By Mohamed Ghanem
Lawyer I LLM I Lecturer I Speaker I DIAC Arbitrator
November 21, 2017
DUBAI LEGISLATIONS: Inspecting validity of the procedures of #Deregistration in the Interim Real Estate Register “#UnilateralTermination” in the light of the provisions of Law No. (19) of 2017 Amending Law No. (13) of 2008 on the Interim Real Estate Register in the Emirate of #Dubai.
In the light of the legislative leadership of the Emirate of #Dubai in the real estate sector, Law No. (19) of 2017 Amending Certain Provisions of Law No. (13) of 2008 on the Interim Real Estate Register in the Emirate of #Dubai was issued. Such Law has resolved a judicial, jurisprudential and legislative controversy that has lasted for many years since the issuance of Law No. (13) of w998 and its amendment by Law No. (9) of 2009 on the legality of the procedures of #Deregistration of units with the Land Department.
At that time, the judiciary and jurisprudence adopted two different approaches. The approach which was adopted by the majority and supported by court rulings provided that the cancellation/deregistration procedures represent a unilateral termination of the contract, which requires that the developer refunds the paid funds to the #Investor. This is on the basis that termination, in accordance with the provisions of Article (267) of the Federal Civil Transactions Law, is either consensual or judicial. In addition, the role of the Land Department, when a dispute arises between the developer and the buyer, is generally limited to #Reconciliation endeavours and proposal of appropriate solutions with the aim of reaching an amicable settlement without expansion of such role to include deciding on the merits of the dispute by termination or performance of the contract. This means that the Land Department is an administrative body not a judicial body and the cancellation decisions it issues represent a mere proposal or recommendation and administrative decisions that do not have any binding res judicata before courts. Such decisions do not preclude resubmission of the #Dispute by either party to the competent court for consideration of the termination of the #Contract. In addition, such approach provided that in case of unilateral termination of a sale contract and resale of the unit, the developer shall restitute all the funds to the investor for termination of the contract for impossibility of performance. The reason therefor is that in the case of resale of the unit, the first buyer will not be able to avoid termination by payment of the price, as the unit has been already sold to a new investor.
The second approach and its supporters, mostly those defending the rights of real estate developers, provided that cancellation of registration is not unilateral termination. Such approach considered the said cancellation as a mere utilization of the right to termination legally prescribed under the provisions of Article (11) of Law No. (13) of 2008 Regulating Interim Real Estate Register in the Emirate of Dubai, as amended. Such approach has mentioned the method of implementing the procedures included in the aforementioned Article in case that the buyer has breached his contractual obligations relevant to the instalments payable by him. In addition, such approach has entitled, the developer or other sellers of the units subject-matter of contracts, to sell such units in public auction in order to collect the remaining amounts payable by buyers. Such approach has also entitled the said parties to keep all the funds paid to them or deduct the percentages, set out in the said Article, from the value of such units and terminate the contract pursuant to the developer’s percentage of completion of the project. This approach also provided that such right was given by the legislator to the developer unrestricted or unconditional to being claimed before the courts. And thus, the decision of the Land Department on cancellation of registration merely decides termination and does not cause it and that the developer may not be criticized for keeping the said legal percentages as compensation, if the registration cancellation procedures were valid.
The legislative amendment under Law No. (19) of 2017 has resolved the dispute between both approaches. Such amendment stipulated that the developer shall be entitled, if the buyer has failed to pay the price, to cancel registration without the need to recourse to courts or arbitration, provided that the developer shall follow the cancellation procedures in the manner stipulated in the amendment. Thus, the legislative amendment has adopted a fair and middle position between both approaches. Such amendment explicitly stipulated that the Land Department’s cancellation of registration is a unilateral termination. In addition, such amendment has legalized such termination and made it a legal termination, i.e. termination under a legal text, which is a victory for the supporters of the second approach. However, it is worth noting that the legislative amendment has identified the cancellation procedures as public order and provided that failure to commit with such procedures shall render cancellation as null and void, which is a victory for the supporters of the first approach. In the end, the purpose of this legislative amendment is striking a balance between the interests of real estate developers and investors by providing for guarantees for both parties. And thus, there should be neither harm nor malice. Immunization is only assigned to the procedures carried out in the correct legal manner. In addition, the investor was not deprived, under an explicit provision, of resorting to courts or arbitration, in case that the developer abused the prescribed right.
In conclusion, in the light of this new legislative amendment, the approach of courts will certainly be changed by adoption of the cancellation decisions issued by the Land Department in case that their procedures were valid. In case of invalidity, i.e. nullity, of such procedures, the courts will retain their jurisdiction in deciding the developer’s entitlement to requesting termination of the contract. In this case (nullity of procedures), the res judicata, under the judgments of the Court of Cassation in respect of termination of the contract for impossibility of performance, remains intact.