What Happens if a Buyer Defaults on Payments After Buying Off-Plan Property in Dubai?

Posted by Dr. Hassan Elhais on June 3rd, 2024

Introduction:

In the dynamic real estate landscape of Dubai, buying off-plan properties in Dubai can be a common investment strategy. However, like any financial transaction, there are risks involved, and one significant concern for both developers and purchasers are what occurs if a buyer defaults on payments after committing to an off-plan purchase. Understanding the legal framework is important for navigating such situations.

Dubai Law No. 13/2008, concerning the Interim Real-Estate Register in the Emirate of Dubai, provides a comprehensive framework for addressing the rights and obligations of both developers and purchasers and default scenarios in off-plan property purchases.

Procedure if Buyer Defaults on Payments:

According to Article 11 of Dubai Law No. 13/2008, if a purchaser fails to fulfil their contractual obligations in an off-plan sale, the developer may notify the Land Department of the violation. The Land Department, upon verification of the violation, will take steps to resolve the issue, including notifying the purchaser of the need to fulfil their obligations within a 30-day timeframe.

Should the purchaser fail to comply or if an amicable settlement cannot be reached, the Land Department will issue an official document in favour of the developer, indicating the developer’s compliance with the law and the percentage of completion of the real estate project. Based on the completion status, the developer may take various measures against the defaulting purchaser without resorting to legal action.

For instance, if the developer has completed more than 80% of the project, they have the option to maintain the contract and retain the payments made by the purchaser, requiring them to settle the outstanding balance. Alternatively, the developer may request the Land Department to sell the property at a public auction to recover the remaining amounts due, with the purchaser bearing the expenses of the sale.

In cases where completion ranges from 60% to 80%, the developer may withdraw the contract, deducting a portion of the property value, and refunding the excess to the purchaser within a 60-day timeframe.

Similarly, if completion is less than 60% or work has not commenced due to reasons beyond the developer’s control, the contract can be withdrawn. Additionally, according to Article 3 of the Dubai Law No. 13/2008, all actions made to off-plan sold real estate units must be registered in the interim real estate register. Any sale or other legal actions that transfer or restrict property rights must be recorded, and failure to do so may render such actions void.

Conclusion:

Dubai Law No. 13/2008, aims to provide a fair and regulated environment for both developers and purchasers. Understanding the procedures outlined in Law No. 13/2008 is important for navigating default scenarios in off-plan property purchases effectively.

Author

Dr. Hassan Elhais, legal consultant in Dubai along with his team of legal consultants and prominent local lawyers across the UAE, has made a name for himself as a renowned specialist in the fields of civil law, construction law, banking law, criminal law, family law, inheritance law, company incorporation, and arbitration.