DRAFT TANWEER LAW/FEATURE

Tanweer:
Illuminating
enough?
The draft Real Estate Investor Protection Law or
Tanweer law aims to boost the real estate market
of the region by safeguarding investor rights. Will
it live up to expectations? Sean Yates of Eversheds
illuminates the various clauses of the law.

new generation of investors

are entering the region with
an appetite for purchasing
real estate. The new initiative
from Dubai Land Department, Tanweer,
is set to address many of the issues faced
by investors in recent years and, if implemented as planned, will go some way towards
changing the image of what can still be seen
as a high risk market. Some of the main
aspects of the proposed law will be discussed
and consideration given as to whether they
might go further. This analysis is undertaken
from an investor perspective given the aim of
Tanweer is to provide increased protection
to investors. The question of the proposed
laws implications for developers and
how they might best adapt to or mitigate
against its effects is of course a separate
discussion.
The proposed law legislation prohibits any
provision within a reservation deed or sale
contract that is contrary to the law (Article
29(2)), so it is not possible to contract out of
its provisions.
Cooling Off Period
An investor should be given 15 days to
consider a sale contract prior to signing, to
allow him to review the terms and seek any
legal advice (Article 10).
Standard Reservation Deed Option
Parties may enter into a Reservation
Deed prior to the final sale contract. If
they do so, then the Reservation Deed must
contain certain information and provide
certain rights to the investor including an
entitlement to receive the sale contract
within 15 days (Article 19).
Termination by Investor
An investor may terminate a sale contract:
if he establishes that the seller or broker
deliberately concealed essential information
and that this is likely to cause harm or loss to
him (Article 34);
if delay to completion exceeds 12 months
(Article 36 (1)); (it is anticipated that the law will
provide for 12 months);
if the unit is materially different from its
contract specifications (including if it is 30%
or more smaller) (Article 36(2)); or
if the units specifications are changed without
obtaining the proper permits from the relevant
authority (Article 36(4))

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FEATURE/DRAFT TANWEER LAW

Investor Compensation
Compensation is payable to the investor:
if there is delay of between 1 and 12 months
in the completion of the property (Article
37(4));
if the specifications of the property as
delivered are at variance with the contractual
specifications ((Article 37(3)); and
if there is misrepresentation (Article 37
(2)) or breach of warranty or undertaking
(Article 37(1))
Fundamental Defect Remedy
Any fundamental defect in the property
must be rectified within 12 months of
handover, in default of which the developer
must take the unit back and return the
amount paid or provide an alternative similar
unit (Article 26).
Limited Restriction on Re-selling
The draft legislation specifies that an
intending investor cannot sell or trade a
unit using a reservation deed and cannot
offer to sell the property before signing and
registering the sale contract with the Dubai
Land Department. This offers a degree of
protection in relation to so-called flipping
where an off plan unit is purchased and sold
on within a short period at a higher price,
often numerous times before completion is
complete. Subsequent purchasers can now
check in the Real Estate Register to ensure
they are receiving good title to the property.

Enhanced Real Estate Register

An Investors Register will be created
that will record the names, addresses and
contact details of every investor in the
property. A Building Register will record
information relating to any permit for
building or development, any approval for
zoning or urban planning, any court order
or effective arbitrators award that affects
the title. A developer is obliged to register
any appropriate details within the Building
Register.
The Real Estate Register search is therefore
set to become a much more comprehensive
tool and should help reduce the risk associated with hidden or undisclosed encumbrances. An investor and any other person
who has a legal interest can make a search
and obtain full details of title information,
details of all mortgages over the property
and finance agreements with funders.
There are still a number of issues to be
addressed if some of the main mischiefs of
the past are to be avoided.
Force Majeure Clauses
The international variant of the plain
utilitarian force majeure clause underwent
a transformation in Dubai sale contracts.
Its traditional role of releasing contracting
parties from their respective obligations
in the event of an act of God or nature,
political upheaval or war was sidelined
and it became the darling of developers

Developers have a vested interest in a market that allows the purchase and immediate resale of an off
plan unit as it provides a ready market of purchasers, namely those with ready cash who want to make a
quick profit.

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the Oath JUNE 2013

everywhere. Variously drafted, it was used

by developers to avoid the obligation to
deliver a project on time if such delay was
beyond their control. Typically, investors
sought no legal advice before signing (unlike
the developers) and contracts were signed in
which apparent safeguards for the investors
were compromised by the force majeure
clause. The clause was called upon whenever
a developer wanted to claim delay was not
its fault, with the result that risk of delay
shifted entirely onto investors. The use of
such modified clauses was widespread in
the market. Investors were seldom in a
position to challenge the developers reliance
on the clause because of the cost of pursuing
litigation.

A Building
Register will
record information
relating to any
permit for building or
development, any approval
for zoning or urban planning,
any court order or effective
arbitrators award that
affects the title. A developer
is obliged to register any
appropriate details within the
Building Register.
Under the new law, there must not be
any provision in the reservation deed or
sale contract allowing delay of the project
for more than 8 months (Article 29(1)). It
remains to be seen whether such prohibition
will attach to force majeure clauses which
typically have value in international
contracts by apportioning risk between the
parties in the event of certain catastrophic
unforeseeable events. The previous abuse
of force majeure clauses may well have
led to an intention to limit the effect of a
force majeure clause to a duration of eight
months. It is, however, undesirable for both
investors and developers for the issue not to
be specifically addressed, as uncertainty is
likely to lead to opposing stances being taken
by parties to a sale contract in the event of
construction delay.

DRAFT TANWEER LAW/FEATURE

The promise of association-appointed management with accountable charges often failed to materialise and well publicised disputes arose between
management companies and the tenants whose landlords had refused to pay the service charges.

Service charges
For investors fortunate enough to see their
property completed, unexpectedly high
service charges taken together with lower
(corrected) rents and high initial purchase
prices left many new landlords receiving a
negative return even if they found a tenant.
The promise of association-appointed
management with accountable charges
often failed to materialise and well publicised
disputes arose between management
companies and the tenants whose landlords
had refused to pay the service charges. Access
to parking and swimming pools was blocked.
Such is the potential profitability of service
charge collection, that some developers
having sold the development on to a third
party, reserve their capacity as management
company. Their foresight rightly anticipates
that the owners associations appointment of
their own management company can often
take a long time.
Under the proposed legislation, if a
developer reserves a right to be the ultimate
provider of management services relating
to a unit, this must be disclosed within the
Reservation Deed of sale contract and an
estimate of the annual service fee must be
provided (Article 13). This may well give
warning to investors, but there is no provision
for holding a developer to its estimate, and

indeed the realistic cost of providing such

services may increase between the date of
the sale contract and the date of completion.
Perhaps the most that might be hoped for is
a breakdown of how the estimate has been
arrived at, so that it can be scrutinised.
Effects of Flipping
Developers have a vested interest in a market
that allows the purchase and immediate
resale of an off plan unit as it provides a ready
market of purchasers, namely those with
ready cash who want to make a quick profit.
Those looking to purchase for the longer
term, who may wish to occupy or let usually
follow, having acquired on the secondary
market. These ultimate owners typically miss
out on the opportunity to queue outside the
sales office to make the initial purchase. The
effect is an aggressive rush to purchase and
an artificial spiking of prices.
Developers have the ability to curb this
behaviour for the long term health of the
market. The secondary market of off-plan
units requires the developer to consent to
the onward sale. An express provision within
the sale contract prohibiting onward sales
within the first two years or until completion,
along with a provision within the Tanweer
legislation that such clauses within sales
contracts cannot be avoided, could control

some of the excesses that f lipping has

previously caused.
The new legislation is unlikely to be
retrospective. It would lead to hundreds if
not thousands of existing contracts becoming
terminable due to delay in excess of one year.
A backlog therefore still needs to be cleared of
cases where delay continues. These should not
become the forgotten investors, and indeed
Dubai Land Departments Tanmia initiative
to put new developer investors and banks
together with investor purchasers shows
Dubais determination not to leave behind
those caught up in the frenzy of real estate
purchasing in 2004-2008. For new investors, if
the new law is seen to work, it should increase
confidence levels and it would no doubt be
welcomed if other emirates followed Dubais
example.
Text by:
Sean Yates,
head of real estate,
Eversheds LLP, UAE

(research assisted
by Anish Ghosh)

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