The Government of Bahrain issued Law No 28 of 2014 (Development Law) in August 2014. Whilst we are awaiting for the regulatory and administrative systems to be put in place, the Implementation Regulations together with a number of supporting Ministerial Orders (Relevant Laws and Regulations) were recently issued to further flesh out the provisions of the Development Law. We have set out below a summary of some of the main provisions of the Relevant Laws and Regulations and do not at this point intend to provide an in depth analysis until further points have been made clear.
Unless defined elsewhere in this article, any defined terms will have the meanings set out in our Development Law article.
The Development Law requires that each developer, as defined in the Development Law, must obtain a licence (Developers’ Licence) in order to undertake real estate development in Bahrain. The Implementation Regulations sets out that the following criteria must be met by a developer in order to obtain the licence:
- The developer must be fully competent;
- The developer must have a good reputation in the market;
- The developer must not have been convicted of a crime involving moral turpitude or dishonesty;
- The developer must be registered in the commercial register; and
- If the developer is a foreign ‘national’ then the guidelines and rules governing the ownership of real estate and land by non-Bahrainis and the provisions regulating their activities within Bahrain must be considered when granting a licence.
As such, it appears as though all developers seeking to obtain a Developers’ Licence must be corporate entities. In addition, the Implementation Regulations indicate that an electronic application process will be available and it also confirms that the Developers’ Licence will be valid for a period of 5 years and capable of renewal.
However, it should be noted that the Implementation Regulations provide that the appointed authority, the Ministry of Municipalities and Urban Planning (Authority), will have 60 days to determine whether or not an application is successful. If a decision is not made within this period then the application will be deemed as implicitly rejected. This position differs slightly from the wording included in both the Development Law and Implementation Regulations in respect to assessing licences for individual developments (Development Licence). Both the Implementation Regulations and Development Law set out that, in relation to assessing applications for Development Licences, if the period of 60 days has passed and a decision has not been made or communicated, then the Development Licence will be deemed to be granted.
Unless the developer and purchaser agree otherwise, the Implementation Regulations will assume that all payments in respect of an off-plan development purchase will be made in accordance with the following milestones:
Click here to view table.
As indicated above, the payment plan included in the Implementation Regulations will apply where an agreement is silent on payment plans but provides developers with the flexibility to include other arrangements which may be more suitable for the developers and / or the purchasers.
FAILURE TO COMPLETE A PROJECT
The Development Law included mechanisms for resolving situations where a development has either ‘temporarily’ or ‘finally’ stopped. These include empowering the Authority to take any ‘necessary measures’ to protect the purchasers’ / depositors’ rights, returning funds paid, or where a project is deemed to have ‘finally’ stopped to request the appointed Disputes Committee to require the said developer to complete the project using their own funds or sell the project and distribute the sale proceeds to the purchasers / depositors. The Implementation Regulations provides a definition of ‘temporary’ and ‘final’ in relation to projects which have stopped.
A project will be deemed to have ‘temporarily’ stopped if it has stopped progress for a period of up to 1 year from the date it commenced. On the other hand, a project will be deemed to have ‘finally’ stopped if the project has not progressed for a period exceeding 1 year from the date it commenced and the Authority has taken all necessary actions / arrangement to allow the project to continue.
Ministerial Order No 7 of 2015 (OPR Regulations) reiterates the requirements set out in the Development Law and includes further details of the information which will be included in the off-plan register (OPR) which will be maintained by the Survey and Land Registration Bureau (SLRB). These will include:
- The name of the developer and sub-developer (if applicable);
- The development activities and / or project which have been licensed pursuant to the Development Law
- The location of the property and its area;
- The number of strata units and their designations;
- Details of all common areas, service media and facilities; and
- Any other information which the SLRB deems necessary.
The OPR Regulations also sets out that the following items must be submitted to the SLRB (either electronically or in hard copies) in order to be registered onto the OPR:
- The title deed or instrument relating to the development which evidences that it is free of any rights in-kind or benefits from the approval of the title holders to develop and sell the development;
- Copy of the memorandum of association or articles of association of the developer and details of the authorised signatories;
- Copy of the final Development Licence;
- Confirmation that the developer has deposited 20% of the estimated value of the project in the Escrow Account;
- The engineering, architectural and cadastral plans;
- Plans or detailed models showing the area and form of the project as a whole as well as all plots and strata units together with their designations. This information will need to be certified by the Authority; and
- Confirmation that the relevant fees have been paid.
The application for the OPR will not be fulfilled unless all the required documentation is provided within 15 days from the date the application was made. This deadline may be extended by a further 15 days by the SLRB when there is a legitimate reason.
In addition, a copy of the relevant unit sale agreement must be submitted to the OPR either electronically or in hard copy format by either the developer or the buyer. Buyers of such units can obtain a certificate from the SLRB which will confirm the unit’s area, common parts, details of the payment plans, the completion date as well as any other information available which relates to the particular unit. The certificate will be issued within 25 days from the date the application is made.
Ministerial Order No. 28 of 2015 (Escrow Regulations) confirms the requirements set out in the Development Law and provides that the Escrow Agent must meet the following criteria:
- It must have a retail banking licence from the Central Bank of Bahrain; and
- The Escrow Account will be managed by the Escrow Bank’s office in Bahrain and by qualified staff with minimum experience of 3 years in the management of bank accounts
In addition, the Escrow Regulations restrict the Escrow Bank from providing other financial services to the relevant development and the Escrow Bank cannot mortgage the Escrow Account for any reason.
The Escrow Regulations place further restrictions on Escrow Banks which includes that the Escrow Bank must not assign or transfer its responsibilities to a third party for the duration of the project. It must not provide access or disclose any data or information to any party (subject to any court order or the request of a public prosecutor) other than the depositors themselves and this information is limited to the data and information specific to each depositor. In addition, the Escrow Bank is required to provide the Municipality One Stop Shop (which is the department responsible for issuing the relevant licences) with regular statements of the revenues and disbursements of the Escrow Account.
As indicated in our earlier article, Developers are required to deposit 20% of the estimated value of the project including the value of land into the Escrow Account. Both the Implementation Regulations and the Escrow Regulations clarify that in calculating the 20% figure referred to above, each phase of the project will be considered as a ‘separate’ project. As such, our understanding is that Developers will only be required to deposit 20% of the estimated value of each phase at the relevant phase commencement date.
Finally, the Escrow Regulations places a restriction which limits any withdrawals from the Escrow Account unless they have been approved by the project’s engineering consultant.
We have set out above the latest provisions in relation to the Development Law. Whilst the Relevant Laws and Regulations build upon the legal framework put in place by the Development Law, further legislation as well as applicable administrative and regulatory systems and / or guidance by the Authority is still required to provide the required certainty in relation to key areas.