By Mohamed Ghanem
Lawyer I LLM I Lecturer I Speaker I DIAC Arbitrator
October 17, 2024
Court of Cassation reconfirms that Developer’s Escrow Accounts can not be sized and it a legal safeguard, designed to protect buyers and ensure the funds are used solely for the development of the real estate project.
Dubai Land Department IEREI. AE Court of Cassation
In a recent ruling by the General Authority of the Court of Cassation, a critical interpretation of Article 9 of Law No. 8 of 2007 concerning real estate development escrow accounts in Dubai was delivered, addressing the inviolability of these accounts in the context of developer creditors.
The case originated when the Technical Office of the Court of Cassation sought the General Authority’s guidance on whether creditors of a real estate developer could seize funds deposited in escrow accounts established under Article 9. These accounts are a legal safeguard, designed to protect buyers and ensure the funds are used solely for the development of the real estate project.
The General Authority, after thorough deliberation, concluded that the law explicitly prohibits any form of seizure—whether precautionary or executionary—of funds held in escrow for real estate development purposes. Article 9 mandates that these accounts are opened in the name of the project and are to be used exclusively for its construction. Even if a developer undertakes multiple projects, each project must have its own independent escrow account.
The funds in these accounts, often collected from buyers purchasing off-plan units or from financiers of the project, are tightly regulated. The release of funds to the developer is allowed only in accordance with pre-determined stages of project completion, as specified in the sales contracts. This structure is intended to protect the rights of buyers and ensure the proper use of funds throughout the construction process.
Crucially, the General Authority underscored that even creditors who are depositors or financiers of the project cannot seize the funds in the escrow account, irrespective of the type of debt or any judicial ruling supporting their claim. The only permissible disbursements from these accounts are payments related to the project, such as to contractors, consultants, and for marketing expenses.
The ruling further clarified that this protection remains intact even if the name of the escrow account changes, as long as the funds were initially deposited in accordance with Article 9 of Law No. 8 of 2007. Consequently, if a creditor requests the court to impose a seizure on an escrow account, the court must ensure that the funds are not derived from buyers or project financiers and reject such requests.
In conclusion, the General Authority firmly ruled that escrow accounts for real estate projects in Dubai, established under Article 9, are legally protected from any form of seizure for the benefit of a developer’s creditors. This decision reinforces the legislator’s intent to safeguard the rights of buyers and ensure the funds are used exclusively for the completion of real estate projects, regardless of the nature or legal basis of any claims made by the developer’s creditors.