By: Ludmila Yamalova, Managing Partner, HPL Yamalova & Plewka DMCC
At the end of 2010, Dubai Real Estate Regulatory Authority (“RERA”) announced that it would introduce the so-called, Real Estate Investor Protection Law (“Law”) and that it would do so “very soon.” As of the end of March 2011, the Law has not yet been published. Nor have official drafts of the Law been publicly circulated. No further updates as to the scope or the timeline of the Law have been issued in the last four months. Yet, the investor community is eager for the Law to take effect, though very little is known about the protection, as its title suggests, it promises to the investors.
Because all that has been announced about the Law has been in the way of comments from RERA and other government officials in the media, it is difficult to accurately ascertain the exact nature and scope of the Law. Some even question whether the Law will ever be introduced. Also, it is unclear as to how much of what the investors wish for this Law to address will be incorporated in its final version. As such, whatever comments are made about the Law today are speculative in nature. Given that, perhaps then the best way to speculate about it is to analyze statements and comments made by public officials, industry commentators and investor community.
The RERA officials have been quoted in the media in the context of describing the Law to include the following provisions. One provision relates to penalizing developers for delaying delivery of their projects, in the form of fines in increments of AED 500,000, potentially amounting to millions of Dirhams. Another provision may relate to penalizing developers for “committing fraud or falsifying statements,” such as “falsifying [construction] progress report.” Impending new regulations for property handover and corresponding standards for quality control have also been mentioned. To that end, there has also been discussion of introducing a grading system to assess and grade developers. Introduction of regulations for property valuation professionals have also been announced. The revamping and strengthening of the escrow services laws and regulations is too being contemplated.
RERA has also alluded to possibly introducing a standard template of the sales and purchase agreement, which all developers will be required to follow. Among other things, this new template is supposed to include an equal penalty on both developers and investors for breaching their obligations. This, for example, would require developers to pay a penalty for delivering properties late. Another provision in this template will allegedly require developers to pay their 1% of the property registration fee, instead of passing it onto the purchaser.
Whatever the final form of the Law may be, the utility of at least some of the alleged provisions in the Law, however, is questionable. One, the new template of the sales and purchase agreement is supposed to apply only to new contracts, and not the existing ones. Yet, the majority of disputes, in which investors feel they need protection, relate to the existing contracts. Two, some of the provisions are already adequately addressed in other laws. The property registration fee, codified in the Dubai Law 21 of 2006, is one example. Similarly, the planned penalties to be imposed on developers, either for delivering properties late or for falsifying project status reports, are covered by provisions under the U.A.E. federal law, civil and criminal alike, in existence since 1987. Those laws provide sufficient remedy and guidance as to the adjudication of parties’ disputes, including real estate ones. Therefore, what is required today is the enforcement of many of the existing laws, instead of introduction of news ones. This, of course, is subject to the Dubai Courts applying federal laws, as opposed to only applying local Dubai laws.