المقالات القانونية / قانون التملك

Covid-19 Impact on Construction Contracts In UAE

property law


July 29, 2020

It is indeed impossible to ignore the impact of COVID-19 on construction sector, especially in UAE which has lately been the hub for investors investing huge amount in construction industry.

Do construction contract stand still during the pandemic, does it allow the investor to seek for termination of the contract, Will force majeure clause allow the property developers to escape from their contractual liability, is corona virus a force majeure event and some similar questions are popping up in the mind of readers and especially for those who have invested huge chunks in construction industry in UAE.

Well, the Commercial Lawyers of Dubai will try to enlighten you with the legal consequences of coronavirus on construction contracts in this article. Regardless of whether this pandemic can be qualified as a force majeure event, it is unavoidably an issue of actuality and will rely upon the conditions of each case. Given force majeure is conditional and is dependent upon the parties' understanding, it may not generally be maintained by the courts.

Along these lines, in a circumstance of default brought about by COVID-19, different cures, for example, termination of contract, suspension or pacing of works might be considered by development experts. It is exceptionally basic for construction contracts to manage any circumstance of default or inability to perform ones commitments.

Such disappointment could in certainty be all around expected, regardless of whether for the contractor confronting a disruption in the hierarchy of workers and lack of assets brought about by COVID-19 related travel bans. It could likewise be normal by the employer confronting troubles in making sure about due and pending payments or giving convenient variations.

Termination of the contract

The law of UAE recognize two types of termination that is by default and other by convenience. Wherein, as the word suggest the termination by default is one party fails to perform its contractual obligation and such events are generally mentioned in the provisions of the contract, entitling the other party to seek compensation for the damages suffered. Nevertheless, it is yet to be discovered whether failure to perform contractual obligations due to unexpected impact of coronavirus will be considered as a valid reason for termination of the contract by default.

Alternatively, it is a strong opinion of many lawyers around the world that it shall be considered as a force majeure event which prevented the other party to perform its obligations, thereby seeking relief under such situations.

On the other hand, the termination by convenience is defined under Article 267 of the Civil Transactions Code (Federal Law number 5 of 1985) allowing both the parties to terminate the contract as per their convenience.Importantly, it is more likely in the current covid-19 situation that parties may reach to an amicable termination of the contract to safeguard each other’s interest.

An option in contrast to termination, which is frequently viewed as a best alternative that is mostly used to threaten than actually being utilized. In situations like the present scenario, where the parties are unsure is impact of coronavirus will be reviewed as force majeure they may consider the option of suspension of work or performance of their contractual obligations.

The option to suspend is set out in Article 247 of Federal Law No. 5/1985. Nevertheless, this must be applied warily and in accordance with some basic honesty. Along these lines, a convenient suspension is fundamental and its legitimacy will depend of the realities of each case. Even though the law issues various option to contractual parties, it is still advised to reach out to best lawyers in Dubai to seek genuine legal advice.

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