Ras al Khaimah has become the second emirate in the country to introduce escrow accounts for off-plan properties.
RAK law regulates off-plan property
Ras al Khaimah has become the second emirate in the country to introduce escrow accounts for off-plan properties following Dubai in September last year. The RAK Government yesterday announced that Sheikh Saud bin Saqr, Crown Prince and Deputy Ruler of Ras al Khaimah, issued Amiri Decree Number 22 on July 3 pertaining to the "creation of guarantee accounts for property development projects in the emirate".
"It is very similar to Dubai's escrow law," said David Sanson, a partner in the Dubai-based property practice of DLA Piper, an international legal firm. "It shows that the other emirates are looking at what Dubai has been doing in terms of property regulations. This will increase investor confidence in the emirates as a whole." According to the decree, developers wishing to sell off-plan units must now apply to the Ras al Khaimah Investment Authority (Rakia) to open a "guarantee account", or escrow, in which amounts paid by buyers towards property purchases, or by project financing parties, are deposited.
Developers licensed to carry out property development activities in the emirate should be registered in the "Register of Developers", to be prepared by Rakia. To open the guarantee account, the developers must submit a set of documents including: the title deed or affection plan of the plot; a copy of the contract executed by the master developer and the sub-developer; conceptual designs and layouts approved by Rakia; the trade licence of the firm; and a financial statement authenticated by a certified legal accountant on the revenues and expenses of the project, among others.
Developers will no longer be allowed to advertise in local or foreign media, or participate in exhibitions to promote the sale of units or properties off the plan, until they have obtained a written permit from Rakia. Upon approval, the guarantee account would be created under a written agreement between the developer and the account trustee - either a bank or a financial institution certified by Rakia. Rakia is also authorised to become an account trustee, providing guarantee account services.
Any amount of money paid by buyers of off-plan units, or project financiers, must be deposited in the special account opened in the name of the property project with the account trustee. If the developer has more than one project, separate guarantee accounts must be opened for each project. The decree states that the guarantee account must be used exclusively for the purpose of the property project. Payments will be made to the contractors and suppliers based on the progress of the project, and in accordance with the agreement concluded between the developer, the contractor and the consultant.
The account trustee has to retain five per cent of the total amount deposited in the account after the developer has finished the project and receives a completion certificate. Those reserved amounts shall not be paid to the developer until a year after the units are registered in the names of the buyers, or unless the developer issues a bank guarantee for the same amount valid for one year. The registration process would be cancelled if the developer does not tender the project or award it to a contractor within six months from the date of approval to sell off-plan.
Stiff penalties including fines starting at Dh100,000 (US$27,000) will be imposed on any developer who fails to meet certain provisions of the decree. @Email:email@example.com @Email:firstname.lastname@example.org