9 Biggest Mistakes Property Owners Do When Signing Real-Estate Sales and Purchase Agreements

In our field as lawyers and legal consultants we face a lot of real estate cases either before or after the completion of the construction of the property because the buyer did not seek the proper legal advice from the professional lawyers and legal consultants, it is always important to have a lawyer to explain not only the wording but the legal consequences. The drafts of sales and purchase agreements include huge terms, and the most important terms are the terms concerning the dispute that may raise between the parties due to the delays of progress or handover of the project as well as the obligation of payment in these two cases.

 

The mistakes that owners do without the advice of the lawyer is a lot, but we will go to the obvious mistakes that can be understood by common people, which are as follow:

  • The Absence of the Trustee Account Details and cheque payments.

The First thing you shall find in the agreement is the trustee account for the project and it has to come with clear statement that this is the trustee account, nevertheless, you shall verify this account number with land department and ensure that the payment is made by transfer to the same account and not a cheque that may be deposited to the same or another company account.

  • The Payment Terms is not subject to the progress of the Building.

In lot of the agreements, I have reviewed and vetted during litigation or arbitration, I have found that lot of the buyers have the payment dates set without been held subject to performing the building construction on the same ratio. Regardless that the law is stating that the developer must draft his agreement according to the construction progress it does not mean that the court will advise the buyer that he has the right to hold the payment as progress is not according to the expected progress unless there is a gross negligence.

  • The Grace period included on the contract exceed 12 months.

According to the common practice in Dubai real estate market, the grace period granted by contractor to developer is of 12 months in case of any delays on the construction progress without the need for any reason, the developer tends to include this clause in their articles. In some cases, I have found the Developer is setting that the grace period is more then 12 months and in same cases I have found that the grace period is 36 months. The buyer shall always be wise when granting very long period that does not meet with the normal practices.

 

  • The Vague Definition of Delivery Date and Completion Date.

In many agreements that I have seen, I have to write and connect the definition of the Completion date, Delivery Date and  other related definitions, to understand actual completion date and delivery date from the legal point to be able to advise the client if the Developer has committed a breach of contract. The vague  definition of the Completion date and delivery date is a key point to define starting date of the breach of contract and if it is a gross negligence or not, even if It is gross negligence after analyzing it there is no guarantee that the Judicial Expert will have the same opinion as me or as the Client.

 

  • The measure of completion progress is not Land Department.

The progress of any Property is measured through the Dubai Land Department and the report will be available on their website or mobile application (check  https://dubailand.gov.ae/en/#/ ) and it is expected that all the developer shall set that the building progress shall be limited to the construction progress after the down payment that shall not exceed 30%, but in many cases we found out that the developer is giving this right to the project consultant. The problem raise from this delegation is that the project consultant do prefer the developer who is paying him and could raise the progress within  a range of 5% above Dubai Land Department and then another payment becomes due (ex; the Dubai Land Department state that the progress is 60% the project manager may say it is 65% and then you shall pay the payment due on the progress and you cannot challenge the opinion of the project consultant as it is an estimation not too much far from land department estimation), this happen because the consultant may consider other factor that is not considered by Dubai Land Department.

 

  • The Justifications required for any extension of the completion date.

The delivery date may go for long time beyond the agreed grace period for the completion after the agreed completion date, the developer tend to add clauses of force majeure which is acceptable but some of them add the “Delays because of foreign events” and the developer will name everything there such as machinery accidents, the changing of the contractors, the accident on the site, all without setting a period limit or time limit or even a scale for this event such as stating that such even can result in suspension of  the project. All these foreign events do not require to be notified at the time of happing to buyer and accordingly at case of dispute you don’t know what the Developer may argue under this clause.

 

  • The cost of Arbitration dispute comparing to Property Value.

This is a huge common error between small investors when they purchase a unit that worth around AED 0.4-08 million and the parties agreed that in case of dispute it has to go to arbitration with 3 arbitrators. In few cases, handled by me, the arbitration clause stated that the  arbitration shall be in DIFC and shall be conducted by the arbitral tribunal comprising of three Arbitrators which mean that the cost of the arbitration will be AED 200,000 for arbitration and in DIFC may go till AED 400,000. I have same clients who did not prosecute their cases because they are not willing to pay these fees, even some who has received their unit because there is always a risk to lose the case and the damage will not worth at this case comparing to litigation cost which will not exceed AED 100,000.00 for small unit in the court.

 

  • The incomplete and vague details of the Specification of Finishing or Furniture.

There are many disputes which arises because  the finishing is not as expected or agreed from the point of the few of the client, but always the judicial expert will look to the definition of the specifications on the agreement, did it define the level of such finishing or not, if not then it is all subject to the expert and mostly the absence of words such as luxury or high-end is the key reason for leaving it all in the hand of the developer.

 

  • Limit the compensation to very small interest and waving right of termination.

 

In some cases we found out that the parties has agreed on small compensation for the delays to cure the breach, which at the end of the project will not exceed may be AED 5-10 K and you have to file a case to claim it and the charges of lawyers will exceed such amount, which is not the only problem. The problem in some agreement is that the parties sign that this compensation will be the only remedy for the buyer and he shall not claim any other compensation or terminate the agreement. If the parties set the agreed compensation then the court will award this agreement.

 

It is my advice that the buyers shall seek the legal advice of the lawyers and legal consultants for any sales and purchase agreement they are signing and not only for real-estate specially with the hard earned money they are going to pay.

In Nour Attorneys we provide the services of reviewing contracts and agreements and being experienced property lawyers in Dubai we brief the clients in advance about the key risks that they may face in case of dispute or breach by the client and the counter party. We review all kind of agreements such as partnership agreement, SAP Agreements, Trustee Agreements, Loan Agreements, Franchise Agreements, etc.

 

Author:

Mohamed Noureldin

  1. Legal Consultant

 

Nour Attorneys & Legal Consultants FZE LLC