Alsuwaidi & Company

UAE Employment Law

Dubai Judiciary’s approach to investors’ request to cancel sale and purchase agreements and compensation for delay in completion of real estate projects

The United Arab Emirates (UAE) is one of the fastest-growing countries in the field of construction and real estate development. Among the seven emirates in UAE, the Emirate of Dubai is one of the leading contributors in the speedy growth of construction and real estate development through the issuance of comprehensive real estate legislations as mechanisms to create protection, assurance and security to the developers, both local and foreign investors and all parties involved in the real estate sector.

Due to the influx of real estate investment in Dubai, it is inevitable that some property buyers experienced difficulties, such as delay in the completion of projects by real estate developers, which make the investors and buyers in constant concern and lead them to seek judicial protection by filing cancelation of the Sale and Purchase Agreement, request for compensation for delay and claim for refund from the real estate developer.

In this regard, the judicial trend in Dubai has three aspects:

First: whether the project’s status is effective and the project’s achievement percentage exceeds 70%.

Second: Whether the project status is ineffective and the project’s achievement percentage is low.

Third: If the status of the project is canceled. In this article, we present the position of the Dubai Court of Cassation on the first aspect which is if the percentage of the project exceeds 70% and the project status is effective. Is the judiciary going to cancel the contract or not? – and clarify this according to the following:

Whereas, the Dubai Court of Cassation determined that, pursuant to the principle of good faith set out in Article 246 of the Civil Transactions Law, it is not permissible for any of the contract parties to refrain from fulfilling their obligation or request cancelation of the contract if the other party has fulfilled his corresponding obligation or a large part of their obligation so that what is not implemented is minimal to the extent that it does not justify the other party who has failed to perform his obligation to take such an action because he is  lacking the good faith in using his right. And that the provisions of Article 272 of the Civil Transactions Law – it has been clarified in the memorandum to this law that the judge does not force the debtor to respond to the request to cancel the contract in case the debtor fails to fulfill his obligations, therefore, the judge may grant him specified additional time, thus, the cancelation shall be governed only by the existence of three conditions:

First:  the implementation of the contract is still possible;

Second:  the creditor requests the cancelation of the contract without its implementation; and

Third: the debtor refrains to fulfill his obligations, so the decision to cancel is justified.

The delay in implementing the contract which gives the parties the right to request the cancelation of the contract shall be decided by the competent court, which has the power to evaluate and understand the facts of the claim.

Dubai Court of Cassation judgment issued on 27-04-2014 appeal no 216 /2013 real estate

The above-mentioned judgment by the Dubai Court of Cassation affirms the judgments rendered by both the Court of First Instance and Court of Appeal whereby it resolved to dismiss the buyer’s claim/request to cancel the sale and purchase agreement based on the delay by the project developer to hand over the real estate unit. The judgment of the Court of Appeal stated that “the documents of the claim, including the expert report provide that, the percentage of completion in the building is 75% and the work is progressing on the project, therefore, it is clear from the sale and purchase agreement that the seller/developer has the right to extend the completion period to another 12 months from the agreed completion date, thus delaying the handover of the unit is justified and the contract may not be canceled as long as the work is in progress and the remaining time to complete the project is short”, which does not justify the cancelation of the contract and the refund of the claimed amounts.

Whereas, it is determined that the judiciary in Dubai rejects the claim to cancel the sale and purchase agreement in case of delay of the developer in completing the project, though, it is dependent on several factors, including that the seller/developer has to justify the issue of delay and whether he informed the buyer of the delay or not, and also that the developer is in good faith in completing the project at the earliest possible time, since the remaining period to complete the project is short and what has been achieved exceeds 70%.

The above interpretation shows that the judicial trend of rejecting the request of cancelation is, in fact, protecting the real estate development in the Emirate in order not to burden the developers, especially since they proved their good faith to complete the project.

Whereof, the first aspect has been clarified in this article, we will discuss the second and third aspects in the next coming articles.