Arti Sangar is a partner in Dubai office of Diaz Reus LLP
The United Arab Emirates experienced rapid real estate growth and a resultant boom, which peaked in the middle of 2008. However following the global financial crisis of 2008, property prices fell dramatically and the number of disputes increased. Property prices have remained relatively stable following the dramatic drops in 2008 and 2009, and now show signs of genuine recovery. As the market recovers, many investors have begun considering buying properties in the United Arab Emirates (UAE); however, both buyers and sellers should be well aware of the legal and commercial considerations that are unique to the UAE market.
This article focuses on a few key legal points to note, particularly on aspects where they are different from other common law jurisdictions.
1. Negotiation. With respect to marketing a property, only a registered broker who is licensed by the competent authorities can market real estate. All registered brokers are also required to comply with the professional and ethical standards as set out by the Land Department. A seller or a property developer must appoint a broker by a written agreement. There is no cap on the broker’s commission, but it normally ranges from 1% to 5% of the purchase price.
2. Due Diligence. It is strongly advisable to carry out extensive due diligence before entering into any binding agreement. Parties generally use legal advisors, however it is not mandatory. Notably, the property register is not open to the public. The owner’s consent is required to investigate the property register. While it is prudent for a buyer to insist on the property register examination, this practice is not uniform. The seller typically provides a copy of the property title certificate to prove his or her right to sell. It is prudent, however, to require the seller to obtain confirmation from the Land Department that the information on the certificate is still valid.
3. Sales contract. After the fundamental aspects of the deal are agreed upon, the parties often sign a brief memorandum of understanding or a reservation form confirming the agreed terms. Generally, a memorandum of understanding or a reservation form is binding on the parties, pending the signing of a sale contract. Alternatively, the parties can decide to sign the sale contract outright. The sale contract does not have to be in any particular format. However, in practice the sale contract is in writing and it must be submitted to the Land Department with an application for a property title certificate.
4. Property registration. A disposition of a completed property must be registered in the real property register maintained by the Land Department. The buyer normally registers the disposition as this registration triggers the issuance of the title certificate in the buyer’s name. A disposition that is not registered in the real property register may be invalid. Therefore, a contract of sale is legally binding only if the sale is registered.
5. Seller’s liability to the buyer. There are various obligations on the seller of real estate to make disclosures about the real estate, including in relation to service charges. The seller typically contractually warrants that, among other things: (a) the seller has full authority to sell; (b) there is good unencumbered and mortgage-free title; (c) there are no outstanding debts; (d) property and development obligations have been complied with; and (e) there are no third party interests affecting the property.
6. Buyer inherits liability. Unless otherwise stipulated in the sale agreement, the buyer generally inherits liability for all matters relating to the real estate, even if they occurred before the date of purchase. These include: (a) unpaid charges levied by the master developer or developer for maintaining communal parts of the development; (b) obligations under a lease agreement; (c) any other interests in the land, for example easements; and (d) environmental liability.
7. Seller and buyer costs. The cost of property registration is 2% of the purchase price, payable to the Land Department. The buyer and seller pay 1% each, unless the contract provides otherwise. In addition, the Land Department charges an administration fee. A fee or commission is also paid to the broker who has been involved in the transfer, under the terms of the brokerage agreement. The master developer can also charge administration fees for the ownership transfer. Responsibility for these fees can be allocated by agreement. The mortgage registration fee is typically payable by the buyer.
When undertaking a real estate transaction in the UAE, investors need to be up-to-date on any new regulatory requirements concerning property transactions. In addition, proper planning and due diligence can avoid many problems, and a legal counsel can help protect your interests and ensure that your real estate transaction adheres to the applicable laws. Diaz Reus can provide local knowledge and insight into real estate laws, regulations and practices, a factor of great value and practical importance in the UAE market.