By: Ludmila Yamalova, Managing Partner, HPL Yamalova & Plewka DMCC
With the recent wave of handover of new projects and issuance of title deeds, a new issue has arisen. This one relates to the size of the property. In particular, as new properties are being completed and purchasers are finally allowed to physically inspect them, discrepancies between the actual size of the property and that listed in the sales contract become apparent. Similarly, as title deeds are starting to be issued by the Dubai Land Department, an official certificate of property ownership, purchasers are finding that the size listed on the title deed often differs from that on the contract.
This presents a series of issues. One, in some cases, the property is visibly smaller than expected, sometimes as much as 25%. Two, the price paid per square foot increases, thereby devaluing the investment. Three, while the actual size of the property is smaller, the service charges are often calculated on the higher size listed in the contract.
Recognizing this to be an issue, Dubai introduced a requirement for developers to compensate purchasers for the shortfall in the size of their properties. First, in 2008, Dubai passed Law No. 13 of 2008, Article 13 of which introduced a requirement for developers to “compensate the purchaser for the difference unless [the difference in size] was marginal.” Then, in 2010, Executive Council’s Decree No. 6 of 2010, Article 13 (3) further elaborated on the definition of what constitutes a “marginal” difference. Under that Decree, in the event a unit is smaller than the contractually agreed size, “Developers must compensate purchasers for any shortfall in the area of the real estate unit if such shortfall exceeds 5% of the net area of the unit.” Thus, under the law, if the property is more than 5% smaller, the purchaser must be compensated for the shortfall. And under, what seems to be, the prevailing interpretation, this means that the amount of compensation is based only on the margin between 5% and anything above it. In other words, if the property is 7% smaller, the compensation will be calculated on the 2% difference.
While the legal basis, requiring compensation for the shortfall in size, exits, its effectiveness is still suspect. This is because developers continue to cite dubious contractual interpretation arguments to justify their refusal to provide any compensation. Some rely on the contract, arguing that the contractual language defines property size in terms of gross area, while the title deed refers to net area. And that gross area includes a proportional share of the common property, while net area includes only internal area of the unit. Others rely on the language in the contract, which reserves the right for developers to vary the size of the property, without impunity. Yet, others take advantage of the often ambiguous and inconsistent language that typifies so many contracts and absence of clear precedent and enforcement.
From the legal standpoint, however, there should be a common standard requiring that all properties are listed in terms of net area, or at least a clear delineation between net area and proportional percentage of the common area. This is supported by, among other things, the Executive Council’s Decree No. 6 of 2011, Article 13, which refers to real estate in terms of net area. It is further substantiated by the information listed on the title deed issued by the Land Department, which defines area square footage as net area and lists the percentage of the common area attributable to the property as a separate item.