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Q&A – Real Estate

Q&A – Real Estate

Executive Magazine

05 September 2011

Q: How should one deal with developer disputes?

A: It has been almost three years since the onset of the global financial crisis and the resulting downturn in the real estate market.  The tactics for dealing with real estate developers have continued to evolve and shift in that period of time.

Today, those investors who have still not given up the fight have a few options, though their success is still uncertain.  All of the available options, however, depend on several assumptions.  The developer must either have sufficient money to build the project or to provide at least some sort of a refund.  Alternatively, the developer should at least have something of value to offer to the investor.  This could be in the form of a different project into which the investment can be transferred.  Or it can be in the form of a discount on the purchase price and any subsequent registration and maintenance fees.  Provided that at least one of these assumptions is true, investors can then consider which recourse would allow for them to achieve their ultimate goal.

The first option is always to try to negotiate an out-of-court settlement directly with the developer.  This, however, depends on the state of the developer and the project at hand.  In addition to the other assumptions, it also presumes that the developer is willing to negotiate at all.  Many developers still today refuse to offer any concessions.

In such cases where negotiations fail, the only remaining recourse is a court action.  Depending on the type of the project and the contract at hand, the choice of litigation forum is the next factor to consider.  If the contract calls for arbitration, then it is the fees, timelines and rules and procedures of that specific arbitration forum that will apply.  If the contract either does not call for arbitration or does not mention a dispute forum at all, then the default venue is the local courts.  If the project is, on the other hand, in the DIFC, then it will be the rules and regulations of the DIFC and its Courts that would apply.  In each one of these cases, the results and costs often depend on the particular forum.

Q: What are legal mistakes Dubai investors should avoid?

A: The most important lesson for Dubai investors is to conduct due diligence before making a decision to invest.  This applies to their choice of property, developer, real estate broker, payment terms and terms and conditions of the underlying contract.  In many cases, mistakes were made because investors rushed their decisions before understanding what exactly they were investing in and with whom.  Purchasing a property is a multi-faceted process.  And in order to make a sound investment, all angles must be examined in advance.  For example, investors should conduct a thorough physical inspection of the property.  They may even consider hiring an expert to provide them with an educated opinion.  It is also imperative to confirm with the Dubai Land Department that the developer and the project are properly registered.  The payment terms for the property must also comply with the laws.  This includes purchase price and any other property related payments, such as maintenance and registration fees.  Investors should also be careful about the type of real estate agents they chose to work with and confirm that all payments are being transferred to the property owner and that all documents are signed prior to money changing hands.

Q: How should one negotiate a real estate contract in Dubai?

A: Negotiating a real estate contract in Dubai is a multi-faceted process.  First, it is important to understand the role of the physical person who is conducting negotiations.  In many cases it is not the owner himself, but rather either a real estate broker or the owner’s authorized representative.  Because of the recent scams that resulted in moneys never reaching the owner, it is important to establish that the person who is conducting negotiations has actual authority to represent the landlord, as per the UAE laws.  Similarly, it is important to establish the real purchase price. Middlemen often cite the price much above the actual purchase price, hoping to pocket the margin, in addition to the commissions.

Second, today’s is the buyer’s market.  Therefore, investors should ensure that the price they are being offered is the actual market price.  This will require some due diligence and possibly going to different real estate agents.  It is perfectly acceptable to negotiate on the price, though much depends on the project involved.

Third, the payment terms are critical.  It is imperative that no money changes hands until all due diligence has been done and the proper documents have been signed.  This necessarily means that investors should read the contracts closely and ensure that they understand and are comfortable with every clause.  The general rule should be that if the investor does not understand something, then he should not sign off on that clause.  There are no template or standard contracts in the UAE and, as such, investors should feel free to negotiate their own terms and to propose their own drafts.

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