United Arab Emirates: Rights of Real Estate Investors in Abu Dhabi

Last Updated: 11 August 2010
Article by Faizal P. Latheef

Yester years have witnessed huge growth in the real estate realm of the UAE. Investors from across the world were queuing up in the region to ensure their piece of property. As we all know, the boom has touched more or less the whole of the country though Dubai and Abu Dhabi have been the biggest beneficiaries.

However, the global economic down turn has drastically affected the real estate sector and a sense of panic has embraced all the investors. With no qualms, it is very evident that the vigour and enthusiasm exhibited by the investors in purchasing the property were not squarely displayed in protection of their interests. The vibrancy shown by the investors was not reciprocated by the authorities too when it came to regulation of the market. Albeit some of the emirates like Dubai have enacted many a law and attempted to provide some relief to the investors, it is skeptical if they were either comprehensive or effective. All on a sudden, a big and significant question has surfaced in the minds of the investors – are our interests sufficiently protected? An attempt is made herein to answer the said question, zeroing in on the prevailing situation in Abu Dhabi.

Perhaps, the only legislation in Abu Dhabi that may have a direct impact upon the investors is Law No. 19 of 2005 regarding Property Ownership. The said law, as the name would suggest, confines to ownership rights over property. Apart from this, Abu Dhabi does not appear to have enacted any legislation governing the market, albeit it may sound strange. This has now resulted in a perilous situation for the investors as the developers cancelling their projects; requiring the investors to swap their units; increasing the floor area of the units without the investors' consent; demanding exorbitant service charges; delay in construction etc. have become rampant.

It is no secret that the majority of the real estate agreements (collectively called "Documents"), if not all of them, are unambiguously one sided or contracts of adhesion. They may comprise of innumerable provisions aimed at protecting the interests of the developers and may be conspicuous by the absence of fundamental provisions that may preserve investors' interests in any standard real estate contract. The fact that most of the investors are expatriates who are not acquainted with the legislations, and may be in a hurry to finish off the deal at the earliest aggravates the problem. They may fall easily in to the hands of agents, subside under compulsions and sign the Documents without confirming if their rights are adequately safeguarded.

It is bizarre that many of the Documents would not even mention the ownership rights of the seller. Confining the defects liability period to a minimum period even as short as one year [whereas the seller is bound to indemnify the purchaser for any dilapidation that occurs within 10 years in the building, and for any defect that threatens the durability and safety of the structure, as per law]; non-linking of the payment of purchase price to phases of construction [this may ensure that the purchaser needs to pay the installments only if the construction progresses as per the Documents]; non-mentioning of approximate service charges/common expenses [enabling the seller to levy exorbitant amounts at its discretion]; purchaser's right to inspect the unit before completion and require the seller to cure the defects within a mutually agreed period etc. are some of the common provisions wherein the rights of investors are subverted.

Be that as it may, the investors must also realize that there are myriad options that may facilitate better protection of their interests. The first and foremost among them is to get a thorough knowledge about the terms and conditions of the Documents. Experience suggests that majority of the investors who come across troubles have not taken expert opinion before executing the Documents. Someone who is thorough with the legal imbroglios pertaining to the real estate sector could easily guide the investors through the hidden dangers contained in the Documents. The investors would consequently get a clear picture about the unilateral provisions/provisions that prejudice their interests, and may make them confident to require the developer to revise or delete such provisions.

It must also be noted that there are various provisions in the UAE Federal Law No. (05) of 1985 on the issuance of the Civil Transactions Law (the "Civil Code") that assist the investors to effectively safeguard their interests in a real estate contract.

As per Article 247, in contracts binding upon both the parties, if mutual obligations are due for performance and either of the parties fails to perform its obligation, the other may refuse to perform its obligation.

As per Article 272, in contracts binding upon both the parties, if one of the parties does not do what it is obliged to do, the other party may, after giving notice to the obligor, require that the contract be performed or cancelled. The court may order the obligor to perform the contract forthwith, or may defer performance to a specified time, and it may also order that the contract be cancelled and compensation be paid, if appropriate.

Non-commencement of construction/slow progress of construction; requiring the purchaser to swap the unit; revision of the floor plan increasing the burden of the purchaser etc. may be considered as instances wherein the aforementioned provisions come in to application.

Further, Article 248 empowers the courts to review a contract of adhesion which contains unfair provisions, and vary those provisions or to exempt the adhering party from performing its obligations in accordance with the requirements of justice.

The Civil Code, under Article 275, also stipulates that if a contract is cancelled, the two contracting parties shall be restored to the position they were in before the contract was made, and if that is not possible, compensation shall be ordered.

The above may illustrate that the investors do have distinct options in the event of a violation of their rights. Nevertheless, the situation would change only if the investors become aware of their rights, however limited that be. Undoubtedly, such awareness would not only make the investors confident but also constrain the developers to be more transparent in their dealings. The developers would be hesitant to insert unilateral clauses in the Documents if they get a feeling that investors take expert opinion on them on a regular basis. It is only logical to surmise that the chances of a dispute become marginal if the rights and obligations of either party are clearly defined in the Documents and there are limited chances for exploitation.

Similarly, for the authorities too, the prevailing financial crisis could be reckoned as an excellent respite gifted by history to look back and introspect. Defying traditions and embracing innovative designs are not something alien to the administrators of the country who are bestowed with an impeccable vision. Enactment of a comprehensive federal legislation governing the real estate realm would unambiguously craft an aura of trust and confidence among the expatriate investors, who are fervent to contribute to the country's development. This would fortify their faith in the economy and warrant a quintessential investment climate.

www.habibalmulla.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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