Legal consequences of stopping construction in UAE during the pandemic
Purchaser has the right to cite the relevant articles to defend his rights where claims can be initiated for unjust enrichment or termination of the agreement
Dubai, UAE, September 20th, 2020: Abdulla Alawadi & Associates, one of UAE’s oldest and prestigious law firms elaborated the consequences faced by developers due to the stoppage of construction temporarily or permanently or delaying the handover process due to the pandemic. The firm outlined the actions to be taken by stakeholders against all concerned parties.
“A state of stalemate hit the real estate market in the UAE during the pandemic. Some developers steered through this on their own by adopting extreme measures taken for the first time, such as downsizing, salary cuts, and compulsory unpaid annual leaves. Most of these companies also benefited from measures taken by the government to support this sector,” stated Adv. Abdulla Alawadi, Founder and Chairman of the law firm.
Currently there is a platform for complaints via the official website of the Dubai Land Department – Real Estate Regulatory Agency (RERA), where violations related to real estate issues can be raised and a reference number will be provided for the Complainant to track their complaint.
“From the perspective of developers, it is obvious that the pandemic created a state of chaos on so many levels. Firstly, payments from developers to contractors/subcontractors are in constant scarcity or have even completely stopped. Secondly, the reduction of the headcount of construction workers made it even harder to deliver projects on time. Thirdly, there are other procedural aspects that forced itself onto the scene and obstructed the delivery of units to purchasers, such as the VAT imposed by the government on developers, which could amount to millions of dirhams for major developers, creating a deadlock,” added Adv. Alawadi.
With the outbreak of the pandemic, confusion arose in the industry, primarily, concerning handover prolongation costs, other rights, and obligations all of which impacted unitholders, employers, engineers, developers, contractors, and subcontractors, among other stakeholders. As a result, UAE Courts categorized this pandemic as a state of force majeure in general and the challenges faced by the stakeholders were being solved on a case by case basis to reach the ideal conclusion.
According to Article 20/5 of the Executive Council Resolution No. (6) of 2010, a purchaser may resort to the competent court to seek termination of his contractual relationship with a developer in any other circumstances that require the termination of the agreement in accordance with the general legal rules.
Besides, as per article 318 of UAE of the Federal Law No. (5) of 1985 (the UAE Civil Code), no one is entitled, without cause, to enrich himself to the detriment of another person, without just cause. If he does so, he is liable to restitute it.
Moreover, Article (243/2) of the same law states that “As regards the contract's rights (obligations), each of the contracting parties shall fulfil what the contract has bound him to do.” Furthermore, Article (246/1) of the same law states that “The contract shall be implemented, according to the provisions contained therein and, in a manner, consistent with the requirements of good faith”.
Furthermore, Article (272/1) of the same law states that, in bilateral contracts, if one of the parties does not perform his contractual obligations, the other party may, after serving a formal notification to the debtor, demand the performance of the contract or its rescission.
“Apart from the above, the purchaser has the right to cite the relevant articles to defend his rights where claims can be initiated for unjust enrichment or termination of the agreement and other aspects must be taken into consideration, like acting in good faith and serving formal notification to the party in breach. Considering the above, if the court ruled for the termination of the contract, then refund, i.e. what has been paid already by the purchaser and damages, might be granted,” stated Hesham El-Samra, Senior Associate – Litigation.
Additionally, it is highly undeniable to preclude the invocation of certain clauses by purchasers in unit purchase agreements such as termination for convenience and early termination, where the purchaser can claim that terms and conditions of the agreement has been breached and, thus, the right for termination becomes justifiable.
“Another clause to be considered is the liquidated damages clause, where the aggrieved party is entitled to receive a certain amount as compensation in case of defaults and/or delays (depending on the exact wording of the clause). This compensation is separate and irrelevant to any compensation that would be decided by the court. Such practices will lead to pecuniary damages born by developers; especially, if they were aiming to continue their delayed projects and deliver the sold units,” concluded Hesham.
About Abdulla Alawadi & Associates: Founded by Adv. Abdulla Al Awadi in 1998, the firm has grown to become one of the most prestigious law firms in the region, excelling in litigation before UAE Courts. The firm has solved over 5000 plus cases over the last two decades is well represented by a team of lawyers with a wealth of industry experience across 13 industry sectors. For more information please log on to https://abdullaalawadi.com/.
Prem A. Ramachandran
White Water Public Relations