- Defaulting on Off-Plan Property Payments
- Developer Actions
- DLD Actions
- Legal Actions Based on Project Completion Percentage
- FAQs
The off-plan market in Dubai attracts people from around the globe. Lucrative returns and easy payment plans are a big reason for the rapid growth of the market. Additionally, the many laws and regulations in place safeguard the rights of investors. Similarly, these laws protect the rights of the developers in case an investor defaults on the payments. These rules and regulations provide sufficient time for investors to clear their debts. However, strict actions are in place for lawbreakers. We will do an overview of the consequences of defaulting on off-plan property payments in Dubai to help investors and developers understand the laws.
Defaulting on Off-Plan Property Payments
The different kinds of payment plans for off-plan properties in Dubai accommodate a wide range of buyers. For instance, traditional, deferred and post-handover payment plans in Dubai, among others. However, regardless of the payment plan, buyers need to pay their dues as per the specified terms.
Failure to do so or a default on off-plan property payments in Dubai gives the developers the right to take legal action against the buyer. Let’s see what happens if a buyer defaults on payments after buying an off-plan property in Dubai.
What the Developer Does
If a buyer fails to make payment, the developer must notify the Dubai Land Department (DLD) and submit the required details. According to Article 3 (1) of the Dubai Law No. 13 of 2008, states:
“The Developer must notify the DLD of the purchaser’s non-performance of his contractual obligations. This notification must be submitted on the form prescribed by the DLD for this purpose and must include the details of the Developer and purchaser; a description of the Real Property Unit subject of the Off-plan Sale agreement; a detailed account of the contractual obligations breached by the purchaser; and any other details determined by the DLD.”
What DLD Does
After receiving notification and verification of the buyer’s breach of contractual terms, DLD serves a notice. Additionally, it tries to mediate a settlement between the buyer and developer. As per Law No. (19) of 2020 amending Law No. (13) of 2008, DLD must:
“A. serve a thirty (30) days’ notice on the purchaser requiring him to fulfil his contractual obligations towards the Developer. The notice must be in writing and dated; and must be delivered to the purchaser either in person or by registered mail with acknowledgement of receipt, email, or any other means prescribed by the DLD; and
B. where possible, mediate an amicable settlement between the Developer and purchaser, in which case such a settlement must be attached as an addendum to the Off-plan Sale agreement and must be executed by the Developer and the purchaser.”
In case the notice period specified by DLD expires and the buyer fails to fulfil the obligations or if the parties fail to come to an agreement, DLD gives its decision in the developer’s favour. According to Law No. (19) of 2020 amending Law No. (13) of 2008, DLD issues an official notification confirming the following:
- The Developer’s compliance with the procedures stipulated in the notification issued by DLD.
- The percentage of completion of the Real Property project subject of the Off-plan Sale agreement, calculated in accordance with the relevant standards and rules adopted by RERA.
Developer’s Legal Action for Defaulting on Off-Plan Property in Dubai
Upon receiving the official notification, the developer can take certain actions against the buyer defaulting on off-plan property payments. However, these actions depend on the percentage of project completion. As per Law No. (19) of 2020 amending Law No. (13) of 2008, listed below are the actions a developer can take based on the percentage of project completion.
For More than 80% of Project Completion
According to the law, the developer can do the following:
“1. Maintain the Off-plan Sale agreement concluded with the purchaser, retain all amounts paid by the purchaser, and claim the balance of the value of the agreement from the purchaser;
2. Request the DLD to sell the Real Property Unit, subject of the Off-plan Sale agreement, by public auction to collect the remaining amounts payable to the Developer; and hold the purchaser liable for the costs arising from the sale; or
3. Unilaterally terminate the Off-plan Sale agreement concluded with the purchaser, retain up to forty percent (40%) of the value of the Real Property Unit stipulated in the Off-plan Sale agreement, and refund any amounts in excess of this to the purchaser. In this case, the Developer must refund the amounts owed to the purchaser within one (1) year from the termination of the Off-plan Sale agreement or within sixty (60) days from the date of resale of the Real Property Unit to another purchaser, whichever occurs earlier.”
For Project Completion Between 60 to 80%
If the project progress is between 60 to 80%, here’s what the law says for this scenario.
“Where the percentage of completion of the Real Property project is between sixty percent (60%) and eighty percent (80%), the Developer may unilaterally terminate the Off-plan Sale agreement concluded with the purchaser, retain up to forty percent (40%) of the value of the Real Property Unit stipulated in the Off-plan Sale agreement, and refund any amounts in excess of this to the purchaser. In this case, the Developer must refund the amounts owed to the purchaser within one (1) year from the termination of the Off-plan Sale agreement or within sixty (60) days from the date of resale of the Real Property Unit to another purchaser, whichever occurs earlier.”
For Less Than 60% Project Completion
For such scenarios, Law No. (19) of 2020 amending Law No. (13) of 2008 states:
“Where the Developer has commenced work on the Real Property project, having taken hold of the construction site and started construction works in accordance with the designs approved by the competent entities, and the percentage of completion of the Real Property project is less than sixty percent (60%), the Developer may unilaterally terminate the Off-plan Sale agreement concluded with the purchaser, retain up to twenty-five percent (25%) of the value of the Real Property Unit stipulated in the Off-plan Sale agreement, and refund any amounts in excess of this to the purchaser. In this case, the Developer must refund the amounts owed to the purchaser within one (1) year from the termination of the agreement or within sixty (60) days from the date of resale of the Real Property Unit to another purchaser, whichever occurs earlier.”
For Work Not Commenced on the Project
If the Dubai off-plan construction timelines are not met work has not commenced, the developer refunds all payments to the purchaser. The law states:
“Where the Developer has not commenced work on the Real Property project for any reason beyond his control, without negligence or omission on his part, or where the Real Property project is cancelled pursuant to a final reasoned decision of RERA, the Developer must refund all payments made by the purchasers, in accordance with the procedures and rules stipulated in the above-mentioned Law No. (8) of 2007.”
Note: All the aforementioned rules and laws are based on Law No. (19) of 2020 amending Law No. (13) of 2008 Regulating the Interim Real Property Register in the Emirate of Dubai.
FAQs
What Happens if You Miss Off-Plan Payments in Dubai?
The developer files a complaint with DLD. Upon verification, DLD issues an official notification in favour of the developer. Depending on the percentage of project completion, the developer is allowed to cancel the sales and purchase agreement (SPA) or resell the property.
What Does it Mean When a Payment Plan is Defaulted?
It means a buyer has missed several instalments. The developers reserve the right to file a motion to recover their losses.
Consequences of Missing Off-plan Payments in Dubai?
The common off-plan payment default penalties in Dubai include loss of deposits, contract cancellation, legal actions and blacklisting by developers.
There you have it, everything to know about the consequences of defaulting on off-plan property payments in Dubai. The many off-plan payment plans in Dubai cater to a diverse range of budgets. It is important to plan your finances to ensure a hassle-free off-plan property buying experience.
Moreover, there are rules for delays by developers. Buyers can sue for delayed property handover and let the legal system take action.
If you have the budget and are looking to invest in off-plan projects, the options are in abundance. Browse through these new projects in Dubai and explore some amazing developments in the most sought-after neighbourhoods.
Stay connected with UAE’s leading property blog to learn about the consequences of off-plan property contract breaches in Dubai and other emirates.
