The prodigious and fortuitous impact (and, speed) of the global financial crisis has left a lasting legacy on many. Questions have been raised in past as to what led to the crisis, people who were instrumental in driving the downturn and people affected by same. Speed and force without direction can be destructive and the global financial crisis has set a clear tone and precedent to this effect thereby affecting trade, commerce, financial channels, and more. One of the other areas that were also significantly affected was the real estate sector.
Speaking specifically of Dubai – the property market witnessed a vigorous blow from the puissant effect of the financial crisis. The economic perplexities beset since 2008 led to an increase in litigation placing substantial strain on the judiciary. Whilst the property regulations themselves were in their infancy, lack of adequate machinery and set procedures to handle claims altogether raised elevated levels of concern for the government. This eventually led to the constitution of the real estate plenary department within Dubai courts that was tasked specifically with handling property and real estate disputes within Dubai. A number of decisions were passed by courts between 2009 and 2013 and this article aims to analyze and discuss some of the key decisions.
In the year 2007, Dubai witnessed the creation of Real Estate Regulatory Authority (the RERA) (as amended) pursuant to the enactment of Law number 16 of 2007 effective from publication date is 30 July 2007. Constitution of RERA took place immediately following promulgation of Law number 8 of 2007 concerning Escrow Accounts for Real Estate Development in the Emirate of Dubai. Other property related statutes were also passed in the year 2007 and 2006 which clearly attests to the Government of Dubai’s intention to regulate the property market. Clearly, Rome was not built in a day and neither was Dubai. The Government of Dubai, however, recognized the potential in the city’s real property sector and started taking diligent steps to address possible risks and pitfalls that could arise. That said, the financial crisis did not come knocking and Dubai was yet in process of implementing the law that could regulate the demand and supply inequity – Law number 13 of 2008 (the Law 13)regulating the Interim Property Register in the Emirate of Dubai (as amended by Law number (9) of 2009 regulating the Interim Real Property Register of the Emirate of Dubai and its amendments). Much ink has been penned over Law 13 which essentially aims at curbing speculators from flipping properties.
Dubai Court of Cassation on Law 13
Article 3 of Law 13 reads out as under:-
(1)Any disposition that occurs in respect of any Real Property Unit sold off-plan will be entered in the Interim Property Register, and any sale or any other legal disposition that transfers or restricts ownership or any ancillary rights will be void unless entered in that Register.
(2)Any developer, who disposed of a Real Property Unit by way of sale or any other disposition that transferred or encumbered a Real Property Unit before this Law came into force, must apply to the Department to enter such disposition or encumbrance in the Property Register or in the Interim Property Register, as the case may be, within sixty (60) days from the date on which this Law comes into force.
The Dubai Court of Cassation has decided on Article 3 (1) in Case 279 of 2011 (dated 27 November 2011). In this matter, the parties to the dispute had signed certain reservation agreement under the date of 22 January 2008. The sale was carried out by an agent holding power of attorney from the developer entrusting the agent to enter into the agreement, sign the same and carry out the sale process. The Court also reviewed a letter dated 6 January 2010 issued by Dubai Land Department evidencing that the developer in the present case had failed to meet requirements imposed under Article 3 (1) being registration of units in the interim register.
The court considered the interpretation and application of Law 13 and held as under:-
The effect of the provisions of article 3 and 5 of Law No. 13 of 2008 regulating the interim register in the emirate of Dubai as amended by Law No. 9 of 2009, is that all real property dispositions by way of a contract for the sale of real estate must be registered on the interim register with the Dubai Lands Department.
Failure (or; refusal) by the developer to register the units in accordance with principles set out in Law 13 shall be the violation of obligations imposed on developer under Law 13and the courts shall in such event treat unregistered contracts as void.
The Dubai Court of Cassation based on above-refused developer’s appeal on the grounds that it was devoid of any merits.
Dubai Court of Cassation in Case 33 of 2009 decided on 17 January 2010 has echoed the above decision and held as under:
“The provisions of article 3 of Law No. 13 of 2008 regulating the preliminary real estate register in the emirate of Dubai show the requirement to register all dispositions over real estate units sold on the plan. The person who is required to submit the application to the Department is the developer. His role is restricted to submitting the application, whether the disposition took place before or after the law was promulgated and the provisions thereof came into effect. It requires the developer, within a period not exceeding 60 days from the date the provisions thereof came into effect, to submit an application to the Lands and Property Department for registration of the units sold before the provisions thereof came into effect, on the land register if they have been built, or on the preliminary land register if the construction thereof has not yet been completed. His failure to take that step, as provided for in article 3(2) of the law, will not result in the disposition being void. It will result only in the developer being referred to the competent investigatory authorities after preparation of the report in that respect by the Director General of the Lands and Property Department, pursuant to the provisions of article 13 of that law. That is because the legislature renders the disposition void only in the event that it is not registered.”
In dealing with Article 3 (2) of Law 13, the Dubai Court of Cassation in Appeal number 4 of 2011 and dated 19 June 2011held as under:-
The sixty (60) days’ time limit imposed by Article 3(2) of Law 13 is the legal time limit set out under the law where the invalidity (of unregistered contracts) will be decided only if registration was not carried out at all or if it was impossible to carry out the registration.
It is the responsibility of the developer to submit the application form along with all information and details before the Dubai Land Department in line with its application procedure. Acceptance and processing of registration is the role and responsibility of Dubai Land Department.
The objective underlying Article 3 (2) of Law 13 is for the Dubai Land Department to monitor and supervise real property transactions in the Emirate of Dubai to safeguard the rights and interests of property owners.
The court held and decided that failure to register within sixty (60) days per Article 3 (2) of Law 13 shall not invalidate the contract between developer and buyer.
There are set precedents recognizing developer’s legal right to terminate the contract such as in case 43 of 2009 (decided on 11 April 2010) by Dubai Court of Cassation wherein it was held and stated:-
“The basic rule in determining the time for payment of the price is the agreement between the developer and the buyer. If there is no agreement between them in that regard, the buyer will be obliged to pay the price upon making the contract and before requiring registration of the unit sold in his name in the preliminary register. That is to say, the obligation of the buyer is a contractual obligation to pay the price and precedes the obligation of the developer to take steps for registration in the preliminary register, in the absence of a contrary agreement. Consequently, the developer may refuse to perform his obligation to take the necessary steps to register ownership of the unit of real estate sold in the name of the seller on the preliminary register if the buyer has not performed his obligation to pay the price unless there has been an agreement to defer payment of the price. In such event, the developer will not be regarded as being in breach of his obligation in such a way as to justify rescission of the contract.”
In the next feature will, we will continue to look at several other precedents passed by Dubai courts on Dubai property laws and laws affecting the real estate.