Handover Imminent? Investors’ Rights……

Nakheel’s recent restructure announcements, including a significant financial commitment from the Dubai Government, bring some hope to investors that construction will recommence on several Nakheel projects in the near future.

With this in mind, the second half of 2010 may see a surge in the number of units being handed over to investors who will finally be able to inspect their property and take physical possession.

Most contracts provide that the developer must deliver to the investor a notice of handover at least 30 days prior to completion. It is likely that this notice will include a financial statement which should set out the amount payable on completion and an invitation formally to inspect the property.

It is sometimes only at this point that an investor becomes aware of a change to the design or specifications of the property from the terms originally agreed. We refer below to a couple of common scenarios.

1. More for More

Developers have been known to demand additional amounts from investors, due to an increase in the total square footage of the property being delivered when compared with the area specified in the contract. The response to this situation depends on the exact terms of the contract.

Some contracts may expressly prohibit this, in which case its position is clear.

If the contract is silent on the issue, Article 12 of Law no 13 of 2008 applies. This states that if the property is larger than that agreed by the parties, the developer may not demand any uplift in price.

Incidentally, if the property delivered to the investor is smaller than that originally agreed, the developer must compensate the purchaser for the difference, unless the difference is marginal. Decree No. 6 of 2010 clarifies what is considered marginal by reference to a 5% variation limit.

Finally where the contract contains an express provision allowing the developer to claim an uplift should the size of the property be larger than that agreed, then the developer is entitled to claim the additional amount. This is governed by Decree no 6 of 2010 which provides that a developer may not claim the value of such increase unless otherwise agreed upon.

2. Material Changes

Where the specifications and finishes of a property delivered by a developer differ from those detailed in the contract, a close inspection of the terms of the contract is required.

A contract may include a provision enabling the developer to change, modify or vary the materials and specifications of the property, usually provided the new items are of equal or higher quality then the substituted items. In that case, provided the developer complies, such changes are allowed.

However, if the contract is silent on these issues, the position must be considered by reference to the applicable legislation.

Decree No. 6 of 2010 provides that where a property delivered by a developer is significantly different, in terms of specification, from the contract description, this forms a ground on which the purchaser may apply to the Dubai Court for cancellation of the contract, with a refund then becoming due.

In summary, a developer should hand over property complying, within reason, with the description in the contract. If that is not the case, the investor’s rights will depend on the exact terms of the contract and the content of applicable legislation.

For further information please contact Jerry Parks or Lindsey Wisher.

Taylor Wessing (Middle East) LLP

Lawyers Jerry Parks