Legal Do’s and Don’ts of Property Purchase

The conventional wisdom about the UAE is that it was built on oil first and property second. The country’s most populous city Dubai is a living shrine to the role property has played in building society from the ground up; hardly a week goes by when a gleaming new skyscraper isn’t added to the pack, which combined gives Dubai the tittle of the world’s tallest city.

Broker’s activities are regulated by the Real Estate Brokers Register in Dubai under bylaw No. 85, and under this law is a broker’s defined as “any person who undertakes real estate brokerage business in accordance with this bylaw”.But the economic bounty that property has brought to the country has a fraught history, with the rapid pace of development leading to a burst property bubble during the recession years. Big lessons were learned as a result of this and new bylaws introduced. However, laws were already in place governing the responsibility played by the property brokers who act as intermediaries in negotiating property deals.

If, as is happened commonly during the recession, property developers fold, file for bankruptcy or flee the country, the duties of the broker to the buyer will come under close inspection.

The broker, who has provided information on the property and helped match the buyer with the developer, must have acted according to the code of ethics encapsulated under bylaw No. 85.

That means the broker must have acted in a transparent manner in his role as broker, he must have provided all necessary, accurate details about the property to the buyer and have put the buyer no duress or pressure to purchase the property.

This requirement does not relieve the buyer from their duties of due diligence when considering a purchase and some level of sales tactics on the part of the broker will be deemed permissible. Because the terms of a sales and purchase agreement will by-and-large exist only between the purchaser and developer, the buyer should take all precautions in properly investigating both the property developer and the property broker before embarking on a negotiation.

Questions a potential purchaser would be well advised to ask include checking whether the broker is licensed to operate in Dubai; whether the project is licensed with the Dubai Land Department (DLD) and whether an escrow or trust account exists to hold purchaser’s funds in until handover; whether the relationship between the broker and developer is registered with the DLD; and whether the broker is a competent figure and able to answer all questions ask of them.

However, the duties incumbent on the broker include:

1. Ensuring the good standing and viability of the property developer and that the developer is registered with the DLD.
2. That a clear and concise contract exists to govern the relationship between developer and broker. It is recommended this agreement also be registered with the DLD.
3. The broker must ensure all information provided to buyers is accurate and transparent and the broker must in no way mislead any purchaser.
4. The broker is expected to hold on to copies of any relevant documents or other items relating to a purchase and sale transaction.

If all these duties are adhered to, the broker is unlikely to be held liable for any situation where the developer becomes insolvent or the project fails to materialise. This is enshrined in law by Article 267 of The Commercial Code, which states: “The broker is not required to guarantee the solvency of the two parties to the transaction in which he intermediates. He shall bear no liability of the goods related thereto, unless it is established that he committed an act of fraud or fault and he is held for guarantee under the agreement or the law”.

As always, if you are considering acting as any party to such a transaction and would like more clarity related to the laws governing such commercial activities please don’t hesitate to seek legal counsel.