Abu Dhabi’s new Real Eastate law Effective from January 2016

The much awaited new real estate law – No. (3) of 2015 Regulating Real Estate Sector in the Emirate of Abu Dhabi – has now been published, and will take effect as of January 2016. This law is mostly good news for the average person, but as with anything, we will have to see how it is implemented. Here are 10 the most interesting bits from the new regulation for residential buyers and sellers in the emirate’s investment zones:

It had been anticipated that this law would introduce some sort of rent cap or calculator as there has been much speculation as to how it might work. However, if it is coming it isn’t in this law, so rents will continue to be set by landlords as the market will allow.

Abu Dhabi’s Department of Municipal Affairs (DMA) has been tasked with regulating the real estate sector. The DMA’s responsibilities will include implementing the law, issuing licences, controlling escrow accounts and cancelling real estate projects. The DMA will now essentially perform the same function as RERA in Dubai. Let us hope its regulations (when published) come with some real teeth to dissuade the sharp practices that are still common in the emirate.

The law prohibits developers from collecting registration fees from investors and only allows developers to charge administrative fees, which must first be approved by the DMA. This means that the existing customary 2 per cent registration fee applicable on resales would be abolished.

• Owners associations to be created

The new owners associations will have constitutions, legal status, hold title to common property and be responsible for the property’s repair and maintenance. The new law even states that owners associations will have the right to apply to the courts for an order to sell the unit of an owner who hasn’t paid their services charges.

• Off-plan sales

A developer will now not be allowed to sell units off-plan unless it proves that it owns a real estate right over the project land and that it has opened an escrow account for the development. There will also be a requirement for a “disclosure statement” to be attached to the sale and purchase agreement that provides prescribed information on the development to ensure that purchasers are informed of all the relevant facts before buying.

• Escrow accounts will be set up for off-plan sales

One of the requirements for the sale and marketing of off-plan units will now include that the developer has set up an escrow account. The proceeds from off-plan sales will need to be paid into this account and only taken out in stages to fund construction. Given the restrictions on withdrawals, the developer will effectively have to self-fund (or obtain finance) for the first 20 per cent of construction works. These accounts also apply to existing projects as well, unless the building has reached at least 70 per cent completion.

• Right to terminate an off-plan purchase

Off-plan buyers can terminate their purchase of the unit in the case of “substantial prejudice”. Certain examples are given in the law, such as substantial changes the specifications contained in the unit SPA or delivery of a unit that is unusable due to fundamental defects in construction.

• Compensation for delayed projects

The DMA may fine developers to compensate purchasers where the developer is delayed beyond six months. Importantly, this may apply to existing developments depending on the stage of completion. The new law also includes provisions for the cancellation of projects or appointment of a new developer where there is significant delay.

• Building liability for developers

There will now be a 10-year liability for developers relating to fundamental structural building defects. It means developers will be legally responsible to fix any defects that manifest 10 years after handover and this will also include a one-year defects liability period

Oqood Registration or Pre-registration law for Dubai Real Estate

Dubai's Land Department in conjunction with the Real Estate Regulatory Authority (Rera), introduced new online application 'Oqood' Law No. 13 of 2008 will enable the effective implementation of  for regulating the interim real estate register in Dubai.

This Law aims to create further consumer comfort and protection within the Dubai real estate market by introducing a mandatory system of pre-registration for “off-plan” sales contracts for real estate units at the Land Department. ‘Off-plan sales’ refers to the sale of real estate units based on an architectural plan of the property before the structure is built and the property finished

Under the new Law, any off-plan sales that are not registered will be invalid. Where the Land Department finds that any developer is not complying with the provisions of the new Law (or any other applicable law) it will prepare a case report and refer the case to the relevant authorities for investigation.

It appears that this pre-registration system will work alongside the existing project registration system established at RERA as a consequence of the introduction of the Escrow law. It also provides the basis for the implementation of some of the provisions of Dubai’s new mortgage law (Law no. 14 of 2008) and the ability to register a mortgage against an off-plan unit.

In relation to pre-registration fees, developers will continue to bear a cost per off-plan unit contract in the region of AED 370 when registering the site plan.  

Liquidated damages and procedure on default

If a buyer breaches an off-plan sale contract with a developer, under the new Law the onus will be on the developer to advise the Land Department of the breach.  The Department will then issue a notice to the buyer granting a 30 day grace period for the buyer to comply with its contractual obligations (or rectify its breach). If the breach is not rectified within the 30 day period, the developer may terminate the contract and return all amounts paid by the buyer except for 30% of monies paid, which the developer is entitled to retain. Note the reference is to retaining a percentage of monies paid by a buyer rather than percentage of the purchase price.

Variations to units

Developers are no longer entitled to claim additional money from a buyer where a unit turns out to be larger on completion than the measurement set out in the off-plan sale contract. However, where the unit turns out to be smaller, unless the difference is minor, the developer must compensate the purchaser for the difference.

What amounts to a ‘minor’ or ‘insignificant decrease’ is not defined in the new Law, although from our discussions with the Land Department we are anticipating a tolerance of somewhere between 3 and 5%. It is unclear whether it will be possible for developers to define such terms in off-plan sale contracts to protect themselves in case of any unforeseen variations in the completed development

The introduction of Law No. 13 of 2008 ("Law 13"), which came into force on 31 August 2008, aimed to create, amongst other measures, a mandatory system of pre-registration for off-plan sales contracts at the Land Department.  The purpose of this system was to give purchasers reassurance that a note of their interest would be recorded at the Land Department and, assuming all obligations under the contract were performed, that title to the property purchased would be transferred to them upon completion.  

Law 13 requires developers to register off-plan sale and purchase agreements on an Interim Real Estate Register maintained by the Land Department.  In practice a system known as "Oqood" is used to record such registrations.  Law 13 provides that sales or transfers will be void if not recorded on the Register.  Law 13 also required developers to register sale and purchase agreements entered into prior to Law 13 coming into force within a time limit of 60 days of the law coming into force.  

The provisions of Law 13 caused some confusion in the market.  For instance - what would happen if a sale and purchase agreement was registered outside the 60 day time limit? 

Article 3 of Law 13

Article 3 of Law 13 provides: 

The Interim Real Estate Register is used to record all disposals of Real Estate Units off plan.  Any sale or other disposition that transfers or restricts title or any ancillary rights shall be void if not recorded on that Register.

Any developer who made a sale or other disposition that transferred or restricted title prior to the coming into force of this Law should approach the Department to get it registered in the Real Estate Register or the Interim Real Estate Register, as applicable, within 60 days after the date on which this Law came into force.

At first glance, the provisions of Article 3 seem to be relatively clear.  Article 3(1) requires transactions to be recorded on the register, failing which they will be void. Article 3(2) states that transactions must be registered within 60 days of the law coming into force.  What is not clear, however, is what happens if a transaction is registered after the 60 day period.  While Article 3(1) provides that transactions will be void if they are not recorded on the register, it does not set out a time limit for registration.