A Sale and Purchase Agreement (SPA) is a legally binding contract that governs a real estate transaction between a buyer and a seller. In Dubai, the SPA is a foundational document, detailing the rights, obligations and specific provisions agreed upon by both parties.
However, in unfortunate circumstances and breach of contract, the SPA can be terminated by either party. The termination process must comply with the emirate’s legal framework for real estate transactions. Here, we have outlined key steps for the termination of the sales and purchase agreement in Dubai.
Let’s first learn the reasons that lead to the termination of the sales contract.
Reasons for Termination of Sales and Purchase Agreement in Dubai
A sales and purchase agreement (SPA) can be terminated for many reasons. However, according to Articles 272 and 273 of the UAE Federal Law, a SPA can be cancelled under the following conditions:
Non-Performance of Contract:
If one party fails to fulfil their obligations in a mutual contract, the other party, after providing notice, demands either performance or cancellation of the contract. Moreover, the court may order the defaulting party to fulfil the contract immediately or at a specified time. The court can authorise cancellation and may award compensation if deemed appropriate.
Force Majeure and Contract Cancellation:
- In a contract, if an uncontrollable event (force majeure) occurs, rendering performance impossible, the corresponding obligation ceases. In such a case, the contract is cancelled automatically.
- If only a part of the contract becomes impossible or there’s a temporary impossibility in ongoing contracts, the affected portion is extinguished. In such cases, the obligor has the option to cancel the contract, provided they inform the obligee.
Mutual Cancellation
As per Article 268 of the UAE Federal Law, both parties can cancel the contract mutually after it has been finalised.
In addition, when buying an off-plan property in Dubai, one must consider multiple aspects like the contents of a SPA. The content is pivotal in influencing the decision to cancel the agreement. Factors such as delays in the developer meeting the agreed-upon delivery timeline, discrepancies in the quality or financial terms misaligning with expectations all contribute to a contemplating cancellation.
EFFECTS OF CONTRACT TERMINATION
Here are the main consequences of the termination of a buy-sell agreement in Dubai:
- If a contract is automatically cancelled or revoked by the parties, both parties should be returned to their original positions before the contract is formed.
- If returning to the original state is not possible, compensation may be ordered.
- In the case of contract dissolution due to voidness, cancellation or any other reason where each party must return what they received. Also, each party can withhold what they’ve obtained until the other party returns or provides security for the return of what they received. This ensures a fair and balanced resolution in case of termination of the purchase and sale agreement form.
How To Terminate a Sales And Purchase Agreement in Dubai
The termination of the sales and purchase agreement in Dubai involves a set of considerations for both developers and buyers. In case either party fails to fulfil the SPA terms, the other party can revoke the contract. However, an official notice and a 30-day grace period must be given to the defaulting party.
Developers may initiate termination if buyers fail to meet contractual obligations, such as non-payment or breaches outlined in the SPA. On the buyer’s side, termination rights may be exercised if the property developers in Dubai fail to fulfil their obligations, such as project delays or deviations from agreed-upon specifications.
Understanding the specific termination clauses in the SPA is pivotal for both parties. Doing so ensures a fair and legally sound termination process in Dubai.
Let’s go through the different ways to terminate a sales and purchase agreement in Dubai from both buyers’ and developers’ points of view.
SPA CANCELLATION TERMS FOR BUYERS
A buyer can terminate an SPA in Dubai if the developer fails to hand over the property unit by the Anticipated Completion Date (ACD). In addition, the buyer can seek a refund if the ACD surpasses six to 12 months of extensions and the property is still not handed over.
If the Real Estate Regulation Agency (RERA) cancels a real estate project, the developer is required to refund all payments made by the buyer. This comes under Law No. 8 of 2007 concerning Escrow Accounts for Real Estate Development in Dubai. It is a Dubai law for cancelled projects that ensures that buyers receive a full refund, protecting investors in real estate transactions in Dubai.
SPA CANCELLATION TERMS FOR DEVELOPERS
A developer can also revoke a SPA if the buyer doesn’t meet the requirements. Under Law No. (19) of 2020, Amending Law No. (13) of 2008 which regulates the Interim Real Property Register in the Emirate of Dubai, when a buyer fails to fulfil their contract with a developer, certain rules come into play. Here’s a simplified breakdown:
Procedure After Buyer’s Non-Performance
If a buyer breaches their off-plan sale agreement, the developer initiates a process:
Notification to DLD
The developer informs the Dubai Land Department (DLD) about the buyer’s non-compliance, providing specific details.
DLD’s 30-Day Notice
The DLD issues a 30-day notice to the buyer, urging them to fulfil their obligations. Attempts are made to mediate a friendly settlement between the developer and the buyer.
DLD Confirmation and Developer’s Actions
If the buyer doesn’t comply or reach a settlement, the DLD issues an official document. This document confirms the developer’s adherence to procedures and specifies the project’s completion percentage.
Developer’s Options
A developer has the following options depending on the completion percentage:
- If over 80%, the developer can maintain the agreement, request a public auction, or unilaterally terminate with specific refund terms. The developer can also retain 40% of the real estate unit value stipulated in the SPA.
- If the completion falls between 60% and 80%, the developer can unilaterally end the off-plan sale agreement with the buyer. In such cases, the developer can keep up to 40% of the property’s value as specified in the agreement and must refund any excess amounts to the buyer. The refund should be made within one year from the agreement termination or within sixty days from reselling the property to another buyer, whichever happens sooner.
- If below 60%, termination is possible with a distinct refund policy. The developer can retain up to 25% of the real estate unit’s value and pay the buyer any exceeding amount. The condition remains the same as in the case of 60-80% completion status.
- Special cases exist for projects not initiated, cancelled projects and land sale agreements.
Procedure to Terminate a Sales And Purchase Agreement in Dubai via DLD
Just like you can register a SPA via DLD, developers can cancel it as well if the buyer fails to make the due payments. This service enables developers to request the removal of provisional registration for investors who haven’t paid the instalments as agreed in their off-plan sales contract. In simpler terms, it allows developers to take action when investors fail to meet payment obligations, potentially leading to the cancellation of their registration.
Let’s go through the steps to terminate a Sales And purchase agreement in Dubai.
REQUIRED DOCUMENTS
For Phase I (Issuance of provisional sale deregistration)
- A real estate contract copy with all the details of the seller and buyer
- A copy of the warning by the property developer
- A copy of the warning letter by the property developer
- A copy of the purchaser’s proof of the purchaser’s acknowledging the real estate developer’s notice
- For Individuals: A copy of the passport or national ID
- For Companies: A trade licence copy, a passport copy with the authorised signatory name
- A technical report if a villa is to be deregistered
- A technical report for the unit if the project has more than one building
- A copy of the real estate developer’s notice to the buyer reminds them to make the payment before the final warning is issued, especially if it relates to the project handover or completion percentage.
- If the investor paid more than 40% of the contract value, a receipt of the registration fee payment is required
For Phase II (Completion of an application for provisional deregistration)
- A No-Objection letter copy issued by the Department of Legal Affairs
- A publication notice copy in Arabic and English
- A copy of the notice of purchaser’s receipt
- A copy of the deregistration notice provided by the Legal Affairs Department
- A copy of the dispatched notice sent to the addresses specified in the sale and purchase contract or the reservation (booking) form, in case the contract is not available
TERMS AND CONDITIONS
To apply for provisional deregistration, certain conditions must be met:
- The sale should occur before project completion.
- The customer must have received or declined the developer’s warning within a minimum one-month period without making the payment.
- The amount in the developer’s warning must match the Department’s notice.
- The developer’s warning should only include owed financial payments, excluding fines, registration fees or other claims.
- If any amount is refunded per Law No. 13 of 2008, a manager’s check in favour of the Department must be deposited, with a copy attached.
- If real estate unit numbers change, provide proof of approval from relevant authorities and notify the investor of the unit change.
- Note: Delivery of warnings or DLD’s notice can be done in person or through addresses specified in the contract.
SERVICE FEES
The service fee is AED 600. Besides, the Knowledge and Innovation Fee is AED 20. Users can pay the fee via the Noqodi Wallet.
PROCEDURE
The service can be carried out via the Oqood portal. It involves the following steps:
- Sign up or log in to the Mollak system.
- Fill in the details and attach the necessary documents.
- Pay the fees and apply online.
- A competent employee will review the application.
- Receive approval/rejection and resend to the developer.
- Parties will be notified via email if the application is approved or rejected.
The service time is 8 hours and 30 minutes.
FAQs
What is SPA in Dubai?
In Dubai, SPA (Sales and Purchase Agreement) is a legal contract outlining terms and conditions between a buyer and a real estate developer for property transactions.
What is Contract F in Dubai?
Contract F is an important RERA form that ensures transparency when buying a property in the emirate.
This wraps up our guide on the termination of the sales and purchase agreement in Dubai. The termination process and conditions must be in line with the UAE’s real estate law. That said, it is crucial to know these legalities when buying a property in Dubai.
For more on UAE’s real estate laws and regulations, keep reading dubizzle’s property blog.
