As we proceed into Part 2 of this series, it is necessary to elaborate on the Supreme Legislation Committee, the entity that issued the explanatory note.

The Supreme Legislation Committee in the Emirate of Dubai is a committee established by Decree No. 23/2014 issued by His Highness the Ruler of Dubai on 9/6/2014. The Decree stipulates in Article 2(2):

“The Supreme Legislation Committee will have exclusive jurisdiction over all matters related to legislation in the Emirate [of Dubai]…”

Article 3 of the Decree sets forth the functions and terms of reference of the Committee, including those contained in paragraphs 5 and 6 of Article:

  1. Issuing regulations and explanatory notes to the legislation in force in the Emirate.
  2. Issuing and publishing reasoned legal opinions with respect to interpretation of the provisions of the legislation in force in the Emirate.

The other paragraphs of Article 3 mention other tasks related to the study and recommendation on proposed legislation from the government and government bodies, the provision of opinion and legal advice thereon, preparation and adoption of the drafting, submission of proposals for updates and amendments to the legislation in force in the Emirate, and other functions for which the impact of the Committee’s actions is limited to recommendation and advice.

However, the Committee’s competence to issue explanatory notes is without limitation to which it could be said that the explanatory note issued by the Committee should be taken in earnest particularly as the Committee specializes in opining on legislation and is in contact with the entire legislative process and thus are aware of the purposes of the legislation.

Evolution of the Subject Matter of the Explanatory Note

As stated in its title, the explanatory note is dedicated to the interpretation of Article 11 of Law No. 19/2017, and states as follows:

“Article 11 has been amended as a result of the emergence of various ratio decidendi on its implications and the divergence of the jurisprudence of the courts in the application of its provisions when considering and deciding on the proceedings brought to the courts’ attention concerning disputes relating to the off-plan sale contracts, in particular with respect to the developer’s right to terminate the contract on its own volition, hence Article 11 has been amended more than once and the most recently under Law No. 19/2017 in order to ensure a thorough understanding of its provisions, and address the divergence of views that may adversely affect the real estate sector in the Emirate of Dubai. “

In order to comment on the explanatory note, it is necessary to deal with the subject matter of interpretation in its successive formations since the promulgation of Law No. 13/2008 and before the promulgation of Law No. 19/2017 and the judicial application of this article.

Law No. 13/2008:

Law No. 13/2008 was promulgated on 14 August 2008 whereby Article 11 obligated the developer in the event of a breach by the buyer of any of its contractual obligations, the buyer shall be notified of the breach by the Department in person, by courier, or electronically and be provided thirty days to fulfil their obligations.

If the buyer fails to fulfill its contractual obligation within the time limit, the developer may terminate the contract and deduct not more than thirty percent of the value of the amounts paid by the buyer.

The law did not clarify its retroactive application nor that of Article 11 of this law, but it was stated that is shall immediately be applicable as of the date of its issuance in the Official Gazette. The law also made the amount to which the developer is entitled to a discount of 30% of the amount paid, regardless of the percentage of completion in the project.

Without a doubt, the provision in this article was unfair to the developer in circumstances where the developer may have completed a large proportion of the project but his compensation does not exceed 30% of what is due by the buyer.

Of course, the developer is not forced to resort to Article 11, but will either have to stop the project or continue expenditure on the project from sources other than the moneys paid for (or where expected to be paid for) by buyers who will be protected in termination of their contracts and the provisions of Article 11, unless the developer resorts to the courts based on the general rules of annulment, or where the contract of sale contains a clear termination provision.

Law No. 9/2009

Subsequently, Law No. 9/2009 was issued on 12 April 2009 and came into effect from the date of its publication in the Official Gazette corresponding to 30 April 2009. This law amends Articles 2 and 11 of Law No. 13/2008.

In accordance with this law, after the expiry of 30 days from the Department’s notice to the buyer to perform its contractual obligations, the provisions of the amended Article 11 shall apply, allowing the developer to retain the amounts determined in accordance with the percentage of completion of the project. For projects that have not started construction the deduction is based on the amount paid and not the value of the real estate unit. Of course, this was a fundamental change that placed a heavy burden on the developer.

The law introduces a new rule or provision where Article 11(7) states:

“The provisions of this Article shall apply to all contracts entered into before the provisions of this Law.”

It also exempted from the application of its provisions contracts where there are no off-plan sales.

Executive Council Decision No. 6/2010

Pursuant to the provisions of Article 14 of Law No. 13/2018, the Crown Prince and Chairman of the Executive Council issued Decree No. 6/2010 which issued the Executive Regulations of Law 13/2008.

Although the regulation does not change the provisions of the law, but rather shows the means of its implementation, the regulation did clarify that it is the developer who is meant to send the notification to the buyer and not the department.

Article 15 of Law No. 9/2009 was not clear towards cases of breach of contract by the buyer, which was remedied by the wording of Article 11(2)(1) of Law No. 9/2009 which was clearer.

The regulation stipulates that the verification of the percentage of completion is based on a technical report issued by a consultant accredited with the Department, which includes the identification of the completed project after being examined (the project’s status quo).

The regulations also granted the Department the right to seek settlement between the developer and the buyer and propose what it deems an appropriate solution.