ABU DHABI // The Dubai Land Department (DLD) seems to be increasing its power to resolve the impasse between home buyers and developers in the property sector, lawyers say. New regulations that describe the circumstances where a project could be cancelled have been officially signed in a decree from the Dubai Executive Council, but many of the clauses leave the DLD as the final decision maker.
"The decree does appear to give certain powers to the Land Department to deal with disputes between developers and sub-developers and purchasers of units, but only, it would appear, on a discretionary basis," said Tom O'Grady, a partner at the law firm DLA Piper in Dubai. "It does appear that the Land Department's discretionary powers are set to increase." The regulations, revealed yesterday in a summary by the law firm Hadef and Partners, give the clearest picture yet of how a stalled project might be cancelled. The regulations pertain to the 2008 Law 13, which governs off-plan property sales in Dubai. "Under Law number 13, the Land Department could cancel projects but they have never been able to explain the parameters on which they would do so," said Michael Lunjevich, a partner at Hadef and Partners. "Now there is clarity about how they do it, how the developers can appeal, how the process will be."
The decree, which has been signed but not formally published in the Official Gazette, will enable the DLD to cancel a project for a number of reasons. They include: if the developer does not start construction without "justifiable cause" or due to "gross negligence"; if it fails to open an escrow account; if the DLD determines the developer is "not serious" about building the project; if the land for the project is repossessed or affected by the Dubai authorities; or if the developer declares bankruptcy.
The regulations are not likely to affect most of the large developers such as Emaar Properties and Deyaar Development, but it could have major impacts on Nakheel, which has stalled many projects as its parent company Dubai World restructures $26 billion (Dh95.5bn) of debt, and the hundreds of small to medium-sized developers that opened up recently, said Majed Azzam, an analyst at HC Brokerage. "The biggest loser would be Nakheel because they have a lot of projects on hold," Mr Azzam said. "It is very important to protect investors with laws. Up until now, the law has protected the developers instead of investors. This might turn things around."
Markus Giebel, the chief executive of Deyaar Development, said the decree would help untangle the disputes in the property market. "The new regulations will provide more clarity on certain important issues relating to developers' responsibilities and strengthens the regulatory framework relating to real estate development within the emirate," Mr Giebel said. Still, lawyers said the rules left new questions about how to pursue legal claims for off-plan property.
For instance, the new rules say that a developer can register a property transaction late with the DLD as long as it pays a Dh10,000 fine. Many investors had filed cases against the developers with the belief that unregistered transactions were void. Several court decisions ruled for developers to give refunds to home buyers in this situation. Anthony Davies, a partner at Davidson and Co legal consultants, said the new regulations may force law firms to rethink strategies.
"On the basis of the apparent terms of this new decree it is likely that strategies for legal action, and the grounds upon which a claim can be based, will now need to be revised if the only sanction that a developer needs to fear for non-registration is a fine," Mr Davies said. Mr Lunjevich said "thousands of cases" had been filed on the basis that a property had not been registered by the developer.
"People have paid fees up to Dh30,000 on the basis of the old Law 13," he said. "That new decree now cuts out a lot of these cases, which might have an effect on investors' confidence." Developers are also now allowed to send out their own cancellation directly to buyers, provided they file a copy to the DLD. "That would be really detrimental," said Farah Agha, an investor who bought several properties in the Emirates.