x Abu Dhabi, UAE Friday 21 July 2017

Questions raised over cancellations

Buyers should not be held accountable if developers significantly late with delivery

A leading property industry group has called for fairness in dealing with hundreds of cancellation notices sent out to home buyers who have defaulted on payments. Martin Seward-Case, the chairman of the UAE chapter of the Royal Institution of Chartered Surveyors, said that if buyers were not able to obtain mortgages or financing because the developer was significantly late with delivering a building, they should not be held accountable for payments.

"In isolation this doesn't seem fair and reasonable on the part of the developers," Mr Seward-Case said. "The landscape will have changed entirely with respect to gaining access to finance ? and if it can be shown that finance would have indeed been available should the purchase not have been significantly late ? then indeed it does not seem fair that the purchaser should be penalised for this." He added that buyers also should not be able to walk away from their obligations.

Developers have sent out "several hundred" cancellation notices to buyers who are behind with their payments, according to the Dubai Land Department, the regulator that oversees the cancellations. These include properties from Omniyat Properties, Deyaar Development, Al Fajer Real Estate and Emaar Properties. Some buyers who have received notices claim they would not have defaulted if the building was finished on time more than a year ago, when banks were still lending.

Once a cancellation notice is sent out, a buyer has the right to explain why they have not made payments on their unit. The Land Department has set out several reasons why buyers can stop paying and not be liable to cancellation, such as developers delaying obtaining approvals to start construction without "good reason" and failing to register the project with the Real Estate Regulatory Agency, according to the law firm Al Tamimi and Company.

If a contract is cancelled, the developer can then sell the homes in an auction administered by the Land Department. The law sets out a sliding scale of refunds for buyers who default. For instance, if a developer has completed more than 80 per cent of a building and the buyer defaults, it can keep only 40 per cent of the property's value. However, in some cases this may include all the money paid by the investor.

Ludmila Yamalova, a lawyer with Al Sayyah Advocates and Legal Consultants, said there were still legal issues to be resolved by the cancellations. "In my view, the Land Department doesn't have the power to enforce a cancellation," said Ms Yamalova, who represents several buyers who have received cancellation notices. "The court has to issue an order to allow an auction to go through." She said many buyers were willing to negotiate with developers, but they wanted a deal that could include lowering prices and allowing them to consolidate multiple units into one property.

Mr Seward-Case said the concept of "unjust enrichment" should play a role in these disputes, so that neither side could benefit from the other's misfortune. "This principle is supported by the UAE Federal Law in a variety of codes that ultimately protect fairness," he said. "Here this could be applied to the developer 'gaining an advantage' by the purchaser not being able to secure finance due to the later credit restrictions imposed by the banks since the financial crises - clearly a condition outside of the purchaser's control."

Mohammed Sultan Thani, the assistant director general of the Land Department, said last week that no properties had yet been put up for auction but that hundreds of letters had been sent out. bhope@thenational.ae