Dubai developers are increasingly using the force majeure clause to excuse delays.
'Act of God' cited for no refunds on Dubai schemes
The builder of a delayed luxury development in Dubai has invoked a so-called "act of God" clause to refuse refunds to buyers.
Shaikh Holdings last week informed owners in Sanctuary Falls, a collection of 96 villas under construction in Jumeirah Golf Estates, that the company was not liable for penalties for delays due to "force majeure", or unforeseen circumstances, and citing events "outside our control".
Most sales contracts on new developments include the phrase force majeure, which typically refers to acts of nature, such as flooding, earthquakes or volcanic eruptions.
There have not been any floods, earthquakes or volcanic eruptions in Dubai, but developers in the emirate are increasingly trying to use a broader definition of the clause to excuse project delays. Force majeure has been invoked to cover anything from the financial crisis to problems with contractors, lawyers say.
"It's the mechanism of choice for developers to justify a project on hold," said Michael Lunjevich, a partner with Hadef & Partners, the law firm.
In Sanctuary Falls the delays have been caused, according to a letter to owners from Shaikh Holdings, by the inability of the master developer, Nakheel, to complete work on the electricity, water and other infrastructure. Nakheel halted work on Jumeirah Golf Estates and a wide range of projects last year when it moved to restructure US$24.9 billion (Dh91.45bn) of debt.
"Events have occurred that are outside our control and therefore we are not liable for any penalties in these circumstances," the developer said in the letter to owners, citing the force majeure clause.
In a statement to The National, Imran Shaikh, the chief executive of Shaikh Holdings, said: "We are doing whatever we can in our discussions with Nakheel and the relevant authorities to complete the development."
Suresh Vyas, who bought a villa in Sanctuary Falls in 2007, says he is "disheartened" by the developer's use of force majeure. He has paid Dh6.1 million of the Dh7.7m owed on the villa.
He was refused a refund when the project did not meet the "extended completion date" last month.
"I should have the choice if I don't want the villa," Mr Vyas said. "They should live up to the contract."
Blaming the infrastructure issues is "fair enough", but the problems are "between the builder and Nakheel and they should compensate people", said Mr Vyas, who is renting a home for his family.
More than 700 homes in Jumeirah Golf Estates have been affected by the infrastructure issues. In Lime Tree Valley, a development of 121 villas on the estate, construction on the homes was completed months ago, but buyers have not been able to move in until the infrastructure is finished.
Nakheel expects to restart work on the project in "early 2011", a spokesman said.
Using force majeure to cover delays by the master developer is a complicated legal issue, lawyers say. Force majeure is "a fairly tight clause, at least in international law", said Ludmila Yamalova, a partner in HPL Yamalova & Plewka, a law firm based in Dubai. "Here, many use it to include everything and the kitchen sink."
Some developers have argued that force majeure includes the financial crisis, but the Dubai courts have disallowed that reasoning, Ms Yamalova said. Blaming infrastructure issues might also be a stretch, she said.
"The property should never have been launched or sold without the infrastructure in place," Ms Yamalova added.
The Sanctuary Falls contracts typically include specific wording about forces "outside the control of the developer", said Mr Lunjevich, who has reviewed one of the contracts. But if the developer has not completed construction on the homes, it might find it difficult to blame the master developer for the delays in handovers, he said.
In the letter to owners, Shaikh said it was "unable to confirm a completion date" for villas but remained "completely committed to delivering the Sanctuary Falls project".