24 Feb 2015


Authored by: Michael Lunjevich

What is Happening?

There has been a growing policy amongst some developer’s in Dubai to link debts between properties held in one’s personal name with those held by companies that person might also be a shareholder in.

In fact, sometimes it goes further than that and links are being made to other family members or to companies where the only link might be a directorship. Unfortunately these links are not being made to increase customer service, but rather they are being used as a debt collection tactic.

The tactic is to block fully paid properties in order to collect progress payments or penalties (even if disputed by the buyer) on other properties. The net result is that someone may find their property is blocked because of an un-paid debt on another property not owned by them.

A block effectively means a refusal by the developer to issue a title deed or an NOC to allow a transfer if there is a sale. In addition a block may result in a refusal to hand over a property even if it has been fully paid for and is ready for handover.

The consequences can be devastating. Lack of title interferes with leasing the property and raising mortgage finance. A person may also be completely oblivious to the block, and might sign a contract to sell the property without knowing they can never fulfil the contract. When they come to transfer the block reveals it-self and the person may become subject to extreme penalties under the contract.

The process of blocking properties for the above reasons is unlawful but it seems that the leverage created or lack of knowledge on the buyer’s part means people are being forced to pay the debts of another person in order to free up their own property.

What does the law say?

The UAE Constitution (the “Constitution”) is very clear and states property should be protected and no one should be deprived of their property. The UAE Civil Code expands on this position and provides that any person who suffers unlawful violation of their rights shall have the right for such violation to cease and to claim damages for any harm suffered.

Furthermore, Dubai Decree No. 6 of 2010 dealing with the Executive Regulation of Law No. 13 of 2008 (“Decree 6”) provides a developer cannot refuse to transfer title to units at the Dubai Land Department (“DLD”) if the purchaser has fulfilled their contractual obligations even if the purchaser owes other financial obligations not arising out of the particular sales contract. Decree 6 is very clear that a developer cannot stop title even if the person themselves owes money on another property, and therefore it is beyond doubt that stopping title because of a debt of another person is unlawful.

The basic fundamental premise under the Civil Code is that each person is responsible for their own actions and liabilities. Thus the debts or obligations of a company owned by an individual cannot be linked to the individual shareholder themselves except in very limited and exceptional circumstances.

The doctrine of abuse of rights provides that a person is liable for an unlawful exercise of rights, and some developers appear to be unlawfully depriving others of the benefit of their properties. In such circumstances, the developer would likely be liable for all damage suffered by the buyer such as loss of sale premium, loss of rent and other reasonable damage. However, even though the law is clear, and there is likely to be consequences for developers it appears some developers are undeterred.  

What can be done about it?

The courts are definitely a viable way to combat this and it is probable the courts would reach the logical conclusions on the law stated above. However, the time taken to get a case through to judgment would likely be years rather than months, and therefore time pressures often mean such avenues are not viable and it seems developers know it and are using it to their advantage.

It may therefore be the best outcome for the Dubai Real Estate market for the regulator (i.e. DLD and RERA) to step in and ensure such practices are not continued by developers. Decree 6 provides a right for the DLD to register title in circumstances where a developer refuses to transfer title and therefore the DLD should exercise its discretion in these cases. However, it would also be helpful if the DLD and RERA implemented a policy of sanctions to further deter developers from continuing such practices, and also launched an awareness campaign to ensure investors are aware of the practice and their rights in such circumstances.

Excerpts published by Gulf News.


This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the develop jurisdiction of the UAE