Legal Briefing

Abu Dhabi real estate: safeguarding investors’ rights

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UAE | 01 October 2010

Past years have witnessed huge growth in the real estate realm of the UAE. Investors from across the world were queuing up to ensure their piece of property in the region. The boom touched more or less the whole of the country, though the emirates of Dubai and Abu Dhabi were the biggest beneficiaries.

However, the global economic downturn has drastically affected the sector and panic has embraced many investors. It is evident that the vigour and enthusiasm exhibited by investors when purchasing property was not equally applied when protecting their interests. The fervour shown by investors was also not reciprocated by the authorities when it came to the regulation of the market. Though a few emirates, like Dubai, have enacted laws and attempted to provide some relief to the investors, it is doubtful whether these laws are comprehensive or effective. All of a sudden, the question has arisen: ‘Are our interests sufficiently protected?’ This article analyses that question, zoning in on the prevailing situation in Abu Dhabi.

Laws on Property

The only legislation in Abu Dhabi that seems to directly affect investors is Law No 19 of 2005 regarding property ownership in Abu Dhabi. This law, as the name suggests, is specifically concerned with ownership rights over property. Apart from this, Abu Dhabi does not appear to have enacted any legislation governing the market, however strange that may seem. This lack of regulation has resulted in dangerous situations, such as developers cancelling their projects; requiring investors to swap units; increasing the floor area of the units without the investors’ consent; demanding exorbitant service charges; and delays in construction becoming rampant.

Contracts of Adhesion

It is no secret that the majority of real estate agreements (collectively called documents), are one-sided or contracts of adhesion. They comprise numerous provisions aimed at protecting the interests of the developers and are conspicuous by the absence of fundamental provisions that might preserve an investor’s interests in any standard real estate contract. The fact that most of the investors are expatriates who are not acquainted with the local legislations, and may be in a hurry to finish off the deal, aggravates the problem. Investors may easily fall into the hands of agents, give in to impulse and sign the documents without checking that their rights are adequately safeguarded.

It is bizarre that many of the documents do not even mention the ownership rights of the seller. Some of the common provisions wherein the rights of investors are subverted include confining the defects liability period to a minimum, even as short as one year (whereas the seller is legally bound to indemnify the purchaser for any dilapidation that occurs in the building, and for any defect that threatens the durability and safety of the structure, within ten years of its construction); non-linking of the purchase price payment to phases of construction (which may ensure that the purchaser is required to pay the instalments only if the construction progresses as per the documents); non-mentioning of approximate service charges or common expenses (enabling the seller to levy exorbitant amounts at its discretion later on); and purchaser’s right to inspect the unit before completion and require the seller to cure the defects within a mutually agreed period.

Methods to Protect Investors’ Interests

Investors must realise that there are myriad options that may facilitate better protection of their interests. The first and foremost is to gain a thorough knowledge of the terms and conditions of the documents. Experience suggests that the majority of investors who find themselves in trouble have not taken expert advice before signing the documents. Someone who is thoroughly conversed in the legal imbroglios pertaining to the sector could easily guide the investors through the hidden dangers contained in the documents. The investors would consequently have a clear picture of the unilateral provisions and of those that prejudice their interests, and could require the developer to revise or delete such provisions.

Provisions of Civil Transactions Law

There are various provisions in the UAE Civil Code (the code) that enable investors to effectively safeguard their interests in a real estate contract.

Article 247 of the code permits a party to a contract to refrain from performing their obligations if mutual obligations are required for performance and if the other party fails to perform their part.

As per Article 272, if one of the parties does not do what they are obliged to do, the other party may, after giving notice to the obligor, require that the contract be performed or cancelled. The court may order the obligor to perform the contract forthwith, or may defer performance to a specified time, and it may also order that the contract be cancelled and compensation be paid, if appropriate.

Non-commencement of construction or slow progress of construction, requisition to the purchaser to swap the unit, or revision of the floor plan increasing the burden of the purchaser, may all be considered as instances wherein the aforementioned provisions come into application.

Further, Article 248 empowers the courts to review a contract of adhesion, which contains unfair provisions, and vary those provisions or to exempt a party from performing its obligations in accordance with the requirements of justice.

The code, under Article 275, also stipulates that if a contract is cancelled, the two contracting parties shall be restored to the position they were in before the contract was made. If that is not possible, compensation shall be ordered.

Awareness among Investors

The above illustrates that investors do have options on violation of their rights. Nevertheless, the situation will only change if investors become aware of these rights, however limited they may be. Undoubtedly, such awareness will not only make investors more confident, but will also constrain developers to be more transparent in their dealings. Developers would be hesitant to insert unilateral clauses in the documents if they were aware that investors are taking expert opinion on them on a regular basis. It is only logical to surmise that the chances of a dispute become marginal if the rights and obligations of either party are clearly defined in the documents and there are limited chances for exploitation.

Comment

Like investors, the authorities should also recognise the current economic crisis as a chance to look back and examine their actions. Enactment of a comprehensive federal legislation governing the real estate realm would create an aura of trust and confidence among the expatriate investors, who are eager to contribute to the country’s development. This would fortify their faith in the economy and warrant a quintessential investment climate.