What all to consider before signing sale purchase agreement in Dubai

property law

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August 08, 2019

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With a persistent variation in the property prices, the buyers are climbing the bandwagon to earn profits on investment. The developers are equally or slightly more beneficial from such a trend. Once both the parties, buyer and seller agree to buy or sell a specific unit, they enter into a Sale and Purchase Agreement commonly known as SPA in UAE.

SPA is a most frequently used jargon in commercial transactions especially in the real-estate sector. In order to finalize a deal of either a property or any other movable or immovable asset, a well drafted SPA is required. Even though having a SPA is one of the primary and most crucial requirements for the parties, yet parties fail to scrutinize this document to understand their legal status pursuant to the laws of UAE. It is always advised by Real Estate Lawyers to carefully review the contents of the SPA before signing it or parties must seek legal assistance. In line with the preceding, the Corporate Lawyers in Dubai have mentioned a few notable points in this article which must be carefully read and understood by parties before entering into SPA.

Every Emirate has promulgated numerous laws regulating the real-estate transaction within their Emirate. Accordingly, Dubai has issued innumerable laws such as Law Number 7 of 2013 establishing the Dubai Land Department, Law Number 9 of 2009 governing the interim property register, Law Number 8 of 2007 on the Escrow account to be maintained by Developers. All the foregoing laws offer protection to the buyer's post purchasing the property within Dubai. Even though we have ample of legislation safeguarding the interest of the buyers who are purchasing property in Dubai but that will come into effect only post the breach in the contract thus, prevention is always better than cure. As evident from enormous cases, buyers are still in a hurry to sign the SPA without glancing at the clauses mentioned in the agreement. Thus, it is advised to all our readers to thoroughly review the terms of the agreement or at least carefully look into the following issues before signing the SPA:

1. Review the license of Developer

It is essential for the buyer to review the permits of the Developer and to ensure if the developer is registered with the Dubai Land Department. This step is easy and most important as no one wants to sign the deal with a wrong developer. Thus, Department of Land, Dubai has provided a list of developers registered with them, through which one can ascertain if the developer is holding valid licenses and simultaneously registered with the authority.

2. Seek registration record of project

Each and Every real estate project in the Emirate of Dubai is registered with either Land Department or through Oqood as authorized by Real Estate Regulatory Department of Dubai (RERA). Through convenient access to the website of either authority, one can ensure if the project is registered or not as the authority has provided a non-exhaustive list of approved projects in Dubai.

3. Obtain a copy of the title deed

It is pertinent for the buyer to check if the actual owner of the property, as what is mentioned in the title deed is mentioned in the SPA. Thus, reviewing the title deed of the property is paramount. Apart from reviewing the title deed, the buyer must also review the rights awarded to the owner of the property and should verify if there are any restrictions. In addition to title deed, the buyer can also seek a copy of community declaration for understanding the rights in relation to the use of the property.

4. Review the details of essential parties in the SPA

To hasten up the procedure, buyers often neglect to check the parties involved in the contract as sometimes there are numerous parties to the contract that is the owner, developer, manager and more and seller only refer one party in the contract or rather a shell company just for signing agreements. Thus, it must be carefully reviewed, and due diligence on the seller is utmost necessary.

5. Check thoroughly the payment schedule

Considering a general scenario, the payment schedule terms offered by the developer are often too lengthy and extensive. However, they are one of the important document as it is the only obligation of the buyer under the contract. It must be reviewed cautiously to check if it meets the construction stages offered by the Developer.

6. Review the termination clause of the SPA

Termination provisions in a SPA are the most debatable clause as evident from the numerous cases filed before the competent courts in Dubai. In a general termination clause, the Developer retains the initial investment amount paid by the purchaser in the event of termination of the agreement or if the buyer fails to abide by his financial obligations. Accordingly, the buyer must carefully examine the termination clauses allowing him to rescind the contract, upon default of sellers obligations such as delay in handing over the property or failing to register the property with the authority and similar.

7. Check the details of the Escrow account

Dubai Law Number 8 of 2007 on maintaining the escrow account, obliges each contractor or developer in Dubai to maintain an escrow account for the project and all the investment made by the sellers should be submitted in the escrow account. The property developers, failing to abide by this provision can face hefty penalties. Thus, it is essential for the buyers to seek details from the developer or RERA of an escrow account to ensure the security of investment amount.

8. Study the dispute resolution clause

Buyers must carefully study the governing law to ensure if the law regulating the contract is of UAE. In addition, he must check the method for resolving disputes which can be either through UAE courts or independent arbitration centers. In case the contract opts for arbitration, buyers must seek legal advice from Arbitration Lawyers in Dubai.

9. Check a power of attorney for authorized signatory

Sometimes, the developers authorize third parties to sign the contract on their behalf which is commonly known as authorized signatories. Ergo, the buyers must carefully review power of attorney granting signatory rights to the authorized signatory.

10. Check the completion date of the project and consequences for failure

Every sale purchase agreement has a completion date on which the seller will hand over the unit to the buyer. However, we have witnessed numerous cases, wherein the sellers fail to oblige with the hand over date. On the other hand, buyers being unaware of the completion date lose their right of terminating the property and seeking compensation. Therefore, buyers must determine the completion date of the project and should understand the legal consequences for the seller, if they breach the provision of the contract.

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