Dubai Real Estate Court Gives Landmark Judgment

Dubai Real Estate Court Gives Landmark Judgment

Rules that the purchaser has to compensate the developer

The property court in Dubai, United Arab Emirates, has issued a landmark judgment. It established the developer’s right to combine the stipulated compensation stated under the contract, along with the loss of profits due to a decrease in the price stemming from the volatility of the real estate market.

The court ruled that the purchaser had to compensate the developer by paying AED 8,300,000 for the following reasons:

1. The dismissal of the purchaser’s initial lawsuit in which annulment was sought.

2. The purchaser was compelled to pay a delay penalty of AED 498,000 to the developer for refusing to take possession of the unit.

3. The purchaser was compelled to pay a delay penalty of AED 224,000 to the developer.

4. The purchaser was compelled to pay AED 848,000, representing the difference between the amount remitted by the purchaser and the legally prescribed 40 percent to be retained for non-possession of the sold unit.

5. The purchaser was compelled to pay an amount of AED 6,721,000 because of selling the units at substantially lower prices than those agreed upon in the contracts. The difference was due to the plaintiff’s failure to fulfill his contractual obligations by not paying the sale price.

6. The purchaser was also liable for a 5 percent statutory interest, in addition to fees, expenses, and attorney’s fees.

While stating the factors, the court said:

a) The plaintiff (the purchaser) breached his obligations by ceasing to pay the required installments for the sale, and the defendant (the developer) did not default on his obligations. The plaintiff’s claims, through which he attempted to substantiate it for claiming the termination of the agreement and the return of AED 8,400,000, were legally unfounded.

b) The court affirmed that the defendant/counter-plaintiff/developer met his obligations within the stipulated dates and duly notified the land department about the plaintiff’s breach and payment cessation. The department notified the plaintiff of his obligation. However, the plaintiff failed to fulfill his duties. This prompted the department and the developer to terminate the contract, and the developer, subsequently, sold the property to a new purchaser.

Commenting on the ruling, counsel Tarek Saad, the head of the litigation department at BLK Partners (Khalid El Tamimi in collaboration with BLK Partners) said that the ruling was unique, as it stood among rare such judgments issued by the Dubai courts. The developer was granted compensation covering all contractual losses and loss of profits, irrespective of the sale of the unit to a new purchaser. The court elected to supersede the application of the law regardless of whether the purchaser had the same financial solvency as the developer.

The real estate law in Dubai is governed by the Dubai Land Department (DLD) and the Real Estate Regulatory Authority (RERA). They regulate the activities of the developers and brokers. The strata law applies to multi-unit developments, and foreign ownership laws limit the rights of foreign individuals and companies to own property. A new real estate law, Dubai Decree No. 22/2022, supports the growth of real estate investment funds.