Dubai's off-plan property rules: Can buyers get refund if project gets 'cancelled'?

Real estate laws in the emirate prioritise buyer protection, ensuring transparent refund processes and safeguarding funds in guarantee accounts

Ajanta Paul

Published: Tue 17 Dec 2024, 2:35 PM

Last updated: Tue 17 Dec 2024, 2:46 PM

Off-plan properties have long been seen as lucrative real estate investment opportunities, particularly in a dynamic market like Dubai. With more affordable pricing and flexible payment plans, investors can secure properties at a lower cost compared to completed developments, offering the potential for significant returns.

However, not all off-plan projects are delivered on time, and in rare cases, some may face significant delays or even cancellation. To address these concerns and protect investors, the Dubai government has implemented a set of rules and regulations aimed at managing unfinished or cancelled off-plan projects, ensuring greater transparency and accountability in the market.

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Here's a quick overview of what it means when a project is marked as 'cancelled' or 'under cancellation' by the authorities in Dubai, along with the associated refund procedures:

In Dubai's real estate sector, the terms 'cancelled' and 'under cancellation' refer to the status of property developments as determined by Dubai Land Department (DLD) and the Real Estate Regulatory Agency (Rera).

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Cancelled projects

"A project is officially deemed 'cancelled' when Rera issues a final, reasoned decision to terminate it. This determination typically arises from significant delays, insolvency, or failure to meet regulatory standards. Once a project is cancelled, the Special Tribunal for Liquidation of Cancelled Real Property Projects in Dubai oversees the liquidation process and the settlement of related rights," said Nikhat Sardar Khan, head of the corporate, DIFC Litigation, and Arbitration Department at Hilal & Associates Advocates & Legal Consultants.

Decree No. (33) of 2020 restructured the special committee responsible for unfinished and cancelled real estate projects, renaming it the “Special Tribunal for Liquidation of Cancelled Real Property Projects in Dubai and Settlement of Related Rights” (Article 2(b) of Decree No. (33) of 2020.

Under Cancellation

Explaining the law, Nikhat said, "The designation 'under cancellation' refers to projects that are in the process of being reviewed by Rera for potential cancellation. During this phase, Rera assesses factors such as project progress, financial stability of the developer, and compliance with regulatory requirements. A project remains 'under cancellation' until Rera reaches a final decision to either proceed with cancellation or allow the developer to continue."

The legal procedures for handling cancelled real estate projects in Dubai are primarily governed by the following laws and decrees:

Decree No. (33) of 2020:

This decree restructured the special committee responsible for unfinished and cancelled real estate projects. It renamed the committee to the Special Tribunal for Liquidation of Cancelled Real Property Projects in Dubai and Settlement of Related Rights. The decree also outlines the powers of this committee in liquidating cancelled projects and settling related rights.

Dubai Law No. 13 of 2008, as amended by Law No. 19 of 2020:

This law amended previous regulations concerning the Interim Real Property Register in Dubai. It specifies the procedures for developers to refund payments to purchasers when a project is cancelled by the Rera.

Law No. (8) of 2007:

This law governs the Guarantee Accounts of Real Estate Development in Dubai. It mandates that developers must return all amounts received from purchasers when a project is cancelled by a final decision issued by Rera, as per the procedures and provisions set forth in this law.

Dubai Law No. 13 of 2008, as amended by Law No. 19 of 2020, specifies that if a real estate project is cancelled by virtue of a final grounded decision issued by Rera, the developer must refund amounts received from purchasers in accordance with the procedures set out in the law. The refund obligations of developers under various circumstances are detailed in Article 11 of Dubai Law No. 13 of 2008, as amended, and include the following scenarios:

1. Completion between 60% and 80%:

If the developer has completed 60 per cent to 80 per cent of the project, they may rescind the off-plan sale contract at their discretion.
The developer is allowed to deduct no more than 40 per cent of the unit’s value as specified in the sale contract.

The remaining amount must be refunded to the purchaser:

Within one year from the contract rescission date, or
Within 60 days of reselling the unit to another purchaser, whichever occurs first.

2. Completion less than 60%:

If the developer has completed less than 60 per cent of the project, they may still rescind the contract at their discretion.
The deduction is capped at 25 per cent of the unit’s value in the sale contract.

The balance must be refunded to the purchaser:

Within one year from the contract rescission date, or
Within 60 days of reselling the unit, whichever occurs first.

3. No work commenced or project cancelled:

If the developer has not commenced work on the project for reasons beyond their control and without negligence or dereliction, or if the project is cancelled by a final grounded decision issued by Rera.

The developer must return all amounts received from purchasers.

— Refunds must be processed in accordance with the procedures and provisions of Law No. 8 of 2007.

— If no work has commenced or the project is cancelled, Article 15 of Dubai Law No. 8 of 2007 prioritises refunding purchasers using funds in the guarantee account. The guarantee account trustee, a DLD-authorised financial institution, manages this process by coordinating with the DLD to ensure compliance. Purchasers are refunded from the guarantee account, which is legally protected and dedicated solely to the project. The DLD supervises and approves the refund process to safeguard purchasers' rights.

Refund steps for cancelled projects

To obtain a refund for an unfinished or cancelled real estate project in Dubai, the process outlined in Dubai is as follows:

File a grievance: The purchaser should file a grievance with the Judicial Committee for Unfinished and Cancelled Real Estate Projects. This grievance should detail the issues with the real estate project and the request for a refund.

Judicial committee review: The judicial committee will review the grievance and the committee has the competence to hear and decide upon grievances filed by purchasers.

Submission of reports: Rera will submit a detailed report on the unfinished or cancelled real estate project to the judicial committee. This report will include data on the project's current status, proposed solutions, and measures taken by the agency (Article 9).

Decision by the judicial committee: The judicial committee will examine the grievance and the report from Rera. They will issue the necessary decisions regarding the grievance, which may include ordering the return of amounts deposited in the escrow account or paid to the real estate developer (Article 7).

Implementation of decision: The decisions, orders, and judgements issued by the judicial committee are final and must be implemented through the court in Dubai Courts (Article 11).

Refund process: If the judicial committee orders a refund, the real estate project escrow account trustee or the real estate developer will be directed to return the amounts to the buyer. The judgements, orders and decisions issued by the judicial committee shall be final and may not be contested by any of the ordinary methods of appeal.

By following these steps, a property investor can seek a refund for an unfinished or cancelled real estate project in Dubai.

Buyers in Dubai's real estate market are afforded significant legal protections under laws such as Law No. 8 of 2007 and Law No. 13 of 2008, as amended by Law No. 19 of 2020.

These laws prioritise the rights of purchasers, ensuring that refunds are processed transparently and funds in guarantee accounts are safeguarded for their benefit.

While delays in resolution may arise, the legal framework is designed to ensure fairness and accountability, providing purchasers with a clear path to reclaiming their investments in the event of project cancellations.

Purchasers can also initiate legal action, including filing a lawsuit or grievance. This provision grants the Special Tribunal for Liquidation of Cancelled Real Property Projects the authority to hear grievances filed by purchasers against developers in cases where a project is cancelled.

The tribunal has the competence to determine purchasers' rights, oversee liquidation processes, and enforce refunds or compensation in accordance with the laws governing cancelled real estate projects.

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