This article summarises the key legal issues which the purchaser of an “off-plan” property in Dubai should consider as a part of their due diligence process.
Although RERA and the DLD have developed robust laws and regulations to protect both developers and investors in the recent years following the global downturn, a purchaser of an off-plan property should still carry out their own legal due diligence to protect themselves.
Due Diligence on the Developer
A purchaser should review the developer’s previous track record to review whether the developer has experience in developing projects of the same size and complexity and whether the developer has delivered previous projects on a timely basis.
Legal due diligence should also be carried out to confirm that the developer has registered the project with the Dubai Land Department (the DLD) and the Dubai Real Estate Regulatory Agency (RERA), that they have set up an escrow account and to review the terms of any sale and purchase agreement (the SPA) which the purchaser enters into.
Title, Searches and Enquiries
Unlike jurisdictions such as the UK, title information relating to a property is not readily available for public inspection unless the owner has provided its consent for the DLD to release such information.
Due diligence is therefore normally limited to reviewing title information and other relevant documentation provided by a developer, raising standard enquiries with the developer and undertaking an inspection of the project.
However, it should be noted that other searches and investigations can (and should) be made depending on the nature of the transaction and the identity of the parties. For example, we would usually expect the following to be undertaken in addition to the 'usual' due diligence referred to above:
- A search of the DLD’s records to provide confirmation of the status of any registered mortgages or encumbrances at the project;
- A review of the Dubai Real Estate Regulatory Agency’s records to provide confirmation of the status of the project;
- A court search to determine whether there are any claims against the parties which may be attached to the project;
- If the developer is a corporate entity, a search at the Dubai Department of Economic Development to confirm the relevant party has an up to date Commercial Registration.
Terms of the Sale and Purchase Agreement
All of the terms of the SPA should be reviewed, but we have highlighted certain key issues below which purchasers should consider in detail:
- The anticipated completion date – This should align with the date which was initially provided to the purchaser;
- Extension to the completion date – Most SPAs will allow the developer to extend the anticipated completion date. This should be reviewed to confirm how much additional time it allows for or if it is open ended;
- Unit specifications – The SPA should contain the specifications which were agreed to in order to ensure that the unit meets the agreed standards and specifications on handover;
- The payment schedule – This should reflect the agreed payment dates for the instalments and should be linked to actual construction milestones rather than dates; and
- The name of the contracting party – The SPA should be entered into with the registered developer / owner of the project.
Purchasers should also continue to monitor the progress of the construction of the project through updates sent by the developer and the progress reports issued by RERA.