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TERMINATION OF SALE AND PURCHASE AGREEMENT “SPA” UNDER THE PROVISIONS OF LAW # 13 FOR THE YEAR 2008, AS AMENDED BY LAW # 9 FOR THE YEAR 2009

PROVISIONS OF LAW

The Legislator by promulgating the Real Estate laws in the Emirate of Dubai, specifically Law # 13 for the year 2008 with respect to registration of property in Dubai, as amended by Law # 9 for the year 2009 and the Executive Regulations # 6 for the year 2010, was intending to make balancing between the rights of the Developer and the Investor in the United Arab Emirates in order to secure the interests of both Parties and the community in general. The vision of the Legislator is clear that adequate guarantees were laid down to preclude a grievance and injustice and endeavors to achieve justice and equity. Article – 3 of the said law nullified any disposition of the off-plan sold Units when such disposition is not registered with the Interim Real Estate Register. Articles – 4 & 10 invalidates such disposition if it takes place before obtaining necessary approvals. This is in order to protect the interests of Investor, in addition to the penalties prescribed in the event that the amounts of money were not deposited in the Escrow Account in pursuance to the provisions of Law # 8 for the year 2007 with respect to Escrow Accounts leaving the funds of Investors under disposition of the Trustee of Escrow Account. All these measures are aimed for protection of the rights of Investor.

On the other hand, the Developer is an Investor as well who employs thousands of persons and contributes in the economy of the Country and thereby be entitled to be secured. Hence the Legislator was very keen to secure its rights as did with the individual Investor. Article – 11 of Law # 13 for the year 2008, amended by Law # 9 for the year 2009, and Article – 15 of the Executive Regulations vide # 6 for the year 2010 regulated a situation whereby the Developer would be between the rock and hard. When the Investor defaults in payment and thus hinders and negatively affects the process of construction works and completion of the Project. At the same time the Developer may not be able to re-sell the Unit being registered in the name of Investors at the Interim Real Estate Register. Therefore the Legislator gave the Developer the right to terminate the Contract and retain the proportions prescribed by Article -11 referred to herein above.

In the light of this comprehensive perspective it has appeared to the Legislator that the Real Estate Projects in the United Arab Emirates is a huge Project which requires a lot of money and that the Developer has sustained damages which affects its personal interest and the interests of community, in general as a result of suspension of construction works and non-completion of the Project due to default in payment by the Investors. Regulations and procedures were laid down in order to secure compensation for damages. The Land Department has been authorized to assume such procedures as being a neutral party. Hence Article – 11 of Law # 13 for the year 2008 and its amendments has included penalties for the default by the Buyer in settlement of the price which is the right of the Developer to terminate the Contract and to retain the proportions referred to in this Article as compensation for the damage sustained by the Developer provided that the procedures for notification shall be followed in the manner mentioned in the same Article under supervision and monitoring of the Land Department.

As it is established within the interpretation rules, the special provision restricting the general provision, Article – 11 of Law # 13 for the year 2008 and its amendments is a special provision of the rules of the general doctrine for termination and does not contradict therewith in respect of retaining of a proportion of the amounts paid by the Investor as compensation. The general doctrine asserts termination by mutual agreement as well as the right of the Judge to order for termination and indemnity.

From the practical perspective, the rulings of the Court of Cassation, Dubai repeatedly decided that the Order issued by the Land Department terminating sale of a Real Estate Unit and giving the Developer the right of retention of the proportions referred to in Article – 11 is a recommendation and administrative order which is not binding to the Courts and that only the Courts shall have jurisdiction to terminate the Contracts. In a recent Judgement, the Court of Cassation decided that termination of Contract by the Developer through the Land Department and re-sale of the Unit to a new Investor is a termination to be made by one of the Contracting Party and in such an event the Developer shall be liable to refund all amounts paid by the first Investor along with legal interest due to impossibility of performance of the Contract, because the Developer by re-sale of the Unit would have deprived the Investor to evade termination by way of payment at any time before the final Judgement, and that the Developer must before re-sale resort to the Court to prove the default of Investor and obtain Judgement for termination of the Contract.

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