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14 Factors to Consider Before Purchasing Property

14 Factors to Consider Before Purchasing Property

Lawgical with LYLAW

04 December 2018

Ludmila Yamalova:  Welcome and welcome back.  This is Ludmila with Lawgical with LYLAW.  By way of recap, last week we discussed the relevant aspects of the landlord/tenant relationship in renting a property in Dubai and in the U.A.E. in general.  In this segment, we’ll focus on purchasing and selling properties in the U.A.E.  In particular, we’ll focus on purchasing properties from the perspective of the buyer.

There are a number of factors to consider for those who are interested and are about to enter into a property transaction to buy property in the U.A.E.  In relevant terms, we’ll discuss 14 factors which the buyer should keep in mind prior to proceeding with their purchase.

  1. Title Deed

The first factor is the title deed.  The title deed shows the ownership of the property and the specifications for the property.  There are a number of important elements in the title deed.

  • Who the owners are, whether it’s one owner or multiple owners.
  • The specification of the property.
  • The validity of that particular title deed for this transaction.

The validity of the title deed is important to confirm very early on in the process.  There are several ways of doing this.  (1) One is to request from the seller a recently attested document from the Land Department showing that the title deed is still valid.  (2) The other way to confirm the validity of the title deed is through an app.  There is an app called Dubai Land which allows the buyer or whoever else wants to confirm the specifications of that title deed to enter specific details to confirm through the app that the particular property is still in the name of the party who represents to be the owner.

  1. Individual on multiple owners

The second important element in the transaction for the buyers to consider is related to the owners, whether the owner is one individual or multiple individuals, and if they are multiple individuals, in what percentages they own that property, whether it is 50/50 or in some other different percentage.  Also, the seller could be a corporation versus an individual.  That too is a very important element to understand very early on because the process will be very different if the seller is in fact a company and not an individual.

  1. Representatives

A third important element is related to the representatives.  In most transactions, a representative is the broker, and that is the representative of the seller.  If the seller is being represented by a broker, it is important to confirm early on that the broker is properly licensed and that the broker is licensed in fact to represent the seller all the way through the transfer of property.

  1. Brokers

The fourth important element to consider is one related to brokers and that is how many brokers are involved, who do they represent, and how their fees are being paid and by whom.

  1. Property specifications and inspection

The fifth factor is one related to the property specifications and that is inspection of the property and any particular issues that need to be addressed before the transfer of the property.  In other words, if the buyer wants certain property issues to be addressed before the transfer, it is important to make sure that all of them are included in the sales and purchase agreement from the outset.

  1. Liabilities

The sixth important factor is one related to liabilities, that is, for example, if the property is mortgaged, if there are potentially outstanding fees for the services fees, or if the property has not been registered with the Land Department.  It is important for the buyer to inquire about these liabilities very early on and to specifically include in the agreement that list of liabilities and whether they are active or not.

  1. Deposit

The seventh important factor, and this is probably the one that causes most disputes, is related to a deposit.  In the U.A.E., it has become customary for buyers to give a 10% deposit upon signing a sales and purchase agreement.  Now, the requirement of a deposit is actually not required by law and it just has become a customary requirement, so to speak.  But it is important to understand that it is not mandated by law, and therefore, it is up to the parties to negotiate.  If there is a willing buyer and a willing seller and the parties are acting in good faith, then legally and practically speaking there is not a requirement of a security deposit.  That being said, in most cases the seller in particular wants to have a security deposit and the issue of a security deposit is the most important one that needs to be detailed with a sufficient level of specificity in the agreement, and that is the amount of the deposit, in which form it should be issued, who should be holding the deposit, and upon which conditions it could be released, in particular in the event the parties end up in a dispute how the deposit should be addressed.

  1. Conditions

The eighth factor is regarding conditions of a particular deal.  In other words, if the buyer wants to buy the property on the basis of certain conditions being met, it is very important to include those conditions very clearly at the outset.  For example, if a buyer wants to buy a property only on the condition that they will obtain a mortgage, then it is very important to specifically state so in the agreement that the mortgage is a condition to the property and in the event the mortgage is not obtained the buyer has the right to terminate the transaction without any penalties.

  1. Payment method

The ninth factor is related to payment method, whether the buyer will be paying by way of a mortgage or by way of a cash transfer.  If there are multiple owners, then also it is important to highlight from the outset how the payment will be made.  If the payment will be made through a mortgage, then the bank will have to issue two checks, for example, if there are two sellers, in the name of each seller.  If the payment is made without a mortgage, then on the day of transfer the buyer will have to have manager’s checks issued in the name of all of the owners in the right percentages.  Depending on the value of the property, it may also be possible for the buyer to settle the payment by way of cash, and that is, if the amount is not significant enough, then the buyer may be able to withdraw enough cash from the bank and to pay the owners in cash on the day of transfer, however, it is very important to make sure that the transfer of cash is properly documented.

  1. Property Transfer

The tenth factor for the buyer to consider and discuss with the seller very early on is one related to the property transfer.  In most emirates in the U.A.E. these days, the property transfer fee is 4%.  In Dubai, for example, the law states that the 4% is to be divided between the seller and the buyer.  In practice, however, it has become customary for the buyer to pay the full 4% on behalf of both parties.  Therefore, this particular issue should be discussed and agreed on clearly before the parties proceed too far into the transaction.

  1. Broker fees

The eleventh factor is related to brokers and broker fees.  It is important to understand what the brokerage fees are, when they’re to be paid, and in what form.  Often the brokers ask to be paid upon signing the sale and purchase agreement and not upon the transfer of the property itself.  It is advisable to hold off on paying the brokers until the transfer of property has actually taken place.  Therefore, a better strategy is to pay all the parties on the day of transfer, that is to say on the day of transfer the buyer should bring manager’s checks for the sellers and the checks for the brokers for their services.

  1. Penalties

The twelfth factor to consider is one related to penalties for withdrawing from the transaction.  It is very important to specifically state what reasons will constitute valid reasons for the buyer to withdraw from a transaction.  Some examples are related to the deadline for transferring the property, and that is for some buyers it is important that if the transaction goes though that the property has to be transferred by a certain date.  If that is an important element, it is essential to highlight that the date is of the essence and therefore the property must be transferred by such date and, in the event it is not, it will constitute a material default, allowing the buyer to withdraw from the transaction.  Another example could be one of the property specifications.  If the buyer wants certain issues in the property to be remedied before the transaction and if those issues are not remedied timely, then the buyer may want to reserve that as a right to terminate the transaction.  Third, as previously mentioned, it could be one related to obtaining the mortgage.  Once again, if the mortgage is not obtained, the agreement should clearly spell out the buyer’s right to withdraw from the transaction without any penalties.

  1. Day of transfer

The thirteenth factor is one related to the transfer of the property on the day of transfer.  There should be a handover list that is exchanged amongst the parties related to all the things that are being exchanged, that is, payment, but also things such as keys for the property, access cards, and any refunds of the service fees for example.  These days the title deed is issued on the same day of transfer so therefore the buyer should expect to receive a new title deed in the name of the new buyer on the day of transfer.  Once again, it is important to address the issue of brokers and brokers’ fees on the day of transfer itself.

  1. Dispute resolution

The final factor and that’s the fourteenth factor is one related to dispute resolution, and that is in the event the parties disagree, where will the dispute be resolved, whether it will be in local courts or through arbitration, and what are the grounds for them to bring the case, and who should be bringing the case, and who should be potentially paying for the fees associated with resolving the dispute.

That concludes our segment on the due diligence for purchasing property in the U.A.E.  In the next segment, we will discuss due diligence from the perspective of the seller.

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