By: Ludmila Yamalova, Managing Partner, HPL Yamalova & Plewka DMCC
One of the most ubiquitous, yet ambiguous, terms featured in all real estate transactions for off-plan properties is the definition of building completion. It also includes a subset issue of the definition of construction milestones. Both terms are important because, among other things, they trigger purchaser’s obligation to pay, be it the final installment upon building completion or next installment upon next construction milestone. Compliance with these metrics is also important in establishing whether a developer has breached his obligation by failing to complete construction, of whatever the relevant stage may be, timely.
Most real estate contracts, however, provide for a very general and arbitrary definition, whereby construction is based on the decision made by the developer’s architect or project manager. Furthermore, such decisions are said to be final and not subject to appeal. Because these parties are employed by the developer, they are not neutral in their decision-making, naturally creating a feeling of suspicion. Furthermore, it is not at all clear what qualifies them to make such decisions. Determining whether a building is complete must entail a determination of whether it is fit for occupation. This, in turn, is a multi-faceted enquiry, requiring inspection and approvals from more than one authority.
Yet, contracts are all that investors have to rely on. They are also what developers exclusively invoke. The general consensus, however, is that there must be official government standards and guidelines used to determine whether a building is complete or what stage of construction has been completed. Nevertheless, there is no publicly available cohesive information on what they are or which authorities issue them. There is just a general belief that a series of requirements exist and word-of-mouth reports of who the issuing authorities are.
What is known is that for a building to be certified as complete, it must have a certificate of completion. Which authority issues it and on what bases is not clear. A further complication is that buildings in some areas are subject to multiple authorities. For example, free zones are governed by their own free zone authority and overall Dubai real estate authority. Whatever the case may be, neither developers nor municipalities disclose certificates of completion to purchasers, under the puzzling pretense of confidentiality.
After much piecemeal, it appears that an official certificate of completion should only be issued once a building has passed a series of approvals. While there is no coherent picture of what those approvals are, some that are cited by industry experts include those from the engineering, architectural, construction, health, hazard, fire, and other similar government departments. Collectively, therefore, these approvals are meant to certify that the building is fit for occupation and therefore officially complete.
As such, a developer’s project manager or architect alone cannot be allowed to make a decision on whether a building is complete. Yet, most, if not all, contracts provide for exactly that. Developers, relying on those provisions, demand payments and threaten cancellation for failure to pay. The absence of official and publicly available guidelines and standards make it that much more difficult for investors to challenge developers, especially given the expressed language in the contracts to the contrary.
Similar problems exist with determining construction milestones to which to link payments. RERA seems to have taken on that role, although it is not clear whether it has the necessary qualification to make such decisions and the capacity to survey sites on an on-going basis.