Real Estate Buyers Backing Out of Purchase Agreements in the UAE

Welcome back to Lawgical with Ludmila, where we untangle the legal knots so that you do not have to. I am Ludmila Yamalova, a U.S.-qualified lawyer based in Dubai. In each episode, we break down complex law into clear, practical insights that you can actually use.

In today’s episode, we are discussing a topic that has become increasingly common in recent months: real estate buyers in the UAE backing out of purchase agreements.

Buyers are pulling out of deals for several reasons, including:

• Concerns about the regional geopolitical situation;
• Financial pressure caused by economic uncertainty;
• Businesses struggling or downsizing;
• Buyers wanting to renegotiate due to a softening market;
• Loss of confidence in the market altogether.

Some buyers are considering leaving the region entirely. Others simply no longer have the same financial certainty they had when they signed their agreements.

So what options do buyers have under UAE law?
What laws apply?
And what remedies are available to sellers?

Let us unpack all of that today.

The Current Economic and Geopolitical Context

We are recording this episode in May 2026.

The regional conflict involving Iran has directly affected the UAE in recent months. There have been interceptions and projectiles directed toward the country, visible damage at iconic locations, and continued travel advisories from foreign governments.

This has impacted:

• Tourism;
• Consumer confidence;
• Investor sentiment;
• Real estate activity.

European tourism, in particular, has slowed significantly, despite historically being one of Dubai’s largest tourist segments.

At the same time, there is another major economic factor: AI-driven disruption to white-collar jobs.

The UAE economy relies heavily on white-collar industries. Across sectors such as:

• Customer service;
• Administrative support;
• Banking back-office operations;
• Marketing;
• Content production;
• Paralegal services;

…companies are reducing headcount, restructuring, or placing employees on leave.

As a result, income streams that seemed secure six months ago may no longer feel secure today.

And because many UAE real estate buyers earn their income abroad, tightening economic conditions globally are also affecting purchasing power and investor confidence.

Some buyers are genuinely struggling financially.
Others are opportunistic and want better pricing.
Others simply want out.

But regardless of the reason, the practical effect is the same: buyers are delaying or backing out of transactions, and sellers want to know what they can do.

The UAE Legal Framework for Real Estate Transactions

One of the most important things to understand is this: real estate laws in the UAE are Emirate-specific.

Each Emirate has its own real estate laws.

For today’s discussion, we are primarily focusing on Dubai because it has the most developed real estate market and the majority of current disputes revolve around Dubai property transactions.

However, every Emirate has its own framework.

For example:

• Dubai has its own real estate laws;
• Ras Al Khaimah has its own laws;
• Abu Dhabi has its own laws.

On top of that, there are also:

• Federal UAE laws;
• DIFC laws;
• ADGM laws.

Federal Laws That Commonly Apply

Some of the major federal laws involved include:

1. UAE Civil Code

This governs:

• Contractual obligations;
• Breach of contract;
• Remedies;
• Compensation.

2. UAE Civil Procedures Law

This governs:

• Court procedures;
• Litigation;
• Enforcement of judgments.

These federal laws apply across the UAE except in DIFC and ADGM jurisdictions.

Dubai-Specific Real Estate Laws

Dubai also has numerous Emirate-level laws governing real estate transactions, including:

• Dubai Law No. 7 of 2006 concerning Real Property Registration;
• Dubai Law No. 13 of 2008 regarding Interim Real Property Registration;
• Dubai Law No. 8 of 2007 on Escrow Accounts;
• Bylaws governing real estate broker registration and conduct.

Each of these laws can become relevant depending on the dispute.

DIFC and ADGM are Different

The DIFC and ADGM operate under separate legal systems based largely on common law principles.

That distinction matters because: mainland UAE courts and DIFC/ADGM courts approach contracts differently.

In mainland UAE courts:

• Courts exercise broad discretion;
• Courts focus heavily on fairness and proportionality;
• Courts often reduce penalties.

In DIFC and ADGM:

• Courts place greater emphasis on enforcing the parties’ contractual intentions;
• Liquidated damages clauses are more likely to be upheld.

However, DIFC and ADGM jurisdiction is limited to:

• Property located within those jurisdictions; or
• Agreements specifically governed by DIFC or ADGM laws.

The Contract Is Only the Starting Point

Many clients come to us saying:

“But the contract says this.”

Or:

“The agreement clearly allows that.”

However, under UAE law: the contract is only the starting point.

The law and court jurisprudence ultimately determine how that contract will actually be enforced.

This becomes especially important because many UAE real estate agreements contain:

• Ambiguous clauses;
• Inconsistencies;
• Undefined terms;
• One-sided provisions.

Under UAE legal principles:

• Ambiguities are generally interpreted against the drafting party;
• Contracts that are excessively one-sided may be challenged;
• Contracts of adhesion may be invalidated;
• Clauses contrary to public order may be unenforceable.

UAE Courts Have Broad Powers

Although the UAE is technically a civil law jurisdiction, UAE courts exercise fairly expansive interpretive powers.

In practice, courts establish influential jurisprudence and frequently rely on prior decisions.

One major example is: liquidated damages.

If a contract states that a buyer must pay a massive penalty for backing out, UAE courts will often reduce that amount.

The court usually asks: what actual damage did the seller suffer?

That becomes the key issue.

UAE Courts Will Not Force a Buyer to Purchase Property

This is very important.

Even if a contract says the buyer must complete the purchase: UAE courts generally will not force a buyer to buy property.

Instead, courts focus on compensation.

The remedy becomes:

• What damages did the seller actually suffer?
• What compensation is proportionate?

Common UAE Real Estate Documents

In UAE real estate transactions, parties commonly use documents such as:

• MOUs;
• SPAs;
• Form F agreements;
• Reservation agreements;
• Addenda.

A common misconception is:

“It is only an MOU, so it is not binding.”

That is incorrect.

These documents can absolutely be binding contracts.

Even something written informally can potentially become enforceable if it reflects contractual intent.

The Deposit Cheque System

One of the biggest practical issues in UAE real estate transactions is: the deposit cheque.

Typically:

• Buyers provide a 10% deposit;
• Usually through a cheque;
• Often held by the real estate agent.

Importantly:this is not legally required.

It is market practice — not statutory law.

Personal Cheques vs Manager’s Cheques

There is an important distinction between:

Personal Cheques

A personal cheque does not require funds to immediately leave the buyer’s account.

Manager’s Cheques

A manager’s cheque is effectively cash.

The buyer must:

• Withdraw actual money from the bank;
• Convert it into a guaranteed cheque.

This creates a much higher level of exposure for buyers.

The Role of the Real Estate Agent

Under UAE law, the real estate agent often acts as a trustee of the deposit cheque.

This means: agents generally cannot simply hand the cheque to the seller.

If there is a dispute, the cheque usually cannot be released unless:

• Both parties agree; or
• A court orders it.

This is extremely important because many sellers incorrectly assume:

“I automatically get the deposit if the buyer backs out.”

That is not necessarily true.

Settlement Should Always Be the First Option

In most cases, the best option is: settlement.

Litigation is:

• Expensive;
• Time-consuming;
• Uncertain.

Many disputes eventually settle anyway — often after enormous legal costs.

Once parties understand:

• The limits of enforcement;
• The risks of litigation;
• The realities of UAE court practice;

…settlement discussions usually become much more productive.

Going to Court in the UAE

If settlement fails, parties may go to court.

However, this involves:

• Court fees;
• Translation costs;
• Expert fees;
• Lawyer fees;
• Appeals;
• Significant delays.

Court fees alone can reach: 5% of the claim amount, up to AED 40,000.

And all documents submitted to mainland courts must be legally translated into Arabic.

Court-Appointed Experts

In many real estate disputes, the court appoints an expert to review:

• Agreements;
• Payments;
• Correspondence;
• Financial records;
• Bank statements.

This adds both time and cost.

Legal Fees in UAE Courts

Another common misconception:

“The losing party will pay all my legal fees.”

Generally, that is not how UAE courts operate.

While courts may award nominal legal costs, parties usually bear their own lawyer fees.

Only Courts Can Terminate Contracts

Another major UAE legal principle: only courts can terminate contracts if the parties do not mutually agree.

Even if a contract says one party may unilaterally terminate the agreement, UAE courts may not enforce that clause.

Courts Focus on Actual Damages

When determining compensation, UAE courts focus heavily on: actual proven damages.

Speculative damages are generally not enough.

The seller must demonstrate:

• Real financial loss;
• Supporting documentation;
• Actual harm caused by the buyer’s breach.

This is often much harder than sellers expect.

The Property Itself Can Become “Locked”

During litigation, the property may become tied up in the dispute.

In some cases:

• The property cannot be transferred;
• The seller may not be able to resell;
• The property’s status becomes uncertain during proceedings.

This creates additional pressure on sellers.

Litigation Can Last Years

UAE litigation may proceed through:

1. Court of First Instance;
2. Court of Appeal;
3. Court of Cassation.

This can significantly extend timelines and costs.

Examples from Practice

Example 1: Goodwill Settlement

A buyer lost their job after the regional conflict escalated and wanted to back out of the transaction.

The seller initially wanted to keep the full deposit cheque.

However, after understanding:

• The legal risks;
• The uncertainty of litigation;
• The practical difficulties;

…the parties reached a settlement where the buyer paid a smaller goodwill amount and both parties walked away.

Example 2: Extremely Unfair Penalty Clause

In another case, a contract required the buyer to pay: 50% of the purchase price as a penalty.

That amounted to approximately AED 20 million.

We advised the buyer that:

• Such a clause would likely not be enforceable;
• UAE courts would probably reduce it dramatically;
• The clause was likely excessive and unreasonable.

Example 3: Mortgage Approval Condition

In another transaction, the contract clearly stated that the deal depended on mortgage approval.

The buyer later faced job uncertainty.

Because the bank did not issue final mortgage approval, the buyer was able to exit the transaction without penalty.

This is an example of: proper contractual drafting helping the buyer.

Example 4: Renegotiating the Price

Some buyers still want the property — just not at the original price.

In those cases:

• Buyers and sellers may renegotiate;
• Sellers may decide it is commercially better to sell at a lower price than litigate.

Again: commercial solutions are often better than legal battles.

Final Thoughts

UAE real estate transactions sit at the intersection of:

• Federal law;
• Emirate-specific laws;
• Broker regulations;
• Court jurisprudence;
• Contractual interpretation;
• DIFC and ADGM frameworks.

It is a complex legal landscape.

But the key takeaway is this: the contract alone does not determine the outcome.

Courts play a significant role in:

• Interpreting agreements;
• Assessing fairness;
• Evaluating damages;
• Deciding remedies.

And in most cases: a reasonable commercial settlement is often the smartest path forward.

That is all for this episode of Lawgical. If you found this useful, you can find more on our website: lylawyers.com. We are also on Apple Podcasts and Spotify. And for the full experience, you can watch the video podcast on YouTube.

Until next time: stay informed, stay safe, and keep things Lawgical.