- The clauses of off plan real estate sales contracts in the UAE customarily contain "Force Majeure" clauses, however, they do not necessarily conform to the traditional concept of force majeure. Such clauses typically include events in addition to acts of God and therefore they might be more appropriately called "Delay Event Clauses" i.e. an event that allows a person to delay performance.
- Although the UAE Civil Code does not specifically address force majeure it does provide a judge scope to reduce onerous obligations on contracting parties in extenuating circumstances.
- Developers and purchasers should pay attention to innocuous wording in so called "force majeure" clauses and shouldn't assume force majeure is so widely understood that it will cover all reasons for delay outside a parties' control.
Developers are singing to a different tune these days. Long gone are the days of "that's the contract – take it or leave it" and "you better buy it now as there is another buyer that wants it".
Developers who are facing project delays are increasingly turning to a widely misunderstood and somewhat un-tested clause in sales contracts known as force majeure in an effort to justify project delays to disgruntled investors, creditors and other stakeholders.
"Force Majeure" literally means superior force and can be broadly interpreted to mean acts of God. The concept originates from the French Civil Code as opposed to Islamic Shari'a and it is not widely understood by many who let it roll off their tongue like well seasoned scholars.
Almost every sales contract has a section boldly emblazoned with the title "Force Majeure", however, in many cases these clauses go far beyond the concept of acts of God. Typically a contract will set out the parties' obligations based on the events the contracting parties foresee occurring in a predictable manner in order to achieve the purpose of the contract.
The "Force Majeure" clause is intended to cover unforeseen events that are beyond the control of the parties that affect performance. In the development sense this might be more appropriately called a delay event i.e. an event that allows a developer to delay delivery.
The concept of force majeure was always intended to provide for events beyond the control of either contracting party that jeopardised performance to provide some relief in extenuating circumstances. Although the UAE Civil Code does not specifically address force majeure it does provide a judge scope to reduce onerous obligations on contracting parties in extenuating circumstances. However, this requires a court order which can be expensive to seek and there is no guarantee in achieving it as judges usually take a hard line on these types of issues, especially where the contracting parties could have addressed such issues in the contracts in the first place.
Developers are now dusting off their sales contracts and looking into the wording of those so called "Force Majeure" clauses. Essentially they are looking to justify delays in completion of projects, however, as the concept is not independently recognised in the UAE Civil Code the contractual wording will need to be clear and applicable to the circumstances in order for developers to get relief.
We expect judges will take a strict approach to clauses used to justify delay and if the contract is not explicit developers may find little sympathy for their plight.
Assessing the merits of these clauses is also more complicated than it first appears. As an example, one force majeure clause we reviewed included the wording: "interruption or failure of a utility service......that has an effect on the ability of the seller to perform its obligations under this Agreement". At first view it appears to be clear that if power is not available then the developer can claim relief. However, on closer inspection this is not necessarily the case.
Developers are all aware they must provide their own infrastructure during the construction period as they cannot connect to essential infrastructure unless they have completed their construction activities. The developer's prime obligations are to construct, and therefore if the developer has not completed the construction activities then how can it claim that lack of infrastructure has affected their performance? The developer had to provide their own infrastructure to build anyway so how can lack of infrastructure stop them building?
In addition, a purchaser would reasonably assume that the developer had done a minimum amount of due diligence prior to purchasing the plot or on-selling to purchasers. This would include an assessment for the basic requirements like infrastructure to enable it to complete the development before it promised its delivery to the end purchaser.
However, the harsh reality is that the costs of litigation in the UAE have meant that developers have the upper hand in these discussions as purchasers in many cases cannot afford the fight to test the veracity of these clauses. It will take cashed up purchasers to take the cases or a bold regulator to level the playing field on how these clauses are used to claim relief when in most cases the delays are caused by lack of funding.
Our advice to both developers and purchasers alike is to double check that innocuous wording in those clauses, don't accept everything at face value nor assume force majeure is so widely understood that it will cover all reasons for delay outside a parties' control. At the end of the day, each party has to plan prudently to ensure they can perform their obligations.
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