Emad Eldin Farouq, Senior Legal Advisor at the Dubai Land Department, is centrally involved in the process of identifying and facilitating the introduction of new legislation necessary to create a comprehensive system of property laws and regulations in the Emirate of Dubai. Emad met recently with Lisa Dale, Partner & Head of Property at Al Tamimi & Company, to discuss what new property laws and regulations we can expect during 2010. Based on that discussion, the following is a summary of the main issues that are likely to be the focus of attention at the Dubai Land Department and RERA during the year ahead.

Further Protection for Purchasers of Off-plan Property

The purpose of many of the property laws and regulations passed in Dubai in recent years has been to introduce purchaser protection and to bring a fair balance to the developer-purchaser relationship. Examples of such laws include:

Law No (8) of 2007 concerning Guarantee Accounts of Real Estate Developments in Dubai (the so-called "Escrow Law"), which established the requirement for all developers to register themselves and their projects with RERA, and to set up an escrow account to ensure that off-plan purchasers' monies are utilized towards the development of the property.

Law No (13) of 2008 regulating the Interim Real Estate Register in the Emirate of Dubai (the so-called "Pre-Registration Law"), which established the Interim Real Estate Register at the Dubai Land Department, thereby affording contractual protection for purchasers.

Law No (9) of 2009 amending some provisions of Law No (13) of 2008, which established a statutory formula based on construction progress for assessing the compensation that a developer could claim against a purchaser who has failed to make purchase price payments pursuant to his contract.

By sponsoring such laws, the Dubai Land Department has sought to achieve a fair balance between the developer and purchaser.

A new law is now under consideration for enactment in 2010 which, if passed, will bring a range of further protection for purchasers who buy property off-plan from developers. Such law is envisaged, for example, to deal with the following issues:

  • Refund or replacement property, in the event of a material defect in the property purchased.
  • Financial penalties for late delivery of a property by a developer.
  • Grounds upon which a purchaser may demand cancellation of the contract, for example the refusal of the developer to link purchase price payments to construction milestones or if the developer makes material changes to the specifications of the property.
  • Establishing additional conditions to be fulfilled by a developer before RERA will provide approval for off-plan sales to commence, for example the need for the developer to own title to the land and to have taken possession of it, to have registered all units in the Interim Real Estate Register and to have either completed 20% of the project or deposited 25% of the project cost in the escrow account.

Regulation of Real Estate Valuers and Real Estate Conveyancers

Since the establishment of RERA in 2007, progress has been made to bring about regulation of the various professions connected with the real estate sector. Such regulation has introduced a regime of registration, minimum qualification requirements, training and professional conduct rules. So far, both developers and real estate brokers have been brought under such regulatory regime.

In 2010, it is envisaged that Regulations will be passed to regulate two further professions, namely real estate valuers and real estate conveyancers. The latter is particularly noteworthy: under the current licensing regime in Dubai , the activity of "conveyancer" or "settlement agent" does not exist. Lawyers have, to a limited extent, been involved with assisting parties in a real estate transaction. However, it is real estate brokers who have tended to assume this role, often reluctantly, simply to fill the vacuum and to facilitate the transaction through to completion. Thus RERA, in conjunction with the Department of Economic Development, will seek to introduce a new license category to enable 'conveyancers' to obtain a business license and operate under the new regulatory regime to be introduced through Regulation.

Real Estate Brokers Trust Account Law

In circumstances where real estate brokers receive and handle monies on behalf of parties in a sale or leasing transaction, there is currently no regulation to ensure that such monies are protected for the benefit of the parties. By-Law No (85) of 2006 regarding the Regulation of Real Estate Brokers' Register in the Emirate of Dubai requires a broker to be the guardian of such monies, "to keep or to deliver to one of the parties". However, the applicable "trust rules" referred to in that By-Law do not yet exist. Thus, brokers will often hold a transaction party's money in a bank account opened in the broker's own name. Even in the case of an honest broker, the risk exists that third party funds held in a broker's bank account will become available to the broker's creditors, for example pursuant to the enforcement of a monetary court judgment made against the broker or in the case of his insolvency.

To afford protection to a party who has lodged transaction monies with a broker, a new law is expected to be passed during 2010 that will require a broker to utilize the services of a licensed escrow agent to hold the monies in escrow at the direction of the parties.

Strata Law Implementing Regulations

Law No (27) of 2007 on Ownership of Jointly Owned Properties in the Emirate of Dubai (the so-called "Strata Law") came into force on 1st April 2008. We can expect the Dubai Land Department to shortly issue the General Regulation, Jointly Owned Property Declaration Regulation and Survey Regulation, most likely in the form of guidelines. We await further news on the standard form of Owners Association Constitution and other forms and directions.

Establishment of Real Estate Portfolios

A draft Law is under consideration which, if passed, will introduce for the first time in Dubai a legally recognised, regulated structure for the establishment and management of collective investment schemes analogous to the typical property fund and trust structures that exist in other jurisdictions. Such an initiative would potentially provide a boost to the Dubai real estate market by generating an increased level of collective investment activity.

Reflections on 2009

It is apparent from the above that the Dubai Land Department and RERA remain focused on achieving a comprehensive well-regulated, safe and fair environment for the real estate sector in Dubai . The new initiatives outlined above, to the extent that they are introduced during 2010, are consistent with this objective. On a more general level, Emad expressed the importance of learning from the challenges that the world-wide financial crisis presented to Dubai 's real estate market during 2009: "There are lessons to be learned from the crisis and we are emerging with a new legal regime. Loopholes in laws are being dealt with, and things will become more organised in 2010. We have a good training program in place this year through the Dubai Real Estate Institute, for our own staff and outside practitioners. Additional resources will be brought to fully implement the new laws and systems. We will seek to fully enforce regulations against developers, brokers and any others found to be in violation". To illustrate this final point, Emad makes reference to the Dubai Executive Council's Resolution No (25) of 2009, timeously issued on 31st December 2009, which sets out the fines applicable to developers, brokers and others who contravene Dubai's property laws and regulations.

We shall look forward with interest to the new initiatives from the Dubai Land Department and RERA during 2010.

About Emad Eldin Farouq

Emad graduated with an LLB Degree with Distinction from the University Fez, Morocco in 1986. After spending 15 years with the UAE Federal Chamber of Commerce and Industry between 1988–2003, Emad joined the Dubai Land Department as Senior Legal Advisor. During his six year tenure with the Dubai Land Department, Emad has played a significant role in the drafting and introduction of the several property laws and regulations that we have seen implemented during this time. In December 2008, Emad was awarded "Best Government In-House Counsel" by the Dubai Corporate Counsel Group.

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