16 Apr 2009

AMENDMENT TO THE PRE-REGISTRATION LAW

Authored by: Brent Baldwin

AMENDMENT TO THE PRE-REGISTRATION LAW

A significant amendment to Article 11 of Law No.13 of 2008 concerning regulating the initial real estate register in Dubai (the “Pre-registration Law”) has now become law and is soon to be published in the Government Gazette.
 
Dubai Law No. 9 of 2009 (the “Amendment”) is aimed at clarifying previous uncertainty under the Pre-registration Law regarding the procedure to be followed by a developer in cancelling an off-plan contract and how much of the monies paid by a purchaser can be retained by a developer in the case of termination. Previously, Article 11 of the Pre-registration Law stated that in the case of a purchaser default, 30% of the amounts paid by a purchaser may be retained by a developer.
 
An Administrative Circular issued by the Dubai Lands Department (“DLD”) on 10 November 2008 however, interpreted Article 11 as meaning that the developer may retain 30% of the total purchase price for the unit. The Amendment clarifies and expands on these differing statements.
 
The Amendment reiterates that in the case of a purchaser default, the developer is first required to notify the DLD. The DLD will then allow the purchaser 30 days to rectify the default or contest the termination. If the purchaser does not do so, the Amendment states that the developer may retain amounts paid by a purchaser on the basis set out in the following table.
 
LEVEL OF COMPLETION OF CONSTRUCTION DEVELOPMENT    DEVELOPER RIGHTS/OBLIGATIONS
80%    Developer may retain 100% of all monies paid.
Request settlement of outstanding monies.
Auction unit to collect outstanding monies if the settlement is not completed.
60%    Developer may retain 40% of the purchase price and revoke contract.
Less than 60%    Developer may retain 25% of the purchase price and revoke contract.
Construction has not commenced for reasons beyond the developer's control, without any default on the developer's part.    Developer may retain 30% of monies paid and revoke contract.
Cancellation of the project by Real Estate Regulatory Authority (RERA) following consideration of a report on the status of the development.    All monies paid must be refunded to purchaser.

LEVEL OF COMPLETION OF CONSTRUCTION DEVELOPMENT DEVELOPER RIGHTS/OBLIGATIONS
80% Developer may retain 100% of all monies paid.
Request settlement of outstanding monies.
Auction unit to collect outstanding monies if the settlement is not completed.
60% Developer may retain 40% of the purchase price and revoke contract.
Less than 60% Developer may retain 25% of the purchase price and revoke contract.
Construction has not commenced for reasons beyond the developer's control, without any default on the developer's part. Developer may retain 30% of monies paid and revoke contract.
Cancellation of the project by Real Estate Regulatory Authority (RERA) following consideration of a report on the status of the development. All monies paid must be refunded to purchaser.

 

Where the developer is required to refund any sums to a purchaser, the Amendment requires that a developer must pay the refund within one year of the date of revocation of the contract or within 60 days from the date of resale of the property, whichever is the earlier. In addition RERA will also now have broad ranging powers to cancel real estate projects.

 
The Amendment will take effect from the date of publication in the Government Gazette and it can be expected that shortly after that the DLD and RERA will advise how the changes contemplated by the Amendment will be implemented. We expect that the Amendment will have a significant impact in the property market and will provide further updates as and when they come to hand.

We invite you to discuss this issue with our Commercial & Real Estate team.