On July 5th, the Secretary General of the Supreme Legislation Committee sent a letter to the Managing Director of the Dubai Courts, accompanied by the Explanatory Note to Law No. 19/2017 and its amendment to Article 11 of Law No. 13/2008.
Article 11 addresses the rules and procedures to be adopted in case the purchaser violates his obligations to execute the off-plan sale contract concluded between him and the developer.
As stated in the Explanatory Note, it came at the request of the Dubai Courts. The need appears to have stemmed from the differences in the jurisprudence of the courts regarding the application of Article 11. There is no doubt that the disharmony in the jurisprudence affects the stability and growth of the real estate sector, a leading sector in the region.
In our commentary, in order to understand the relevance of the Explanatory Note, we will address:
- The development of the respective real estate legislation.
- The jurisprudence of the application of Article 11.
- The role of the Committee, the basis for its competence to issue explanatory notes to the laws in force, and the impact of this Explanatory note.
Our commentary will be via a series, each part discusses one of the points mentioned above, and we start by commenting on the evolution of property legislation related to the subject of the comment.
Development of relevant real estate legislation:
Since the beginning of the third millennium, Dubai has witnessed a rapid development in real estate investment, particularly in the field of real estate projects off plan sales. In 2006, Dubai began creating the appropriate climate for real estate investment projects.
In 2006, the Real Estate Registration Law was promulgated (Law No. 7/2006. Concerning Real Property Registration in the Emirate of Dubai), which established the land register and defined it. According to this law all real estate creation, transfer, alteration or removal rights were to be registered in that register. Foreigners may be allowed to own land in the Emirate freely or with restrictions. In the same year, Regulation No. (3) of 2006 Determining Areas for Ownership by Non-UAE Nationals of Real Property in the Emirate of Dubai was promulgated. The Regulation identified freehold areas, and was subsequently followed by regulations.
In 2007, Law No. 8/2007 Concerning Real Estate Development Trust Accounts in the Emirate of Dubai was promulgated, which required the Dubai Land Department to prepare a register for real estate developers. It also required the depositing of what the purchaser charges for buying real estate units off plan in the trust accounts allocated for the expenditure on the specific real estate project. The Land Department has wide powers to control the trust accounts and obligates financial institutions and companies to deposit the amounts of loans obtained by developers in the accounts to be used exclusively for the project. This confirms that protecting the interests of buyers and ensuring the completion of real estate projects was clearly addressed in legislation.
The law obliges the developer who wants to sell real estate units off plan to apply to the Department to open the trust account. The application follows certain requirements, all of which are to ensure the developer’s seriousness and ownership of the land to be developed in a manner that protects the buyers’ interests.
In 2007, Law No. 16/2007 was issued to establish the Real Estate Regulatory Authority (RERA), which was entrusted with organizing the real estate sector in the emirate by contributing to the preparation of strategies related to this sector and developing and implementing the necessary work plans.
In 2007, Law No. (27) of 2007 Concerning Ownership of Jointly Owned Real Property in the Emirate of Dubai was issued, which regulated the joint ownership of these properties and the disposition of real estate units in the joint property. The law also regulates the management, operation and maintenance of common areas.
The subject of this commentary (and the Explanatory Note), Law No. 13/2008, defines off plan sale, and introduces the system of interim registration and the registration of all actions on the real estate units sold off plan in the interim land register, the penalties for non-registration and restrictions on the freedom of developers to sell off plan and obligate them to meet specific conditions before they sell. Article 11 established rules and procedures to be adopted in case the purchaser violates his obligations to execute the off-plan sale contract concluded between him and the developer.
In short, Law No. 13/2008 represented an effective response to the practical problems created by the market speculation that prevailed prior to the promulgation of the law.
It is clear that the Emirate of Dubai was aware of the importance of establishing an appropriate legislative structure for this sector, and the administrative and regulatory mechanisms to enforce this legislation and to develop strategies for implementation and development.
As the development of this sector has accelerated, and the ups and downs of the sector have been constantly present, the legislator has intervened to fill the gaps and clarify questions around implementation, as well as to promulgate preemptive legislation that precedes the problems and helps address disputes.
The establishment of the Supreme Legislation Committee is itself an excellent response as a specialized entity entrusted with the implementation of legislation and enforcement strategies in the Emirate of Dubai.
This will be discussed in Part 2.