Buying an off-plan property in Dubai can be an exciting opportunity. You purchase during the pre-construction phase and take advantage of flexible payment and strong returns. However, situations can change unexpectedly. Your financial situation may change, making the payment schedule harder to manage.
If the buyer defaults on payments for off-plan property in Dubai, the developer may issue a default notice, notify the Dubai Land Department (DLD), and terminate the contract. Depending on the construction progress, you may lose a significant percentage of the amount already paid. This guide will explore what happens when buyers default on payments, your rights as a buyer, and more. So, keep reading the guide.
Understanding Off-Plan Properties in Dubai
Before looking at buyer default, it is important to know what off-plan property means. Off-plan properties are units sold during the construction phase, and sometimes before construction. These are considered an affordable entry into Dubai’s thriving real estate market.
These properties feature flexible payment plans, allowing investors and buyers to spread the payment and minimize financial strain. You pay a portion of the property’s price during construction and the remaining at handover. Their strong demand, lower upfront cost, and potential for strong capital appreciation make them appealing to investors from around the world.
What Happens If You Miss a Payment?
In case of a missed payment, some developers issue a payment reminder and provide a short grace period, typically of 15 days to 30 days. If you are facing financial issues, it is best to inform the developer. If the payments are not made within the grace period, the late fees may apply in line with the terms outlined in the Sales and Purchase Agreement (SPA). If non-payment continues, the developer can notify the DLD and RERA.
Understanding Buyer Default on Dubai Off-Plan Property Payment
Buyer default on off-plan properties in Dubai happens when a buyer fails to meet the payment obligations specified in the Sales and Purchase Agreement (SPA). SPA is a legally binding contract that outlines the terms and conditions of the sale. It includes the names of both parties, payment terms, and terms of cancellation. Buyer’s default is a breach of the contract, leading to legal actions. It is governed by the Dubai Land Department and the Real Estate Regulatory Agency (RERA).
What If the Buyer Fails to Fulfill the Agreement?
In this case, the rules and procedures defined under Article 11 of Law No 19 of 2017, Amending Law No 13 of 2008, Regulating the Interim Real Property Register in the Emirate of Dubai, will be followed. It highlights the procedures the DLD and developer (seller) can take when a buyer defaults on their contractual responsibilities. They can take the following steps:
- The developer (seller) must inform the Dubai Land Department (DLD) of the buyer’s failure to pay the installment.
- When DLD confirms that the buyer violated the agreement, they can send a 30-day notice to the buyer, instructing them to complete the payment. The notice must be written, dated, and delivered to the buyer either personally or via registered mail with receipt confirmation by email or other methods.
- If possible, the DLD may try an amicable resolution between the developer and the buyer.
If the notice period ends and the buyer still hasn’t met their obligations, or if no settlement is reached, the Dubai Land Department (DLD) decides in favor of the developer (seller). Under Law No. 19 of 2017, amending Law No. 13 of 2008, the DLD issues a formal notice stating the following:
- The developer’s adherence to the steps defined in the DLD-issued notice.
- The percentage of project completion for the Real Property under the Off-Plan Sale Agreement, measured in line with the RERA guidelines.
What Legal Actions Can a Developer Take?
After receiving the formal notification, the developer can initiate legal measures against buyers who default on off-plan property payments. Actions vary depending on the project’s completion percentage. The developer can take the following actions as per Law No 19 of 2020, amending Law No 13 of 2008:
If More Than 80% of the Project is Completed
Continue the Off-Plan Sale Agreement with the buyer, keep all the payments made by the buyer, and demand the outstanding balance.
OR
Ask DLD to sell the unit by public auction to recover the developer’s outstanding balance, with the buyer responsible for the sale cost.
If the Project Completion Ranges Between 60% and 80%
If the completion percentage ranges between 60% and 80%, the developer has the right to unilaterally cancel the sale agreement with the buyer, deduct up to 40% of the total purchase price of the property, and refund the excess to the buyer. The developer is required to refund the buyer within 60 days following the resale of the property or within 1 year from the cancellation of the sale agreement.
If Less Than 60% of the Project is Completed
If the construction is commenced in accordance with designs approved by competent authorities and the project’s completion percentage is less than 60%, then the developer can unilaterally terminate the agreement, retain up to 25% of the value of the unit, and refund the excess to the purchaser.
If Construction is Not Started
In this case, the developer has to refund all the payments made by the buyer.
Can You Negotiate with the Developer?
Yes, and you should. It is one of the smartest ways to protect your investment and address any potential payment difficulties. You can request to extend the payment plan, submit evidence of financial hardships, arrange a rescheduled payment plan, or move to a lower-priced property.
Conclusion
Buyers’ default on off-plan property payment in Dubai results in several consequences. The Dubai Land Department (DLD) and the Real Estate Regulatory Agency (RERA) have defined the procedures for buyers who default on their payment schedule. The consequences depend on the project’s completion percentage. However, buyers do have options. They can communicate with the developer for resolution or seek help from RERA. If you are facing payment issues, Kelt and Co Realty is here to guide you and minimize the loss.
FAQs
What happens if I default on off-plan property payment?
The developer will issue a notice to complete the payment. If it fails, the developer will notify the DLD about the buyer’s default and try to resolve the issue. If it still fails, the DLD will decide in favor of the developer, allowing them to take certain steps, such as cancelling the agreement and retaining some amount.Â
Can the developer immediately terminate the agreement if the buyer defaults?
No. The developer cannot terminate the agreement immediately. They require approval from DLD to do so.
How much money will I lose if I default?
It depends on the project’s completion percentage. If less than 60% of the project is completed, the developer can retain 25% of the property value and return the excess to the buyer. If the completion ranges between 60% and 80%, the developer can retain up to 40% of the property value and refund the excess.Â
Are registration fees refundable after the buyer defaults?Â
Registration fees are non-refundable after buyer default.Â
