Regulatory & Legal Updates

Since the enactment of Law No. 13, for the year 2008, on the Interim Real-Estate Register in the Emirate of Dubai (hereinafter referred to as “Real-Estate Register Law”), the UAE legislator mandated that all units sold off-plan must be registered in the interim registry. Off-plan units are considered to be units that are either under construction or units that are only available for sale on a master plan without any physical presence yet. As a result, it has become clear that any Sale and Purchase Agreement (“SPA”) for an off-plan unit that is not registered in the interim registry is invalid, on the grounds that the SPA is against public policy.

Against this background, numerous judgments rendered by the Court of Cassation have shed light and confirmed the validity or nullity of an SPA is contingent upon whether or not the unit in question is considered to be off-plan. The determining factor taken by the court was the status of the project at the time the SPA was concluded.

The unit remained to be considered as off-plan, even when it has been fully completed and after concluding the SPA. For instance, when faced with a dispute related to an unregistered off-plan unit where the seller fails and/or refuses to transfer the title deed to the buyer, court judges only sought invalidating the SPA, as it was not registered in the interim registry, even if not requested by either party to the dispute. This remained the case even if the unit has been completed, after the conclusion of the SPA and prior to filing a claim before the court. The courts decisions for one’s failure to register the off-plan unit did not consider the benefit the breaching seller can gain against the loss the buyer has to sustain by being unable to rely on or validate the SPA concluded, given that they performed their contractual obligations.

However, things never stay constant. On 10 November 2021, the General Authority of the Cassation Court surprised many stakeholders, in particular developers, investors and practitioners by significantly departing from the above principles and rulings. In the Case No. 7 for the year 2021 – General Authority, the said Authority outlined the following:

The Real-Estate Register Law does not apply to a dispute over a unit that is not registered in the interim registry, in the following scenarios:

a) The unit in question has been completed prior to one bringing its claim to court. The court found that a unit completed prior to one bringing a claim is no longer a dispute over an off-plan unit, but rather a dispute over a completed unit; and

b) If the off-plan unit has been registered in accordance with the provisions of Law No. 7 for the year 2006 (Property Registration in the Emirate of Dubai), at any stage during trial. The court provided that registering a unit creates a new contractual relationship between the seller and buyer.

Accordingly, the General Authority confirmed that the general principles of contract law shall apply to the on-going dispute.

Based on this recent judgement, it is our opinion that courts will follow suit given that the General Authority of the Court of Cassation has issued its ruling. The direct outcome of this judgment is that a judge will no longer have room to invalidate an SPA on the basis that the unit was unregistered in the interim registry in the buyer’s name, as it did in the above-mentioned instance. Instead, the buyer will have the right to seek the court’s confirmation of the validity of the SPA as long as the unit has been completed, prior to bringing a claim.

Additionally, the recent judgment from the General Authority will have an indirect effect on SPAs having arbitration clauses. Prior to the General Authority’s recent judgment, courts refused to entertain a party’s defense, namely the court’s lack of jurisdiction to hear the dispute, given the presence of an arbitration clause on the basis that complying with the requirements of the Real-Estate Register Law is a matter of public policy; and matters of public policy cannot be arbitrated.

Will it still be the court’s position in light of the recent judgment by the General Authority, if a party raises the assertion that the court lacks jurisdiction due to the presence of an arbitration clause? Only solid arguments, commentary and court judgments will tell.