Developers raise the stakes with defaulters


Dubai: Don’t fall foul of Dubai’s developers – there’s a steep price to pay for investors if they do so.

There has been a sharp increase in the number of cases that are being held in local courts, where developers have filed charges related to non-payment by their investors. In most cases, the courts have adjudicated in favour of the developers and, in the process, opened up the investors to heavy fines.

“The increase in property-related disputes can be seen both at the UAE Court level as well as with Rera [Real Estate Regulatory Agency] related complaints,” said Pamela Haidat, Partner at Nasser Malalla Advocates, which is part of the GCP Group. “Ultimately, local courts have the final jurisdictional authority for resolving disputes, and it is here that there has been a most noticeable rise.

“Though nowhere close to what happened in 2009-10, they are still evident nonetheless.

“Developers, especially the GREs (government-related entities), have increasingly become litigious in situations such as pursuing non-payment by investors. This is particularly evident following the passing of the Executive Counsel resolution 6 of 2010, when properties have been handed over and investors have defaulted.”

For investors caught in the wrong end of the dispute, the consequences are dire. For one, the developer could “seize” not just the one property on which the investor had defaulted, but the other ones held by him with the same developer.

“There was one instance where the value of the default was Dh5 million plus … and the developer attached all of his nine properties instead of the one,” said an analyst. “This immediately ties the investor’s hands on any transaction involving these properties and the proceeds of which could have been used to pay back his obligations.”

Missed instalment

And the financial penalty itself can be quite painful for the investor – these are set at the 9 per cent mark on the remaining payment due from him. And each missed instalment thereafter will be charged at a compounded rate rather than a straight simple rate.

It can all start adding up quite quickly where the investor is concerned.

Clearly, developers are quick to press their case with errant investors at a time when the market is soft. “The trend in cases is more likely related to the economic cycle … the same was witnessed in 2009-10 as well, the increase at that time being much greater on account of the fact that it was the first down cycle since freehold was introduced in Dubai,” said Haidat.

“Undoubtedly, the courts have become much more adept at handling such disputes, and the evolution of the regulatory regime through more stringent laws that govern both developers and brokers have made the dispute resolution process simpler this time around.”

Factbox: The many guises of a property dispute in Dubai

  • Rental related disputes are handled separately through the Rental Dispute Centre under the Dubai Land Department. Civil disputes are heard at the Court level, these disputes “predominately relating to issues arising between developers, investors and/or brokerage agents,” said Pamela Haidat, Partner at Nasser Malalla Advocates. “The issues range from delays in handover and/or complete failure to construct.
  • “These cases have caused some uncertainty among investors in the market, and is a contributing factor to the current down price cycle.”
  • Dispute resolutions through the courts can be time consuming. “This is why alternative dispute resolution processes, such as the ones set up by Rera and/or the DIAC (Dubai International Arbitration Centre) are sometimes preferred, as they may facilitate a speedier resolution process in most cases and are sometimes dealt with in English,” said Haidat.
  • One should take very care to look after the original documentation relating to the property. All receipts and contracts should be kept in their original form and all correspondence should be provided with a case summary and chronology to assist the court and the respective parties to the case
  • Court costs vary depending on the case value.

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