By now, most developers would be aware that the Directions issued by the Land Department under Law No 27 of 2007 concerning Ownership of Jointly Owned Properties in the Emirate of Dubai (the "Strata Law") placed a requirement on developers to comply with the Strata Law and register the necessary plans and documents with the Land Department by 13 October 2010.
This requirement has been relatively well publicised and, although many developers have been slow to react, others are taking substantive steps to effectively transition their developments to the owners under the Strata Law. Perhaps less well publicised, are the 'disclosure requirements' that were also introduced under the Directions with respect to the sale of units within developments with multiple-ownership.
With the 13 October 2010 deadline for completed developments (and generally low sales activity) developers have been focusing on their compliance requirements for completed developments and less so on their disclosure requirements. There are, however some serious implications if the developer does not comply with the disclosure requirements and the deadline of 13 January 2011 for full compliance is fast approaching.
By way of background, the Strata Law was introduced in Dubai in November of 2007 to regulate properties with multiple-ownership (referred to in the Strata Law as "Jointly Owned Property"). The Strata Law anticipated the issuance of regulations and decisions required to implement the Strata Law and in May 2010, the Land Department issued directions pursuant to the Strata Law (the "Directions") effective from 13 April 2010.
One such Direction, the Direction for General Regulation Concerning Jointly Owned Properties (the "General Direction"), created a disclosure regime required to be met when selling Proposed Units. Proposed Units are units in a project which will be a Jointly Owned Property and that is either under construction or, if completed, where title has not yet issued and the seller of the Unit is the developer. The intention behind the disclosure requirements is to ensure that purchasers are provided with adequate information to make an informed decision when deciding whether to purchase a Proposed Unit and to prevent developers from making inaccurate representations regarding their developments.
Transitional provisions were introduced and the level of disclosure required to be met by the developer has increased since the issuance of the Directions, with full disclosure required from 13 January 2011 for all projects.
The General Direction provides that from 13 January 2011, a Disclosure Statement must be provided to the purchaser prior to the entering into of a sale and purchase agreement for a Proposed Unit.
The Disclosure Statement
The Disclosure Statement is a document that contains detailed information regarding the Proposed Unit and the Project as a whole. The prescribed information that must be contained in the Disclosure Statement includes the following:
- a description of the project;
- the intended land uses within the project including any special use that applies to the Proposed Unit being sold;
- a draft plan of the Proposed Unit being sold showing the areas required by the Land Department to be shown for registration purposes;
- details of the furniture and fittings and a schedule of materials and finishes for the common areas and the Proposed Unit being sold;
- the common areas and facilities that will be available for use by the Owners and Occupiers as of right or on a commercial basis;
- any features included in the project that contribute to ecological sustainable development;
- details of supply agreements and utility arrangements to be entered into by the proposed Owners Association;
- a statement confirming whether construction has commenced or specifying the estimated date of commencement of construction;
- a reasonable estimate of the date that the Proposed Unit will be handed over to the purchaser;
- a copy of the proposed constitutional documents that are intended to be registered with the Land Department in respect of the project;
- a budget prepared on a reasonable basis in accordance with the Directions for both the general fund and reserve fund for the first two financial years of operation of the proposed Owners Association and an estimate, based on that budget, of the services charges payable in respect of the Proposed Unit for the first two financial years; and
- a statement directing the purchaser's attention to the obligation to register the sale and purchase agreement in the interim real estate register in accordance with the law.
Failure to provide Disclosure Statement
If the developer fails to provide a Disclosure Statement, then the Directions state that the sale and purchase agreement is "void and of no effect". There is some question as to whether or not the sale and purchase agreement is void only at the election of the purchaser or whether it is simply void and of no effect at all. Either way, the net result is that the parties may face issues in enforcing their respective rights under the sale and purchase agreement and that can have a knock on effect with any bank involved if they are relying on the sale to go through unconditionally.
Consolidations, On-Sales and Variations to Contracts
As sales activity in the 'off plan' market is relatively low, at this time, the application of the disclosure requirements may be most apparent with respect to consolidations, where the developer and the purchaser agree to transfer the purchaser's investment in one or more units to fewer or different units. We would recommend that a Disclosure Statement should be provided to the purchaser in this instance to give certainty to developers regarding their rights under consolidated sale and purchase agreements.
We recommend that a Disclosure Statement should also be provided by the Developer where a purchaser 'on-sells' a unit to a third party and the developer issues a new sale and purchase agreement in the name of the new purchaser. In addition, if an existing sale and purchase agreement is varied such that the subject matter or content is significantly different (for example, where a simple form contract such as a reservation form is replaced by a long form comprehensive sale and purchase agreement) it is possible that the new sale and purchase agreement needs to be supported by a Disclosure Statement to ensure its validity.
Incorrect or incomplete information
Pursuant to the General Direction, the developer is deemed to have warranted the information in a Disclosure Statement for two years from the date on which building is completed. If the information contained in the Disclosure Statement is found to be incorrect or incomplete in a material way resulting in loss to the owner, the developer may be liable to the owner for damages, whether the owner purchased the unit directly from the developer or from another party. This two year warranty makes it essential that developers invest time and effort to ensure that they fully comply with the disclosure requirements.
It is expected that the introduction of the disclosure regime will see the end in Dubai of sales of units in 'concept projects' and some of the more questionable representations that have been made by developers with respect to the product they are delivering and the time frame in which the project will be handed over. Developers will now be required to commit significant resources at the outset, carefully planning the project prior to launching to the market. The disclosure requirements bring Dubai in line with other sophisticated jurisdictions and will assist in making Dubai an attractive and secure place to invest in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
