the developers, and the names of the owners of these units;
3. members of the owners’ committee;
4. building management system;
5. plans;
6. management body;
7. management contracts of the common property or the common parts;
8. area of common parts and private common parts and their percentage out of the area of units in the common property; and
9. areas owned by the developer in the common property.”

 

New dispute resolution mechanism

 

The Rental Dispute Settlement Centre in the Emirate of Dubai shall have exclusive jurisdiction to hear and settle all disputes and differences relating to the rights and obligations stipulated in the New Law, in accordance with the rules and procedures of the Rental Dispute Settlement Centre. ■

In the most significant change in real estate law in over a decade, Abu Dhabi has expanded eligibility for real estate ownership to several new categories of persons. This was introduced by Abu Dhabi Law 13 of 2019, which amended the prior statute, Abu Dhabi Law 19 of 2005. The amendment was enacted on 16 April 2019 and took effect on the same day. This is expected to boost real estate demand.

 

The following categories of persons are now eligible to own real estate in the Emirate of Abu Dhabi:

 

• Public shareholding companies in which non-nationals own no more than 49 per cent. Under the 2005 statute, companies with any foreign shareholding were eligible only for long-term leases, Musataha rights, or rights of usufruct in respect of real estate in the special investment areas.

 

• Non-nationals, whether natural or legal persons, may now acquire full ownership rights (often referred to as “freehold”) to real estate within the investment areas, and they may sell, mortgage and otherwise dispose of the same. Under the 2005 statute, freehold ownership in the investment areas was restricted to UAE nationals and nationals of other GCC member states.

 

• Nationals and their equivalents, whether natural or legal persons. The meaning of this reference to “their equivalents” is unclear, but it could possibly mean that national treatment will be extended to nationals of other GCC member states.

 

• Anyone in whose regard a decision is issued by the Crown Prince or the Chairman of the Executive Council.

 

It remains the case that a holder of a right of usufruct or Musataha in excess of 10 years may dispose thereof without the permission of the owner, including granting a mortgage; in contrast, the owner may grant a mortgage only after obtaining the consent of the holder of the usufruct right or Musataha. ■

Launch of the New Rental Good Conduct Certificate Service 

 

On 8 October, the Rental Disputes Centre in Dubai launched the Rental Good Conduct Certificate service.

 

This service is a first-of-its-kind initiative in the world.

 

We set out below what the service will provide and how to access it.

 

• The service will allow:

 

o a tenant to inquire whether or not a rental case has been filed against them;

 

o a landlord to inquire about a potential tenant, and whether a rental case has been filed against them in the past; and/or

 

o a tenant to inquire about the landlord and whether they are known to cause legal problems with tenants.

 

• It is hoped that the new service will reduce the number of rental disputes by providing both the tenant and landlord with accurate information on each other. This in turn will allow the parties to make an informed decision on whether or not they want to sign the tenancy contract.

 

• The data will be provided by the Rental Disputes Centre, which has stated that it will do so without violating the laws of confidentiality in Dubai.

 

• The service can be obtained by phoning the Rental Disputes Centre or by downloading the Rental Disputes Centre app from the Apple Store or Play Store.

 

Launch of “remote litigation” by the Rental Disputes Centre

 

On 4 October, the Rental Disputes Center in Dubai launched the Remote Litigation service. The service will allow parties to rental disputes, or their representatives, to attend the hearing before the judge electronically.

 

The new mechanism will work as follows:

 

• A claimant can choose the option of “remote litigation” at the time of registering its rental dispute case.

 

• A date and time will be fixed for the hearing of the case electronically.

 

• On the hearing date, a link will be sent via email to the parties. The parties will use this link for attending the hearing electronically along with the judge.

 

• The judge will then fix a date for the judgment, after which the judgment will be available to the parties electronically.

 

It is hoped that this new mechanism will reduce the time for settling rental disputes in Dubai.

 

Travel Ban in Rental Disputes  

 

In June 2108, the Rental Dispute Centre announced a new mechanism for an automatic travel ban to apply to defendants in certain rental disputes. Under this mechanism, a travel ban will be issued automatically to defendants in rental disputes which involve monetary claims at the time of registration of the dispute.

 

The mechanism is required as the Rental Disputes Centre is facing a number of cases where defendants have left Dubai in order to avoid the execution of judgments against them.

 

The Rental Disputes Centre has announced that the travel ban can be lifted within five minutes if the defendant pays the claimed amount or provides acceptable security for the claim amount. The defendant can make an application to lift the travel ban electronically. The application can be made, and the lifting service is available, even on the weekends and holidays. If an application to lift a travel ban is successful, the relevant order from the judge to lift the travel ban will be communicated electronically to Dubai police to execute it.■

Whether buyers are looking to expand their real estate portfolio or buyers are simply looking to find their ideal home, great deals can be found in Dubai’s off-plan real estate sector as developers face pressure to shift their inventory amid a concern that the market is over supplied.

 

However, it is critical that prospective buyers do their homework; work with a reputable broker and a reputable lawyer who understand the off-plan market in Dubai; and ensure that they purchase a quality off-plan investment.

 

This article discusses the risks and rewards of Dubai’s off-plan real estate sector, and the legal protections afforded to off-plan buyers.

 

Rewards

 

Over the last few years off-plan buyers have had the opportunity to invest and make returns with minimal capital outlay. Investors, in particular, have been able to spread their investments and hedge their purchases over several projects in order to maximize future gains. And while off-plan investors do not see the immediate rental return from those investing in the secondary market, buyers of units in some new communities have been able to attract tenants at the expense of some older communities, which has helped with occupancy rates and attractive yields. The affordable sector in particular has seen strong returns with yields exceeding 8% in the last year in communities such as Jumeirah Village Triangle, Jumeirah Village Circle and International City.

 

For the end user (as well as the attraction of living in a ‘box fresh’ home), low first payments and attractive payment plans have brought home ownership within reach of many residents previously priced out of the secondary market due to the 25% deposit requirement. This has been an important factor in enabling the younger generation to take that all important first step on to the property ladder and has further driven strong demand in the affordable sector.

 

Risks

 

While the Dubai Land Department (DLD) recorded that off-plan transactions were up 36% in 2017, there are signs in recent months that demand in the sector has softened with the pendulum slowly swinging back to the secondary market. A major concern for many is that recent off-plan demand has driven a surge in development, and the potential of significantly increased upcoming supply will have a negative impact on future values. Memories of the 2008/2009 market crash still loom large and the fear is that with 42,000 units under construction, where will the demand for these units come from?

 

It is clear that there is a large amount of supply in the pipeline, but delivery rates may not live up to expectations. Q1 of 2018 saw only approximately 3,500 units handed over, and while that will increase in the coming months, the supply of good quality projects may be more in line with future population projections. But while todays development may be catering for tomorrows population, there is a risk that in the short term poor quality projects may suffer loss in value and those buying off plan should choose their investment carefully.

 

Increased supply creates choice for end users both for the resale and rental of any off-plan investment and the savvy investor will have the requirements of the future occupier of the property firmly in mind when buying. Picking off-plan projects with attractive amenities and services such as schools, shops and recreational facilities, coupled with good transport links and infrastructure, will help future proof any off-plan investment. Build quality and the reputation of the developer are also important factors to consider, especially if you are hoping for the property to be handed over on time.

 

Legal Protections

 

Off-plan real estate investment in Dubai is governed by a set of real estate laws and regulations aimed at protecting buyers’ interests, the most important of which are discussed below.

 

The interim registration law (Law 13 of 2008 (as amended)) requires all sales (and all other disposals) of off-plan units to be registered on the interim real estate register maintained by the DLD. If a sale is not registered, it is considered null and void.

 

The interim registration law (Law 13 of 2008 (as amended)) also governs the developer’s right to terminate a sale contract for an off-plan unit in the event that the buyer falls into default, and sets out: (i) the termination procedure to be followed; and (ii) the monies that may be retained by the developer in the event of termination which is linked to the percentage of completion of the off-plan unit as follows:

 

• if the percentage of completion of the unit exceeds 80%, the developer may retain up to 40% of the price of the unit specified in the off-plan sale contract;

 

• if the percentage of completion of the unit is between 60% and 80%, the developer may retain up to 40% of the price of the unit specified in the off-plan sale contract;

 

• if the developer has commenced construction work on the project as per the designs approved by the competent authorities and the percentage of completion of the real estate unit is less than 60%, the developer may retain up to 25% of the price of the real estate unit specified in the off-plan sale contract; and

 

• if the developer has not commenced the execution of the project for reasons beyond his control and without negligence on his part, the developer may deduct not more than 30% of the amounts paid by the buyer.

 

Furthermore, the trust account law (Law 8 of 2007) protects buyers by requiring developers selling off-plan units to be registered with the Real Estate Regulatory Agency (RERA), and to deposit all amounts paid by purchasers into an escrow account with an escrow agent accredited by the DLD. The amounts deposited in the escrow account are exclusively allocated for the purposes of construction of the particular real estate project (and directly related activities) and may only be withdrawn by the developer on application to RERA in accordance with the law.

 

Finally, pursuant to the jointly owned property law (Law 27 of 2007) and the Directions released in 2010, developers must disclose all relevant information pertaining to their off-plan development in a “Disclosure Statement” to prospective buyers as well as have a jointly owned property declaration describing the common areas and the rules and regulations associated with them including the calculation of service charges.

 

Although off-plan buyers can take comfort in the protections afforded by the legislation described above, we recommend that purchasers check that:

 

• the real estate project is registered with RERA;

 

• there is an escrow account for the real estate project;

 

• the percentage of completion of the real estate project and the expected date of completion;

 

• the developer is registered with RERA;

 

• the developer owns the land or there is a development agreement between the owner and the developer; and

 

• the developer has the required permits and approvals from the DLD and RERA to sell units off-plan in that particular real estate project.

 

Conclusion

 

Dubai’s off-plan real estate laws and regulations serve to increase investor confidence and attract more foreign investment.

 

With respect to the market, there are some excellent deals to be had from developers in Dubai today and off-plan enquiries remain high. However, today’s off-plan buyers should not expect immediate gains, but should shop around and choose a quality product that will deliver long term sustainable returns, or provide a stable, affordable home for themselves and their family.

 

Dubai remains an attractive proposition for domestic and international investors alike with globally high rental yields and relatively low prices per square foot. Dubai itself continues to attract hard working and entrepreneurial people from across the world and the market place is maturing as more people choose to settle and raise families in the UAE. There is much to be positive about regarding the future of the Dubai property market and the off-plan sector will continue to play a big role in such market. ■

 

On 16 November 2017, Law No. (19) of 2017 was gazzetted which amends the procedures contained in Law No. (13) of 2008 on Interim Property Registration in Dubai. This law stipulates the procedures which developers must follow if a buyer breaches an off-plan sales contract.

 

The new law is an important development in Dubai and will assist developers who are facing a difficult real estate market and increasing buyer default.

 

What’s the Key Change?

 

The new law has not drastically changed the existing procedures contained in Law No. (13) of 2008, but has rather built on them and provided timeframes within which a developer must return excess money to buyers who have defaulted.

 

Under the new law, if a buyer breaches its obligations under an off-plan sales contract:

 

a. the developer must notify the Land Department and the Land Department will serve a notice on the buyer giving it 30 days to fulfill its contractual obligations; and

 

b. if the buyer fails to fulfill its contractual obligations or reach an amicable settlement with the developer within the 30-day notice period, the Land Department may issue an official document stating that the developer has fulfilled his legal obligations and specifying the percentage of completion of the property; and

 

c. after the developer receives this document from the Land Department, the developer may take any of the following actions, without approaching the court or pursuing arbitration:

 

i. if the percentage of completion of the real estate unit exceeds 80%, the developer may:

 

1. continue with the performance of the contract concluded between the developer and the purchaser, retain the whole amounts paid and request the purchaser to pay the outstanding amount of the contract price;

 

2. request the Land Department to sell the real estate unit by public auction so that the developer may collect the outstanding balance payable to the developer by the purchaser; or

 

3. terminate the contract unilaterally, retain up to 40% of the price of the real estate unit specified in the off-plan sales contract and return any excess amount to the purchaser within one year of the date of termination of the contract or within (60) sixty days of the date of re-selling the real estate unit to another purchaser, whichever is earlier;

 

ii. if the percentage of completion of the real estate unit is between 60% and 80%, the developer may terminate the sale contract unilaterally, deduct not more than 40% of the price of the real estate unit specified in the off-plan sales contract and return any excess amount to the purchaser within one year of the date of termination of the contract or within (60) sixty days of the date of re-selling the real estate unit to another purchaser, whichever is earlier;

 

iii. if the developer has commenced construction work on the project as per the designs approved by the competent authorities and the percentage of completion of the real estate unit is less than 60%, the developer may terminate the contract unilaterally, retain up to 25% of the price of the real estate unit specified in the off-plan sales contract and return any excess amount to the purchaser within one year of the date of termination of the contract or within (60) sixty days of the date of re-selling the real estate unit to another purchaser, whichever is earlier; and

 

iv. if the developer has not commenced the execution of the real estate development project for reasons beyond his control and without negligence on his part, the developer may terminate the contract unilaterally, deduct not more than 30% of the amounts paid by the purchaser and return any excess amount to the purchaser within (60) days of the date of terminating the contract.

 

Additionally, where the development project is cancelled by the Real Estate Regulatory Agency, the real estate developer must refund all payments received from the purchaser, pursuant to the procedures and provisions stipulated in the said Law No. (8) of 2007.

 

What’s the commercial and practical impact?

 

Developers must follow the procedure set out in Law No. 19 of 2017 if they wish to recover from a buyer who has breached an off-plan sales contract.■

 

On 11 January 2017, Dubai Decree No. 31/2016 On Mortgaging Granted Lands in Dubai was issued (Decree).

 

The Decree permits the holder of “granted land” to mortgage such land subject to certain conditions. It is expected that the Decree will stimulate growth in Dubai by enabling developers, who hold granted land, to obtain finance for their projects by mortgaging the granted land.

 

The Director General of the Dubai Land Department (DLD), Sultan Butti Bin Merjren, has said that the Decree is a key legislative initiative that will have a positive impact on the real estate market.

 

What Is “Granted Land”?

 

“Granted land” is land which has been gifted by the Ruler of Dubai to a UAE national, at no cost, for:

 

• commercial or industrial purposes; or

 

• residential purposes.

 

Granting land in this manner furthers Dubai’s leadership vision of ensuring a dignified life for its citizens by enabling commercial and industrial assets to be developed, as well as homes to be built.

 

Granted land is not freehold land and is subject to various restrictions. For example, granted land cannot be disposed of unless:

 

• the UAE national obtains special permission from the Ruler of Dubai; or

 

• in case of commercial and industrial land, the UAE national converts their granted title to freehold upon payment of a fee and in accordance with Decree No. 4 of 2010 on Regulating Ownership of Land Granted for Industrial and Commercial Purposes in Dubai.

 

Key Features of the New Decree

 

The Decree permits a holder of granted land to mortgage that land under the following conditions:

 

• if the granted land is residential, the monies arising from the mortgage must be invested in maintaining, expanding, constructing or replacing the building;

 

• if the granted land is commercial or industrial, the monies arising from the mortgage must be invested to achieve the purposes of the original grant; and

 

• the mortgage must be registered with the DLD.

 

The DLD can only register a mortgage over granted land if:

 

• the borrowed amount will be used to achieve the purpose for which the land was granted; and

 

• the mortgagor has a construction license issued by a competent authority.

 

If a mortgagor defaults, the Decree provides mortgagees with a legal right to sell the granted land at public auction (and under the supervision of the DLD) provided that 30 days’ notice is given to the mortgagor to rectify the default.

 

All disputes relating to mortgages over granted land are to be heard through the Civil Court.

 

What Changes Compared to the Old Rules?

 

The Decree follows previous Orders and Instructions in relation to mortgaging granted land as set out below.

 

• Instructions issued on 20 September 1994 from the Ruler of Dubai – By these instructions, all mortgages over granted land were strictly prohibited, and any mortgage made in violation of this instruction was considered absolutely null and void.

 

• Order issued on 14 May 1996 from the Ruler of Dubai – By this order, granted land (whether residential or commercial) could be validly mortgaged.

 

• Instructions issued on 5 June 1996 from the Ruler of Dubai – By these instructions, a mortgage over granted land could only be registered at the DLD if:

 

o the DLD had verified that:

 

 the amount of the mortgage was used for the construction of a building on the granted land; and

 

 payment of the mortgage funds had been made in such a way that ensured the mortgage was used for its intended purpose;

 

o the mortgagor had a building license for the commercial development; and

 

o the mortgagor had obtained a no-objection letter from the Ruler of Dubai permitting the mortgage of the granted land.

 

It is important to note that the Decree provides that all prior regulatory measures that are inconsistent with the Decree’s provisions will be repealed, including the above.

 

Why Is the Decree Important?

 

It is expected that the Decree will stimulate growth in Dubai by:

 

• enabling developers, who hold granted land, to obtain finance for their projects by mortgaging the granted land; and

 

• encouraging banks to lend against granted land by providing them with:

 

o a legal right to sell the granted land at public auction (and under the supervision of the DLD) if the mortgagor defaults; and

 

o a dispute resolution process.

 

However, it is likely that further regulations will need to be issued to govern the implementation of the new Decree. ■