Abu Dhabi, UAEMonday 18 February 2019

Developers gear up for legal battles

Developers are vowing to fight a recent "tidal wave" of project cancellations
Under Dubai law, the developer of a cancelled project is responsible for returning money to buyers.
Under Dubai law, the developer of a cancelled project is responsible for returning money to buyers.

Developers are preparing to challenge a series of recent project cancellations, setting up a new round of legal battles over the fate of long-delayed developments in Dubai.

Thousands of investors have been eagerly waiting for the Real Estate Regulatory Agency (Rera) to cancel delayed projects, which clears the way for them to demand refunds. The project disputes hang over the Dubai market, even as data released last night by the consultancy Jones Lang LaSalle suggest sales and prices are recovering.

There has been little evidence of formal action against developers, despite statements that Rera has cancelled more than 200 projects, property executives say.

But in recent weeks, more than a dozen developers have received cancellation notices, said Shahram Safai, a partner at Afridi & Angell, a law firm.

"It's not really been implemented in the last two years," Mr Safai said. "All of a sudden there has been a tidal wave of cancellations."

Several of Mr Safai's developer clients have filed notices contesting the cancellations. The cancellation process is often unfair to developers who started projects in good faith, he said.

Under Dubai law, the developer of a cancelled project is responsible for returning money to buyers even if the money from the buyers' escrow account was spent on legitimate expenses.

"The question is, is it fair to turn around and say all the money should still be turned over to the purchaser?" Mr Safai said. "There is no accounting for any expenditures, even reasonable expenditures."

But buyers dispute how the developers have spent the money

"Has money been spent on reasonable expenses?" asked Ludmila Yamalova, an attorney representing investors. "The feeling is that much of the money has been mismanaged."

Developers argue delays are often out of their control. In many cases, problems with master developers played a large role in delaying projects, and they should bear a portion of the damages, developers say.

"If the master developer has not allowed a project to go ahead but it has given the developer the ability sell [units], then it is the master developer at fault," said Tav Singh, the president of Dubai Property Ring, which is developing the Time Residences, a rotating tower in Dubailand.

Mr Singh's project has not been cancelled. After years of delays it is moving forward and excavation started on the site in March, he said.

Rera is "doing their job" by reviewing projects, he said. But he added that developers had a right to ask for compensation if their projects had been cancelled due to problems outside their control.

"If the developer hasn't agreed to the cancellation, [Rera is] affecting the business plan and the strategy and then compensation is due," Mr Singh said.

In some cases, developers that have received cancellation notices are still committed to building their projects, Mr Safai said. They are contesting Rera's decision to cancel projects based on the wording in the law that "the developer is not serious in carrying out the project".

Rera had cancelled 217 property projects up to May 31, according to recent a government bond prospectus. But industry executives have seen little evidence of the cancellations, which apparently focused on projects that were never started.

In some cases, projects were in the review process but were not formally cancelled until during the past two months, property executives said.

"We have not seen an official list of what the cancellations are," Ms Yamalova said. "Everybody wants to know the list of cancellations."

Rera officials have declined to identify cancelled projects.

"The cancellation processes are per the law, and any project that has not started for six months from getting our approval is being processed," a Rera spokesman said.

Under Dubai law, developers are required to begin refunds within 14 days of cancellation. If the escrow account can not cover refunds, the developer has 60 days to repay buyers.

Cancellations offer hope to investors but do not guarantee refunds, especially if developers choose to challenge the rulings, Ms Yamalova said.

"Few developers have the funding to return 100 per cent of investments," she said.

"Realistically, it will be difficult for investors to see any real refund anytime soon."



Updated: July 5, 2011 04:00 AM