17 Jul 2012


Authored by: Michael Lunjevich


The practice of many developers in Dubai to operate their own real property registries is creating confusion in the market and may be subjecting unwitting investors to risks of fraud and potentially life changing losses.

The Property Registration Law No 7 of 2006 (“Registration Law”) sets out at Article 6 that the Dubai Land Department (“DLD”) has the exclusive jurisdiction to register rights over real estate. In addition, Article 7 states that the DLD shall record all rights over land and any changes that might take place in respect of them. This is evidently on public policy grounds as the DLD maintained register is specified by the Registration Law as conclusive evidence against all and everyone as to rights over property, unless it is proved to be the result of fraud or forgery.
However, despite the clear provisions of the Registration Law many master developers and sub-developers operate their own registration systems and impose fees on purchasers for anything from mortgage registration, title transfers through to home alterations requests.

The broker identified their dream golf home for them. Mr Seller was eager to sell, the price was good and a quick sale was wanted so the property ticked all the boxes. Mr & Mrs Buyer had always dreamed of owning a golf home and poured their life savings into the property to achieve their dream.
Mr & Mrs Buyer used a trusted and reliable international bank (“International Bank”) to finance the remaining funds needed to upgrade to their new home, and Mr Seller had a mortgage to be discharged with a UAE Bank (“UAE Bank”). The sale price was only just above the outstanding mortgage to the UAE Bank and it would not discharge its mortgage until it was paid in full.   Therefore the International Bank paid off the Seller’s loan with the UAE Bank. This is where the problems started.
It was a matter of weeks after the UAE Bank was paid in full before the DLD transfer day was finally scheduled. This was due to a number of factors including the poor practices adopted between the various banking institutions and the power wielded by the master developers. The process adopted is unnecessarily complicated, however, the UAE Bank must issue a mortgage release letter which is then taken to the master developer. The master developer then goes through its own discharge procedures to remove the mortgage form its books before it issues a no objection certificate (“NOC”). An NOC is required before the DLD processes the same discharge and allow the transfer.
Finally the transfer day arrived and Mr & Mrs Buyer discovered to their horror that he property was not able to be transferred because it was subject to a court attachment order in relation to an unrelated dispute between Mr Seller and a third party. Suddenly Mr & Mrs Buyer realised that International Bank had already paid off the UAE Bank in full and there was little way to recover this payment. The DLD was perplexed at this and stated clearly that the banks should not pay the other off except at the transfer at the DLD…BUT…..the fact remains that the master developer remains in the picture, operates a dual registry and won’t give an NOC to allow transfer until the mortgage is removed from its books.
Now the nervous wait begins for Mr & Mrs Buyer to find out whether the unrelated third party gets their dream property, or will they be very lucky this time?  Mr & Mrs Buyer are long time Dubai residents and they have bought and sold family homes several times over the years. They did not use lawyers because they knew the process pretty well and they were reassured by the real estate broker that lawyers complicated matters unnecessarily.

In respect of the Case Study, the DLD is correct that a seller’s loan should not be paid off until the actual transfer occurs. In many western jurisdictions this occurs on the basis of undertakings between the banks or lawyers to make the required payments upon the successful transfer. However, in these other jurisdictions they do not have to contend with dual registries and NOC’s from master developers.
The current process for registration of records is formally managed by the DLD pursuant to the applicable Dubai laws. However, this process involves the parties submitting to the DLD an NOC  from the developer of the project along with identity documents of the seller and purchaser, together with the relevant registration fees.
The DLD has not publicly clarified the reason for requiring an NOC and one may assume this is required to verify the owners have paid service fees. However, some developers believe this entitles them to operate their own registry and therefore levy charges on owners.
Unfortunately our Case Study reveals that the practice of dual registries when considered with the banks own processes reveals a very serious risk that all buyers should be aware of. Under UAE law the priority to a real property is determined by the date of registration. In the Case Study Mr & Mrs Buyer do not have any registered interest as their interest was prevented by the third party’s attachment order. The net result being that Mr Seller now has a mortgage free property in his name, the UAE Bank is fully paid, the third party has a much more valuable attachment order as he has suddenly jumped to the front of the priority cue after the mortgage was released. Mr & Mrs Buyer and the International Bank now have a long and anxious wait to see the outcome of Mr Seller’s case with the third party along with an expensive litigation process to follow with Mr Seller.
Buyers should always involve lawyers in home purchases because these are important and high value decisions. In the UAE it is also especially important because the process is complicated and there are many hidden pitfalls that can cause long lasting and serious financial issues. Buyers should be especially vigilant where a seller has a mortgage.
There are ways to manage these issues and Hadef & Partners can advise on these issues and many others that both buyers and sellers should be aware of when investing in property in the UAE.