Legal position and practical considerations in the context of current regional developments
Ongoing regional developments have created a certain degree of uncertainty across financial markets, logistics and supply chain networks, and investor sentiment. These developments have prompted practical questions as to whether a real estate property purchaser may withdraw from a property purchase agreement in Dubai, particularly in ongoing transactions where parties are reassessing risk exposure and financial commitments.
General Principle: The Binding Nature of Contracts
It remains a settled principle under UAE law that if a contract is valid and binding, none of the contracting parties may revoke, modify or rescind it, except by mutual consent (Article 267 of UAE Civil Code 5 of 1985).
Accordingly, fluctuations in market conditions, geopolitical uncertainty, regional conflict, or changes in investor sentiment do not, in themselves, entitle a purchaser to withdraw from a property purchase agreement.
However, UAE law recognises limited exceptions in cases of exceptional circumstances, primarily under the doctrines of force majeure and exceptional circumstances (hardship).
Force Majeure: Impossibility of Performance
Force majeure arises where performance of a contract becomes objectively impossible due to an exceptional event beyond the control of the parties. Under Article 273 of Federal Law No. 5 of 1985 (UAE Civil Code), where performance becomes impossible, the contract may be terminated automatically (ipso facto) and the parties are restored to their position prior to the contract.
However, UAE courts apply this doctrine strictly and require that:
- the event was unforeseeable at the time of contracting;
- the event is unavoidable despite reasonable efforts; and
- most importantly, the event renders performance absolutely impossible, not merely difficult, delayed or more costly.
In such circumstances, the affected party is generally not liable for damages, as the obligation ceases by operation of law. Where the impossibility is partial, only the affected part of the obligation is extinguished, while the remainder of the contract may continue to be performed.
What are the practical implications for property purchase agreements in the context of current regional tensions?
The mere existence of regional tensions is not sufficient to render performance of the contract impossible. Even if economic conditions become difficult or bank financing/mortgage facilities become unavailable, this does not amount to the degree of impossibility required under Article 273 of the UAE Civil Code.
The new law (Federal Decree-Law No. 25 of 2025 promulgating the Civil Transactions Law – Civil Code), which will be effective 1 June 2026 (New Law), does not alter this core concept. It does, however, impose an obligation to notify the other party of circumstances that may impede performance, failing which the defaulting party may bear the consequences.
Impact of Current Regional Conflicts
While current regional tensions may lead to supply chain disruptions, banking and financing constraints, delays in construction or handover, increased costs of materials and labour, or general market uncertainty, these factors will generally not meet the threshold of impossibility required under Article 273 of the UAE Civil Code.
In the context of property purchase agreements, payment obligations and transfer of ownership typically remain legally enforceable and practically capable of performance, even in a disrupted environment.
In the event of force majeure, the affected party is required to notify the other party of any circumstances that may impede the performance of its obligations, failing which it may bear the consequences of such non-performance.
In the current context, this requirement assumes particular importance where delays arise from disruptions to construction timelines, shortages of materials, or constraints affecting contractors or developers. Failure to provide timely notice in such circumstances may expose the affected party to increased legal risk and potential adverse consequences.
Exceptional Circumstances (Hardship): When Performance Becomes Onerous
Where performance remains possible but becomes excessively onerous due to exceptional and unforeseen circumstances, Article 249 of Federal Law No. 5 of 1985 of the UAE Civil Code shall apply. Article 249 states that: “When, as a result of general exceptional and unpredictable events, the performance of the contractual obligation, without being impossible, becomes excessively onerous in such a way as to threaten the debtor with exorbitant loss, the judge may, if justice so requires, and according to circumstances and after taking into consideration the interests of both parties, reduce to reasonable limits the obligation that has become excessive.”
This provision is particularly relevant in the current environment, where regional instability may:
- significantly affect financing availability,
- increase project costs, or
- alter the economic balance of the transaction.
Unlike force majeure, these circumstances do not result in automatic termination of the contract. Instead, the aggrieved party may apply to the court to seek an adjustment of the contractual obligations (such as a reduction or adjustment in price or an extension of time).
Expanded Judicial Powers Under the New Law:
The New Law further strengthens this principle in the context of construction contracts.
Pursuant to Article 829 of the New Law, if the contractual balance between the employer and the contractor collapses due to exceptional and unforeseen circumstances that disturb the basis upon which the financial estimation of the contract was made, the court may restore the contractual balance, including by extending the term, increasing or reducing the consideration, or terminating the contract.
Although these provisions apply directly to construction contracts, this development indirectly affects off-plan purchase agreements, where the developer is obliged to deliver the unit in accordance with a specified timeline and cost.
The Contract Itself: The Most Decisive Factor
In practice, the most decisive factor remains the terms and conditions of the contract itself, particularly in the current environment of heightened geopolitical risk, in determining whether a purchaser has the right to withdraw, and this varies according to the type of transaction.
Off-Plan Transactions
In off-plan purchases, the reservation agreement or sale and purchase agreement must be reviewed, as they may contain provisions specifying rights of termination in the event of delays in handover by the developer, failure to obtain bank financing, or provisions addressing force majeure events.
Secondary Market Transactions/Resale Purchase
Secondary market (resale) property transactions in Dubai are primarily governed by the Unified Form F issued by the Dubai Land Department and regulated by the Real Estate Regulatory Agency. Form F sets out the standard key commercial and legal terms of the transaction, including the purchase price, deposit, completion timeline, and consequences of default. While it provides a standard framework, parties often include additional conditions to address specific matters such as financing, delays, or property-related obligations. In practice, the rights and remedies of the parties depend largely on the terms of Form F and any agreed special conditions, and in the event of a dispute, the broker holding the deposit is generally not permitted to release it without mutual consent or a final court order.
Conditions Precedent
Many property purchase agreements also include conditions precedent, such as the purchaser obtaining a final financing letter from the bank/mortgage facility approval within the agreed time frame, or the property being valued at a minimum amount. If these conditions are not satisfied, the purchaser may have a contractual right to terminate the contract and receive a refund of the deposit, without the need to rely on force majeure or exceptional circumstances.
Practical Observations in the Current Context:
In the current context of regional tensions, purchasers should note that market uncertainty alone does not justify termination of a property purchase agreement. Financing difficulties are generally insufficient to invoke force majeure, and delays arising from regional disruptions may give rise to contractual remedies but do not result in automatic termination. Accordingly, the rights and obligations of the parties will largely depend on the contractual framework, and particular importance must be given to the agreed contractual terms and risk allocation provisions governing the transaction.
Conclusion
While current regional tensions may have some impact on market conditions and transactional dynamics, they do not, in themselves, confer an automatic right upon a purchaser to terminate or withdraw from a property purchase agreement.
The legal position must be assessed on a case-by-case basis, having regard to whether the requirements of force majeure are satisfied, whether relief may be available under the doctrine of exceptional circumstances, and, most critically, the express terms and conditions and risk allocation mechanisms set out in the contract.
In this context, the contractual framework remains the primary determinant of the parties’ rights and obligations, particularly in transactions where provisions relating to delays, financing conditions, and termination rights have been specifically negotiated.
Given the legal and commercial complexities involved, particularly against the backdrop of evolving regional developments, any decision to withdraw or suspend performance should be undertaken only after a comprehensive legal assessment. Such assessment should carefully evaluate the contractual provisions, the factual matrix, and the potential legal and financial implications arising therefrom.
Accordingly, a prudent and informed approach, supported by detailed legal review, is essential to safeguard the purchaser’s position and to mitigate exposure to potential liabilities and adverse consequences.
Legislative Note
It should also be noted that the New Law (Federal Decree-Law No. 25 of 2025) comes into force on 1 June 2026.
For advice on property purchase agreements in Dubai, including termination rights, contractual risk allocation, and dispute resolution, please contact Suneer Kumar at suneer@alsuwaidi.ae, or Vida Grace Serrano at vida@alsuwaidi.ae