Tim Elliott
Hello and welcome to another edition of Lawgical, wherever you are in the world listening to this. Part of the regular weekly Lawgical podcast series from the Dubai-based law firm, HPL Yamalova & Plewka, the Gulf region’s first and only legal podcast. I’m Tim Elliott, here with the firm’s managing partner, Ludmila Yamalova, 18 floors up in Jumeirah Lakes Towers at the firm’s head office. Ludmila, good to see you again.
Ludmila Yamalova
Good to see you as well, Tim, as always.
Tim Elliott
Today, we’re looking at a specific question: Can I buy a property in the UAE and make it contingent on my mortgage application being approved by the bank? That sounds simple enough.
Ludmila Yamalova
Contractually, yes, it’s possible. However, there are several nuances that can make this more complex in practice. Let me explain.
Tim Elliott
Please do.
Ludmila Yamalova
First, let’s address the deposit. In the UAE, the customary deposit is 10% of the property’s purchase price, which is significantly higher than in other countries. For example, if you’re buying a property for AED 3 million, that’s AED 300,000 as a deposit—quite a hefty sum.
Second, while it’s possible to make the transaction contingent on obtaining a mortgage, the conditions are often not clearly spelled out in agreements. This can lead to disputes. Sellers or brokers might insist that you approach multiple banks if one bank denies your application, even if this isn’t explicitly required in the agreement.
In practice, if the agreement isn’t clear, disputes can arise, and your deposit might be at risk.
Tim Elliott
So, even if legally I should get my deposit back, there’s no guarantee that I will?
Ludmila Yamalova
Exactly. In the UAE, deposits are often held by brokers rather than in escrow. This creates potential complications. If a broker hands your deposit to the seller and the seller deposits your check, you may find yourself in a legal and financial bind.
Checks in the UAE are considered separate legal instruments. If your check bounces, it could result in a criminal case. You may need to file a civil case to recover your funds or even a criminal case for breach of trust against the broker. It can quickly become very complicated and costly.
Tim Elliott
That’s a lot to process. And brokers often earn a commission, right? What happens if the deal doesn’t go through?
Ludmila Yamalova
Most agreements state that brokers earn a percentage of the sale price—typically 1%. For a AED 3 million property, that’s AED 30,000.
However, many agreements also stipulate that if the deal doesn’t go through due to a dispute, the broker receives a percentage of the deposit—often 20% or even 50%. So, in our example, the broker could walk away with AED 60,000 to AED 150,000. That’s significantly more than they’d earn if the deal was successful.
Tim Elliott
That doesn’t seem fair.
Ludmila Yamalova
It’s not ideal, especially for buyers. Brokers should be compensated for their efforts, but the compensation should be proportionate. Buyers need to read these clauses carefully and negotiate them if necessary.
Tim Elliott
So, what’s your advice for buyers in this situation?
Ludmila Yamalova
First, review the agreement thoroughly. Be specific about the conditions under which the transaction is contingent, such as obtaining a mortgage. Include clear clauses stating that if these conditions aren’t met, the deposit will be refunded.
Second, consider hiring a lawyer to draft or review the agreement. Many agreements we see are poorly written and do not protect the buyer adequately.
Finally, negotiate broker fees to ensure they are fair and proportionate, even if the deal doesn’t go through.
Tim Elliott
Ludmila, as ever, thank you for your expertise.
Ludmila Yamalova
Always a pleasure, Tim.
Tim Elliott
That’s another edition of Lawgical. We can’t cover every aspect of the UAE’s legal framework in one episode, but if you have a question, you can reach out at lylawyers.com or via social media. For a legal consultation, WhatsApp us directly at +971 52 525 1611 or hit the contact button at lylawyers.com.