Resolving Disputes in Abandoned Housing Projects in the UAE

Posted on April 8, 2020 | Leave a comment

8 April Housing Projects in UAE ada

Incomplete, stalled, or abandoned housing projects are not uncommon phenomena in the United Arab Emirates (UAE). The reasons leading to these problematic housing projects are many. Most are due to the financial inability of the housing developers to complete the task theT. The purchasers will be one of the aggrieved parties to the abandoned housing projects. Their losses include their failure to obtain the constructed houses that they purchased; they have to pay monthly instalments to their respective bank financiers, and they may lose all their money for the purchase of the housing units.

In the UAE, the relevant laws are capable of dealing with the above problems. These laws are as follows:

  • Decree No. 21 of 2013
  • Law No. 13 of 2008
  • Executive Council Resolution 6 of 2010, and
  • Decree No. 33 of 2020

In the 2000s, there was a property collapse in the UAE. In response, the UAE government has promulgated certain laws to deal with this problem. On July 23, 2013, through Decree 21, the government introduced a law that specifically deals with the management of litigation cases involving cancelled projects (incomplete, stalled, or abandoned projects). Under this decree, a judicial committee is also established to determine the issues relating to the failure of developers to refund payment of the aggrieved purchasers.

8 April Housing Projects in UAE RERA adaArticle 11(5) of Law Number 13 of 2008 (‘Law 13) (as amended by Law No. 9 of 2009) gives the Real Estate Regulatory Agency (‘RERA’) the power to cancel a problematic housing developer’s project. The procedure, conditions, and circumstances are laid down in Executive Council Resolution 6 of 2010.

Article 23 of the Resolution sets out nine (9) reasons according to which RERA may cancel a housing development project. The reasons are as follows:

  1. If the developer fails, without any good reason, to commence the construction works, although the developer has already obtained all the required approvals from the relevant authorities,
  2. If the developer commits any of the crimes as provided under Article 16 of Law No. 8 of 2007 concerning the escrow accounts for housing developments in the Emirate of Dubai,
  3. If RERA confirms that the developer has no serious intention to perform the project,
  4. If the plot for the intended project is withdrawn due to the breach by the sub-developer of any of its contractual obligations with the master developer,
  5. If the plot is fully affected by planning or re-planning projects undertaken by the relevant authorities in the Emirate,
  6. If the developer fails to perform the project due to gross negligence,
  7. If the developer expresses its intention not to implement the project for reasons satisfactory to RERA,
  8. If the developer declares bankruptcy,
  9. Any other reasons, as determined by RERA

Article 27 Law 13 empowers RERA to do all things that can resolve the problems arising from the cancellation of housing projects, including the failure of the developer to refund purchasers’ money.  This will also include referring the matter to ‘competent judicial authorities’.  Competent judicial authorities mean ‘Judicial Committee’ (‘JC’).  If a housing project has been cancelled by RERA under Article 23 Law 13, then RERA shall give the said housing developer 7 days to appeal against such a decision of cancellation (Article 24 Law 13).  Further, once RERA receives the appeal, RERA is given another 7 days to consider the appeal and deliver the final verdict, whether to allow the appeal or dismiss it.  If RERA dismisses the appeal, then RERA is under an obligation to appoint an auditor to study the financial position of the project.  The auditor is required also to ensures that the purchasers will get a refund of the payment they made to the develop rs. The refund must be made within 14 days after the appointment of the auditor (Article 25 Law 13).

If the developer does not have sufficient money or the available money is not sufficient, RERA will request that the directors use their funds to return all payments made by purchasers within sixty (60) days from the date of cancellation of the project, which period can be extended at the discretion of RERA (Article 26 Law 13).

8 April Housing Projects in UAE Dubai Court ada

If the developer is still unable to refund, RERA will hand the matter to the JC (Article 27 Law  3). The JC will liquidate the developer company and accumulate all assets, money, and properties of the insolvent developer companies to settle the debts of the creditors (Article 2A Decree 21; Articles 25 and 26 Council Resolution).

The JC will investigate whether the liquidation administration is viable or otherwise, for they also have to consider the other secured and unsecured creditors’ claims, such as those of contractors, suppliers, service providers, etc., not just the purchasers. There may be a situation where the purchasers may not get any money from the liquidation, nothing is left. The decision of the JC is final and not appealable (Article 5, Decree 21).

According to Articles 1, 3, and 5 of Decree 21, the constitution of the JC should consist of at least three (3) judges from the Dubai Courts. Further, these provisions emphasise the importance of proper jurisdiction and power to deal with the cases brought under the purview of the JC.

Article 2A of Decree 21 spells out the purpose of the JC. The JC aims to consider and decide such issues, demands, and claims that may arise between the housing developers and purchasers whose housing projects have been cancelled. Thus, problematic, delayed, stalled, incomplete, and abandoned housing projects will not be subjects of the JC’s determination.

To assist in the performance of the JC’s duties, Article 2B Decree 21 provides that the JC may do any of the following without limitation:

  1. To seek the assistance of experts and consultants, in particular from the Dubai Lands Department.
  2. To appoint auditors at the cost of the developer to audit the financial position of the cancelled real estate project and to verify the amounts paid to the developer by the purchasers or deposited in the escrow account of such project and the amounts spent.
  3. To issue such orders to the trustee of the escrow account of the project or the developer in any issue in connection with the liquidation of the project, including refunding the amounts deposited in the account or paid by the developer to the relevant persons.
  4. To take all the required procedures to secure the rights of the purchasers.

Article 3 of Decree 21 establishes the exclusive authority of the JC in relation to cancelled housing projects in the Emirate of Dubai. In particular:

  1. All courts in the Emirate of Dubai, including the Dubai International Financial Centre Courts (DIFC), are prohibited from hearing any matter concerning a cancelled real estate project, and any existing cases are to be referred to the JC to handle.
  2. Judgments issued before the effective date of the New Decree (Decree 21) by any court in the Emirate of Dubai, including concerningction with the liquidation of a cancelled housing development project, must be referred to the JC for consideration.

Judgments, orders, and resolutions issued by the JC shall be final and binding, not subject to appeal, and can be enforced by the Execution Section of the Dubai Courts (Article 5 Decree 21).

Decree No. (33) of 2020 establishes a new special tribunal to review and settle all disputes, grievances and complaints, settling disputes and complaints arising from unfinished, cancelled or liquidated real estate projects and unfinished real estate projects that have been cancelled pursuant to Law No. (13) of 2008. This decree No (33) dissolves the previous committee established under Decree year 2013 and forms the new special tribunal.

Thus, this new special tribunal is a second layer to settle the issues arising from the unfinished, cancelled or liquidated real estate projects.

Finally, it is worth noting that the liquidation procedures of real estate projects, together with all demands, claims, and issues handled by the JC, are exempt from court fees (Article 7 Decree 21).

Examples of housing developers whose housing projects have been cancelled by RERA are as follows:

  • Khyool Investment LLC
    Abjar Tower
    Faras 2
  • Reliance Estate Development
    Reliance 1 to 16
  • High Rise Properties LLC
    Dorna Tower
    Orchid Residences
    The Heights-Golden
    Waves Business Tower
    The Heights-Silver
    Rotating Residence
    High Rise Boulevard 1
    High Rise Boulevard 2
  • Hampstead & Mayfair Development Limited
    Hampstead Residences
  • Dujan Properties Ltd
    Eden Blue
  • Escan Tower

Eden Blue Tower UAE 1 ada

Eden Blue Tower

Eden Blue Tower is a skyscraper housing development project carried out by a housing developer known as Dujan Properties Ltd. It is located at Dubai Marina with 2  storeys. The project is adjacent to ‘Ibn Battuta Mall’, ‘The Walk JBR’, ‘Mall of the Emirates’, ‘Burj al-Arab’, and ‘Palm Umeirah’. The construction of the project commenced in 2008, but in 2009, the housing developer abandoned the project. The project is now a cancelled project which consists of 402 housing units, and 395 have been sold to the public. The price of the units ranges between AED 200,000.00 (USD 54,458.82) – and AED 7 million (USD 1,90,058.54). The majority of the purchasers have paid a substantial part of the purchase price to the developer.

The project land has been auctioned off, and the proceeds will be distributed to purchasers as a refund.

Escan Tower UAE ada

Escan Tower

Escan Tower is an AED 2 billion mixed-development, 60-storey skyscraper property project. A part of the project is for housing. 20 floors for commercial units and 40 floors for housing residences. It is located at Sheikh Zayed Road, Dubai. The housing developer was Escan Real Estate PJS. The project, if completed, would offer half a million, or 570,000 square feet, of mixed-use space. The project is adjacent to Burj Dubai.

The Escan Tower project was stalled and abandoned. The project is a cancelled project by RERA. The developer was also unable to make a refund to all purchasers. Thus, the project was transferred to the JC for liquidation, settlement, and r solution. The JC made the decision on November 19, 2018.

According to the decision, the developer had a mortgage loan of AED 219,250,000.00 from Emirates Islamic Bank in 2009 to finance the development of the project. The mortgaged land was also auctioned off on June 2, 2015, and the proceeds from the auction were used to settle the ban s’ debts. However, the JC found that there was insufficient money to refund all the purchasers’ money.

Upon determination of the dispute, the JC decided to liquidate the project (No. 846 ESCAN TOWER) and distribute the available money according to the following:

  • The amount of AED 116,181,730 for the mortgagee lender bank, Emirates Islamic Bank;
  • The amount of AED 112,294.40 for House of Lights Real Estate Management LLC;
  • The amount of AED 3,443,480.02 to the investors and purchasers listed in the list attached to the judgment and the amounts indicated by each of them

Questions

  • Whether the Islamic Home Finance (IHF) products offered by Islamic banks in the UAE protect the rights and interests of purchaser customers in the cancelled housing development projects by RERA and those that had been subjected to the JC determination
  • Whether the conventional housing loan facility products offered by conventional banks in the UAE protect the rights and interests of purchaser customers in the cancelled housing development projects by RERA and those that had been subjected to the JC determination
  • Whether the rights and interests of the victim purchasers in the unfinished, stalled and abandoned real estate projects will be guaranteed and protected by applying the above laws and procedures, particularly if the developer builders nor the directors do not have sufficient money to make refund payments, compensation and/or to rehabilitate the projects

Information and picture reference sources:

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