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Canceled Real Estate Projects in Dubai - Overview
Canceled Real Estate Projects in Dubai – Overview

Background
On July 23 2013, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, in his capacity as Ruler of Dubai, issued Decree No. (21) of 2013 concerning the formation of a special judicial committee titled as “committee for the liquidation of cancelled real estate projects in Dubai and the settlement of relevant rights”1 (the “Decree“).

The Decree is intended to benefit such purchasers, who made payments for off-plan properties, where the real estate projects have now been cancelled by the Real Estate Regulatory Agency (RERA).

What is a “cancelled real estate project”?
Since the Committee shall have jurisdiction over only cancelled real estate projects, it is important to first understand what is a “cancelled real estate project”. A real estate project that has been cancelled by the RERA pursuant to applicable procedures is considered as a “cancelled real estate project”. Under the provisions of Law No. 13 of 2008 regulating the Interim Real Estate Register in the Emirate of Dubai, as amended by Law No. (9) of 2009, the RERA has the authority to cancel a real estate project based on a reasoned technical report.

Executive Council Resolution No. (6) of 2010 approving the executive regulation of Law No. (13) of 2008 (the “Resolution“) provides for nine (9) grounds pursuant to which RERA may resolve to cancel a project. Following such resolution to cancel a project, RERA must prepare a technical report stating reasons for cancelation, notify the developer, appoint auditor to evaluate financial status of the project and escrow account. If there are funds available in the escrow account it shall be refunded to purchasers within 14 days of the cancelation of the project. However, Article 26 of the Resolution stipulates that if there are insufficient funds, RERA shall provide the developer with 60 days to pay such shortfall to the purchaser, failing which RERA under Article 27 of the Resolution has the right to refer the matter to competent judicial authorities. However, till now such “competent judicial authorities” did not existing. The Committee established by the Decree will be such competent judicial authority referred to under Article 27 of the Resolution.

Composition of the Committee
The Committee shall consist of one or more tribunals with each tribunal having not less than three (3)
judges from the Dubai Courts to be appointed by the head of the judicial council.2

Functions and Powers of the Committee
The role of the Committee shall be as follows:3

  • To hear and decide upon disputes between developers and purchasers in relation to cancelled real estate projects.
  • To liquidate real estate projects that has been cancelled by RERA in accordance with Law No. 13 of 2008.
  • To decide upon implementing procedures, grievances and disagreements in relation to cancelled real estate projects.

For carrying out the above mentioned tasks, the Committee shall have the powers to appoint experts and consultants; appoint auditors to evaluate the financial status of the cancelled project and verify the amounts paid to developer by purchasers or deposited in project escrow account; issue orders to trustee of the escrow account or developer of the real estate project in relation to liquidating the project and returning to the purchasers the amount deposited in the account or amount received by developer.4

Exclusive Jurisdiction
All courts in the Emirate of Dubai including the Dubai International Financial Centre Courts (DIFC Courts) shall not consider any claim filed before them which fall under the jurisdiction of the Committee. In addition to it, all such claims filed in courts before establishment of the Committee shall also be transferred to the Committee.5

The Execution Department of the courts (including DIFC courts) shall suspend and refer all matters to the Committee related to liquidation of any real estate project which fall within the jurisdiction of the Committee.6

Binding nature of judgments
All judgments by the Committee shall be rendered in the name of His Highness, Ruler of Dubai with the consensus of all its members or by a majority and shall be final, non-appealable and shall be executed by the execution department in the Dubai courts.7

Exemption from Fees
All claims filed before the Committee including the liquidation of the cancelled real estate project shall be exempt from court fees.8

Effective Date
This decree shall be published in the formal newspaper and shall come into effect as of the publication date.9

1 Article 1(a) of the Decree
2 Article 1(b) of the Decree
3 Article 2(a) of the Decree
4 Article 2(b) of the Decree
5 Article 3(a) of the Decree
6 Article 3(b) of the Decree
7 Articles 4 and 5 of the Decree
8 Article 7 of the Decree
9 Article 9 of the Decree

Functioning of Special Judicial Committee for liquidation of cancelled projects-by Ashraf El Motei of Motei & Associates

Conclusion
This Decree is expected to improve visibility and transparency and would assist the real estate market to enter a new phase of growth with stronger mechanisms and tools to ensure better protection and better functioning. Although the coming into force of this Decree would mean tighter regulations being implemented in the Dubai real estate sector, the real position would be clearer once the Committee commences its operation. Since some of its provisions are open to interpretation, legislative clarifications would be required to better understand situations such as the procedure if there is no money in the escrow account or if the developer is has left the country or the rights of third parties in relation to a cancelled real estate project. We shall report further once the Committee commences operations.

About the author:

Ashraf El Motei heads the dispute resolution practice at Motei & Associates, a Dubai based law firm since 2002. Ashraf specializes in commercial and corporate disputes before local courts and international arbitration centers. He is a listed arbitrator at DIAC and registered practitioner before DIFC Courts. For further info on the article, please contact the author at: a.motei@motei.com

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