The UAE’s real estate market has proven its worth in previous decades and has attracted investors from all across the globe. To cater to this influx, the government has drafted different policies and enforced rules and regulations to protect the rights of buyers and sellers alike.
One such rule is to sign and register the Sales and Purchase Agreement (SPA). The SPA is a written document that outlines the terms and conditions of property transactions between both parties. Apart from necessary information, the agreement can include different conditions, both parties agreed on. That said, the agreement legally obligates buyers and sellers to adhere to the conditions mentioned in the document.
Since SPA is a legal document, it is significant in property transactions and should be drafted properly. For your convenience, we have mentioned all the necessary elements to be included and the things to consider before signing the sales and purchase agreement in UAE.
Things to Know about Sales and Purchase Agreement (SPA) in the UAE
The SPA is generally signed when investing in off-plan properties in Dubai and other Emirates. This agreement defines the legal status of both parties according to the UAE real estate laws. Therefore, it is suggested to draft and sign the agreement after property scrutinising.
Let’s take a closer look at when to sign a purchase and sale agreement and the elements that should be included in it.
Content of SPA
SPA is a detailed document that includes all the conditions that may lead to contract cancellation.That said, here are some necessary things that should be included in the contract.
Property Layout
The agreement should include complete details regarding the property layout after completion. This can include covered area, interior, exterior and quality of elements used in the construction.
Financial Transactions
All the terms and conditions related to financial transactions such as down payment, monthly instalments, discounts and escrow account details should be mentioned in the contract.
Payment Plan
The monthly instalments and payment plan for the remaining amount should be clearly written in the contract.
Personal Information
The agreement must have all the personal information of the buyer and seller including their residential and commercial addresses, phone numbers and Emirates IDs/Passport.
Handing Over Date
Since off-plan property delayed handing over is an issue, the developer is liable to include a handing-over date in the contract.
Facilities and Amenities
In case, the developer has promised any sort of facilities and amenities that will be provided to the buyer after project completion, they should be written in the contract.
Cancelation Terms
Buying an off-plan property is a long-term commitment; therefore, there are chances that you might need to cancel the project before its completion. Some developers include conditions on the project cancellation that might not favour you. Make sure to read and add cancellation terms that benefit both parties. For more information, you can read our blog on laws for unfinished real estate projects.
Reselling Clause
Similar to cancellation, reselling can be difficult if the developer does not agree. Therefore, it is suggested to include the reselling clause in the contract.
How to Cancel SPA
The SPA can be terminated when either the developer or buyers fail to meet the conditions mentioned in the agreement. An official notice and 30 days are provided to the defaulted party for reconciliation, after the grace period, the contract is terminated.
If the buyer defaults, the developer will get compensation depending on the level of project completion. Here are different levels of property completion and the compensation developer can get.
- Pre-construction: If the buyer defaults before the construction of the project is started, the developer will get 30% of the purchase price.
- Less than 60% is Completed: If the default is before the property is completed by 60%, the developer will get 25% of the purchase price.
- More than 60% is Completed: Developers will be compensated with 40% of the purchase price if the property is completed more than 60%.
However, if the developer defaults, the buyer can terminate the contract. Generally, developers default when they fail to hand over the property on the agreed date. In this case, the developer is provided with a 6 to 12 months extension period for the property completion. After the period, the buyer can terminate the contract and the paid amount will be refunded.
Remember that the termination is dependent upon the clause included in the SPA. Therefore, carefully read the termination clause written in the SPA. Moreover, if the court is involved, the court’s verdict might also affect the termination of the contract and compensation.
Things to Consider Before Signing SPA
Similar to the tenancy contract checklist, there are certain aspects that should be considered while signing the sale and purchase agreement in Dubai and other Emirates.
Check Project Registration
The first thing to consider before signing a sales and purchase agreement in the UAE is to check the project registration. Every real estate development project is registered with the concerned authority of that Emirate and you can check its legitimacy.
If you are living in Dubai, the project should be registered with the RERA or DLD. Similarly, for Abu Dhabi, the project will be registered with TAMM. You can visit the official website of the concerned authority to verify the project registration.
Seek Developer’s Licence
For the convenience of investors, only licensed real estate agents and developers are allowed to operate in the region. Therefore, ask for the developer’s licence and cross-check their registration with the authorities. You can also ask for their good conduct certificate provided by the government.
Scrutinise the Contract
SPA is the most significant in the whole process and should be scrutinised thoroughly. Ask the developer for at least a week to sign the contract and properly read every clause. In case you have an issue with any of the conditions, discuss it with the developer and resolve the issue.
Moreover, verbal discussions and promises hold no legal legitimacy; therefore, any verbal condition that you have agreed on should be written in the contract.
Focus on Subtle Conditions
It is rare to find subtle conditions in the SPA, as the government has strict rules and regulations against it. However, it is recommended to check for hidden conditions that might be written in smaller fonts or in under the script. Also, look for the asterisk sign (*) as it means terms and conditions applied.
Verify the Escrow Account
The escrow account is a dedicated bank account used only for off-plan transactions. The buyers have to deposit all the payments in this account. Ask the developer for the bank account title and number and verify it with the bank to ensure the security of their investment.
Validate Emirates ID and Passport
Once you are done with all the above steps, look for the Emirates ID and passport number of the developer mentioned on the contract. Ensure that the details of the developer and those mentioned in the contract match.
These were the complete details regarding the sales and purchase agreement in UAE. Signing SPA aids in securing the rights of investors and developers and guarantees smooth real estate transactions. That said, to invest in the secure real estate market, you can check a number of properties for sale in the UAE.
Stay tuned to dubizzle’s property blog for more information on purchase and sale agreements.
