When a buyer stops paying in Dubai: what the developer may keep

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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An off-plan purchase in Dubai is paid for in instalments, over the months or years it takes to build. Somewhere along that schedule a buyer may stop paying: a job is lost, finance falls through, plans change. What follows is not left to the contract alone. One article of one law of the emirate decides it, and that article has been rewritten more than once.

The article is Article 11 of Law No. (13) of 2008, which regulates the register the Dubai Land Department keeps for homes sold before they are finished. Its current wording was set by Law No. (19) of 2020, issued by the Ruler of Dubai on 24 November 2020. This guide follows that text as it reads in English on the Dubai Legislation Portal: the notification a developer must make, the notice the Land Department serves, the 30 days, the document that opens the developer's remedies, and the share of the price the developer may keep at each stage of construction. It then turns to the two cases where the buyer is owed everything back, and to what the texts leave unsaid.

Article 11 of Law No. (13) of 2008 of the Emirate of Dubai, as replaced by Law No. (19) of 2020. Both ceilings are a share of the unit's value in the sale agreement.

One article, three wordings

A figure quoted for Article 11 means little without the year of the text it comes from.

The Dubai Legislation Portal still shows Law No. (13) of 2008 as it was issued on 14 August 2008, in 15 articles. In that version of Article 11, the developer tells the Department of the buyer's breach, the Department gives the buyer 30 days' notice, and if the buyer still does not perform, the developer may revoke the contract and refund the buyer after deducting up to 30% of the payments made. The page carries no note that the article was later replaced.

It was. Law No. (19) of 2017, issued on 18 October 2017, has three articles, and the first replaces Article 11 in full. The single 30% figure gives way to a scale tied to how far construction has advanced. Law No. (19) of 2020 then replaced the article again, keeping the scale and changing what happens when building has not started. Each of the two amending laws also repeals any provision of other legislation that contradicts it.

The Land Department's own list of real estate development laws illustrates how easily the dates blur. It shows the 2017 law, dated 18 October 2017, and an explanatory memorandum on Article 11 dated 1 August 2019, but the list as read for this guide does not show the 2020 law. The Dubai Legislation Portal publishes all three texts. The English of the 2020 law is a translation, and the Arabic text prevails.

The vocabulary comes from the 2008 law. An off-plan sale is the sale of designated units that are off-plan or unfinished. The Interim Property Register is the Department's record of such sales and of other dealings with off-plan units before they move to the main Property Register. Under Article 3 of that law, a sale of an off-plan unit that is not entered in the register is void. Article 11 therefore concerns contracts that are on that register.

The developer's first move: a notification, not a termination

Under the 2020 text, a developer faced with a buyer who has stopped performing cannot begin by cancelling the contract. The first step is to notify the Dubai Land Department of the buyer's non-performance, on the form the Department prescribes.

The 2017 wording, on which the current one is built, describes what that form carries: the details of the parties, a description of the unit, the obligations that have been breached, and any other details the Department requires. It also says the Department verifies the breach before going further. The Supreme Legislation Committee's explanatory notes on the 2017 article put it more strongly: the Department checks the buyer's breach by all means necessary.

Those notes say less about the other side of the contract. They do not address whether the Department also examines the developer's own performance at this stage. What the law does say on that point comes later in the article, and is covered below: the procedure never closes the buyer's road to a court or an arbitrator.

The 30-day notice

Once the Department has the notification, it serves a notice on the buyer. The 2020 text requires the notice to be in writing and dated, and to give the buyer 30 days to fulfil the obligations of the contract.

The law lists how it may be served: in person, by registered mail with acknowledgement of receipt, by email, or by any other means the Department prescribes. Two details are absent from the English text. It does not say from which day the 30 days are counted, and it speaks of service on the purchaser without mentioning a representative. How those points are handled in a given file is a matter for the Department's practice.

The notice period is also a window for agreement. Where possible, the Department mediates between the two sides. If they settle, the 2020 text has the settlement attached to the sale agreement as an addendum; the 2017 wording adds that both parties sign it. From then on the amended agreement is the contract.

The document that opens the remedies

If the 30 days pass with neither performance nor settlement, the Department issues what the law calls an official document, in favour of the developer. It confirms two things. The first is that the developer has complied with the procedure just described. The second is the percentage of completion of the project, calculated under the standards and rules adopted by the Real Estate Regulatory Agency, known as RERA.

Everything else hangs on that document. Only after receiving it may the developer take the measures the article lists, and the law says it may take them without recourse to the courts or to arbitration. The percentage written in the document decides which measures are available.

The 2020 text read for this guide names no site inspection, no technical report and no consultant: it leaves the method to RERA's standards. It mentions no fee for the notification or the document. It also says nothing about what happens to the entry in the Interim Property Register once a contract is terminated. It refers only to the resale of the unit to another purchaser, as one of the two events that start the clock for a refund.

More than 80% built: three options

The top band applies where completion exceeds 80%. Here the developer has a choice of three courses.

1. Keep the agreement alive, retain everything paid so far, and claim the balance of the agreement's value from the buyer.
2. Ask the Land Department to sell the unit by public auction, to collect the remaining amounts payable to the developer. The buyer is liable for the costs of the sale.
3. Terminate the agreement unilaterally, keep up to 40% of the value of the unit as stipulated in the off-plan sale agreement, and refund any amount above that.

The first course treats the default as a debt: the sale stands and the developer pursues the rest of the price. The second lets the unit itself pay the debt. The explanatory notes on the 2017 article say the Department runs the auction without a court ruling, and that the proceeds go to the developer's remaining dues. Neither the notes nor the 2020 text say what becomes of any amount the auction raises above those dues and the costs. That silence matters to a buyer who has already paid most of the price, and it is one of the points on which the text alone gives no answer.

The third course ends the contract. Its ceiling is the detail most often misquoted. The 40% is not 40% of what the buyer has paid. It is up to 40% of the value of the unit written in the agreement. The same base applies in the two bands below.

From 60% to 80%, and below 60%

In the middle band, where completion is between 60% and 80%, the choice narrows to one. The developer may terminate the agreement unilaterally, keep up to 40% of the unit's stipulated value and refund the excess. The option to hold the buyer to the contract and the auction route are both written for the top band only.

The lower band covers projects under 60% complete, on one condition: the developer must have commenced work, with construction started in accordance with the designs approved by the competent entities. In that case the developer may terminate, keep up to 25% of the unit's stipulated value and refund the excess.

The boundaries follow the wording. The top band begins where completion "exceeds" 80%, the middle band runs "between" 60% and 80%, and the lower band is "less than" 60%. The text does not spell out where a project standing at exactly 80% belongs. On the words alone it would not exceed 80%.

When the refund falls due, with a worked example

In all three termination cases the deadline is the same. The developer must return the amount above the ceiling within one year from the termination of the agreement, or within 60 days from the date the unit is resold to another purchaser, whichever occurs earlier. A quick resale therefore brings the refund forward, and a unit that does not resell still triggers it after a year.

A worked example shows how the base changes the result. Assume a unit with a stipulated value of AED 2 million, and a buyer who has paid half of it, AED 1 million, before stopping. The figures are illustrative.

Above 80% and in the 60% to 80% band, the ceiling is 40% of AED 2 million, which is AED 800,000. If the developer terminates and keeps the full ceiling, the buyer is owed at least AED 1 million minus AED 800,000, or AED 200,000. Below 60% with work begun, the ceiling is 25% of AED 2 million, which is AED 500,000, and the buyer is owed at least AED 500,000. Where the project has not started and the last row of the table applies, the buyer is owed the whole AED 1 million.

Two cautions go with the arithmetic. The ceilings are written as "up to": they are maximums, and the article does not say the developer must take all of it. And because the base is the unit's value, a buyer who stops early may have paid less than the ceiling. Take the same unit with only AED 600,000 paid and the project 70% complete. The ceiling is still AED 800,000, so nothing exceeds it and the article gives the buyer no refund. Whether the developer could go on to claim the difference is not addressed in the English text read here, nor in the explanatory notes, which also leave the phrase "value of the unit" undefined.

A project that never started: the 2020 change

The clearest difference between the 2017 and 2020 wordings concerns a project on which work has not begun.

Under the 2017 text, where the developer had not commenced work for reasons beyond its control, and without negligence or omission on its part, it could still terminate a defaulting buyer's agreement. It could keep up to 30% of the amounts paid, and had to return the rest within 60 days of termination. This was the one case where the base was the money paid and not the unit's value.

The 2020 text removes that retention. Where the developer has not commenced the project for any reason beyond its control, without negligence or omission on its part, it must refund all payments made by purchasers, following the procedures of Law No. (8) of 2007, the emirate's law on escrow accounts for real estate development.

On the figures of the earlier example, a buyer who had paid AED 400,000 into a project that had not started could, under the 2017 wording, have seen up to 30% of that sum kept, which is AED 120,000, with AED 280,000 returned. Under the 2020 wording the whole AED 400,000 is due back.

The 2020 article sets no deadline of its own for that refund. It points to the escrow law, and the escrow law is brief on the subject. Its Article 9 dedicates each project's account to the construction of that project and shields it from the developer's creditors. Its Article 15 says that if an emergency prevents a project from being completed, the escrow agent, after consulting the Department, takes the measures needed to protect depositors, so that the project is completed or the depositors are refunded. As read on the Dubai Legislation Portal, that is the law's only provision on refunds, and it gives no timetable. Article 12 of the same law does give depositors, or their representatives, the right to see and copy the account records that concern them.

When the project is cancelled

The last case in Article 11 is not about a buyer's default at all, and it is the one that most favours the buyer. Where RERA cancels a project, the developer must refund all payments made by purchasers, in accordance with Law No. (8) of 2007. In the 2020 text as read, the cancellation must rest on a final reasoned decision of RERA.

Who then settles the accounts is answered by a decree issued on the same day as the 2020 law. Decree No. (33) of 2020, in 17 articles, concerns the Special Tribunal for Unfinished and Cancelled Real Property Projects in the Emirate of Dubai. It supersedes Decree No. (21) of 2013. The tribunal has its head office at the Land Department, and its chairman and members are nominated by the Chairman of the Judicial Council.

The decree defines its two subjects. An unfinished project is one where construction started and was then suspended, for reasons attributable to the developer or the purchaser or for any other reason. A cancelled project is one cancelled under the emirate's legislation, or one referred to the tribunal and not yet liquidated.

Its Article 6 lists what the tribunal does. It hears claims about unfinished and cancelled projects, and developers' grievances against RERA's cancellation decisions. It may assign the completion of an unfinished project to another developer. It liquidates cancelled projects and settles the rights attached to them after deducting the expenses of liquidation, and it determines the rights of investors and purchasers in unfinished projects. Under Article 7 it may appoint auditors at the developer's expense and order the escrow agent or the developer to refund deposits. Article 9 has RERA report to it on each unfinished project.

The decree sets no order of payment among purchasers and no time limits. The amount a buyer recovers from a cancelled project, and when, therefore depends on the liquidation of that project and on the tribunal's decisions.

Older contracts, land sales and the right to go to court

Four further rules frame the article.

The first is about time. Paragraph (d) of the 2020 text applies the article to off-plan sale agreements concluded before or after the law's effective date. The law came into force on the day it was published in the Official Gazette; the page read gives no issue number or publication date. An agreement signed in 2015 is thus treated under the same scale as one signed in 2026. The explanatory notes on the 2017 article had already said that the amended article applied to claims still pending without a final judgment, whatever the date of the breach.

The second protects what was already done. Paragraph (e) says measures taken earlier under the legislation then in force are deemed valid and enforceable and are not open to appeal. That covers terminations made after the 2008 law took effect, unless a competent court had revoked the termination by a definitive judgment before the 2020 law came into force.

The third is about scope. Article 11 does not apply to agreements for the sale of land that involve no off-plan sale. Those remain governed by their own terms.

The fourth gives the article its weight. Paragraph (f) makes compliance with it part of public order and says that non-compliance results in nullity. The explanatory notes draw the consequence for contracts: the parties cannot agree otherwise, so the ceilings and the notice procedure are not terms a sale agreement can rewrite. The original 2008 law, for its part, sets no specific penalty for a developer who terminates outside Article 11; its Article 13 has the Director General report breaches of the law to the competent entities.

Paragraph (g) keeps the door to justice open. The procedures and rules of the article do not preclude the purchaser from having recourse to the courts or to arbitration. The 2017 wording tied this to a developer abusing the powers the article gives it. So the developer may act without a judge, but a buyer who disputes the breach, the percentage or the sum kept can still bring the matter before one.

The Department's notice decides whether a developer may act. The completion percentage decides how far. The contract can change neither.

What the texts read here leave open

Article 11 is short, and several practical questions sit outside it. The English text of the 2020 law does not say when the 30 days begin, what becomes of auction proceeds above the developer's dues, how the "value of the unit" is established where a contract has been varied, or whether a developer may pursue a buyer whose payments fall below the ceiling. It gives no deadline for the full refunds due where a project has not started or has been cancelled.

Two documents could not be weighed against the 2020 wording for this guide. The explanatory notes of the Supreme Legislation Committee, issued under Decree No. (23) of 2014 in response to a request from the Director General of Dubai Courts dated 13 March 2018, interpret the 2017 article and predate the 2020 one; the Land Department's list dates its explanatory memorandum 1 August 2019. And the implementing by-law of the 2008 law, a 2010 resolution of the Executive Council that also deals with defaulting buyers, was not re-read against the 2020 text. Where a by-law and a later law differ, which one governs a given file is a question for the Department or the tribunal, not one this guide can settle.

What can be said with confidence is narrower and still useful. As of the texts published on the Dubai Legislation Portal, the single 30% deduction of 2008 is no longer the rule, the 30% retention for unstarted projects ended with the 2020 law, and the article lets a developer terminate without a court only after the Land Department's notice and its official document.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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