Off-plan property is a type of property still under development. In Dubai, UAE, these properties are attractive investment options because of their relatively lower prices and a high possibility of price hikes after (or during) construction.
An essential contract that underlines the deals of off-plan properties is SPA. SPA is a legal requirement, and failure to understand the terms and conditions laid out in SPA can result in losses.
But a thorough understanding of SPA and what it entails demands a detailed discussion. Therefore, today, we will discuss what SPA is, its importance in Dubai’s real estate industry, and the clauses it must have to help you make a financially secure and profitable investment.
What is a Sale and Purchase Agreement Dubai (SPA Dubai)?
SPA stands for Sales and Purchase Agreement. Generally speaking, it is a contract between a buyer and a seller to finalize a purchase’s terms and conditions. In Dubai, SPAs are most commonly used when purchasing off-plan properties (properties still under development).
SPAs are legally binding contracts between a buyer and a developer that lay out conditions such as completion date, dispute resolution, property details, etc. The goal of a SPA is to compel both parties to fulfill their responsibilities until the property is completed and handed over. Failure to fulfill these responsibilities results in the consequences laid out in the SPA.
After signing a SPA, all the agreements made earlier—verbal or non-verbal—become null and void. The developer issues a SPA when a buyer:
- Pays the initial booking amount (2% of the purchase price),
- Signs the booking form, and
- Pays the down payment (10-20% of the purchase price)
SPA is also a legal requirement for the registration of initial sale with DLD (Dubai Land Department). The registration takes place through the Oqood Portal, and the buyer is issued an Oqood certificate. Once the development is completed, this Oqood certificate achieves the status of a regular title deed.
Meanwhile, you can also explore Best Off-Plan Properties in Dubai in 2024.
Sale and Purchase Agreement Dubai Contents—Overview
Learning the importance of SPA is one thing, but knowing what it must contain and how it can affect you is the next step in making a safe and profitable off-plan deal.
Here is a list of contents the sale and purchase agreement Dubai must contain:
- Purchase price of the completed property.
- Contact and personal identification information of both the developer and the buyer (lawyer if applicable).
- Comprehensive property details such as size, floorplan, parking spaces, view, no. of rooms, location, etc.
- The date when the property will be handed over to the buyer and the Anticipated Completion Date (ACD).
- A payment plan that gives a payment schedule and ascertains whether payment is time-linked or construction-linked.
- Signatures of developer and buyer. A buyer younger than the legal age must also have a guardian sign the SPA and attach a copy of their identity document (e.g., passport).
Key Clauses in Sale and Purchase Agreement Dubai (SPA)
Let us now examine the most important clauses and contents of the SPA in detail.
1. Completion and Passing of Risk
This clause outlines the developer’s anticipated completion date (ACD), and permits the developer to extend the date for specific reasons outlined in the agreement. The period of extension is usually 6-12 months. A failure to complete the property and make it deliverable beyond the extension period may result in the cancellation of sale and purchase agreement Dubai.
This clause also outlines the buyer’s financial obligations to make them eligible for the possession of the property once the construction is completed and the property is in a deliverable state.
Lastly, the completion clause must also outline the passing of risk. It is a clause that dictates the terms and conditions regarding the transfer of risks associated with the property.
In simple terms, the buyer will be liable to handle the risks of purchasing the property only after it has been handed over to them.
2. Purchase Price and Payment Schedule
Another key clause in the SPA is the purchase price and payment schedule. This clause outlines the total price of the developed property and the manner/duration in which it is to be paid.
Take time to read this clause carefully to determine whether you’ll be able to pay on time or if you need the developer to make changes before finalizing the agreement.
Failure to transfer payments as per schedule can result in the cancellation of the agreement and the loss of payments made so far. Late payment may result in the application of interest.
3. Handover
The handover clause outlines the conditions a developer must fulfill to hand over the off-plan property. It also outlines criteria such as the quality of finishes, fittings, and fixtures.
This clause further outlines the consequences a developer may face if the finished property is not as promised or has defects. As a buyer, it is your job to inspect the finished property thoroughly to determine whether there are any deficiencies.
This clause is essential to protect the buyer’s money if the finished property is not in the agreed-upon condition.
4. Disposal Restrictions
Off-plan properties may see a spike in prices while they’re under development. For this reason, many investors seek to sell their properties during the construction.
In SPA, some developers restrict the ability to sell the property while it is under development. These restrictions are laid in the “Restrictions on Disposal” clause. If you’re purchasing an off-plan property and intend to sell it before it is completed, read this clause and see if the developer allows it.
5. Termination
The termination clause outlines the conditions that may result in the SPA’s cancellation.
The cancellation terms are different for both parties. They may occur due to circumstances such as the buyer’s inability to make payments or the developer’s inability to finish development before the completion date.
It is crucial to thoroughly understand the termination clause, as it will determine your rights if you have to cancel because of a violation by the developer.
6. Dispute Resolution
The purpose of this clause is to lay out different methods that may be used to resolve a dispute. These methods may include arbitration, mediation, court, or other alternative methods agreed upon by the developer and the buyer.
Since disputes may arise at any point in the contract period, reading and understanding this clause is important. Doing so will give you a clear understanding of the options you may or may not have and whether they are acceptable to you.
How to Register Sale and Purchase Agreement Dubai with DLD
Here are the steps to register a Sale and Purchase Agreement in Dubai with DLD:
- Visit the Oqood portal and select the provisional sale registration service.
- Select the property you wish to register.
- Provide your personal details.
- Upload the required documents.
- Choose your payment method.
- Submit your application online.
- Receive a confirmation receipt via email.
How to Add a Member to a Sale Purchase Agreement in Dubai?
If you want to add a member to a Sales Purchase Agreement in Dubai, follow these steps. It is important to note that there are certain conditions which you must meet before adding a new member to sale and purchase agreement in Dubai.
- Access the Oqood Portal.
- Choose the “Provisional Sale Registration Service” option.
- Select the property.
- Fill in the required information.
- Attach the necessary documents.
- Choose your payment method.
- Submit the application.
After submission, you will receive an email confirmation. The process typically takes about 6 business days. Required documents include the sales-purchase agreement, a signed amendment annex, and a valid UAE ID or passport for foreign nationals. If you need assistance, consider consulting a lawyer or registered real estate brokers.
Sale and Purchase Agreement Dubai Cancellation Terms
The cancellation terms indicate what would happen if a party fails to fulfill the conditions laid out in the SPA. The violating party receives an official warning and a 30-day grace period to rectify mistakes before the SPA is terminated. Here are some important things to know about the termination of sale and purchase agreement in Dubai.
a) If the Buyer Violates
Depending on the situation, both buyer and developer have the right to cancel the SPA. For example, one of the most common reasons for canceling a SPA is the buyer’s inability to make timely payments.
As a result, the developer may terminate the agreement. Moreover, the developer may be granted compensation depending on the project completion percentage.
b) If the Developer Violates
The buyer may also move towards termination if the developer fails to fulfill their obligations. One common example is the developer’s failure to hand over the property by the agreed-upon date.
Generally, SPA has a clause that allows for the extension of up to 12 months beyond the Anticipated Completion Date (ACD). If the extension period also passes and the property is still incomplete, the buyer can cancel the SPA.
Before signing the SPA, you should learn about the compensation you’re entitled to if you cancel it. You may attempt to request a complete refund plus interest on the payments you’ve made so far, but that is usually not possible.
In most SPAs, buyers are only entitled to a percentage interest for months beyond the completion date. If there is no such clause in the SPA, a buyer may be refunded the entire amount paid so far and 9% interest.
c) Cancelation Through Mutual Agreement
The buyer and developer may also terminate SPA through mutual agreement without external arbitration or litigation. Such a cancellation would restore them to their status before entering the contract. This process of SPA termination is also known as Iqala in the UAE.
Things to Consider Before Signing a Sale and Purchase Agreement in Dubai
Sale and purchase agreement Dubai is essential for ensuring the smooth transaction of the property. SPA also compels both parties to keep their promises. Many buyers, thinking that SPA makes them secure, rush through it and sign it. However, thoroughly reading and understanding every clause is the right way to enter this agreement.
You should also know that SPA comes later in the process. You receive a SPA to sign once you have paid the initial deposit (2% of the purchase price), signed the booking form, and paid about 20% of the property price as a down payment.
By this time, the developer is unlikely to change the SPA even if you find something in it you disagree with. At this point, you have the right to cancel the contract, and you will get a refund for the down payment. However, you may have to give up the initial deposit.
However, to avoid losing the initial deposit upon backing out of a sale and purchase agreement, you should get the payment plan and property details in advance. Ideally, you should get this information in writing from the developer before making the initial deposit.
This written document should include details like a clear payment schedule, property price, size, view, number of parking spaces, and other fees you might have to pay. It will ensure that the conditions laid out in the SPA are the same as the developer promised you in the booking form.
Since SPA makes all the prior agreements null and void, failure to get this information earlier in writing may give the developer a chance to offer you a property with different features and characteristics than what was promised/shown.
Lastly, here are some best practices to follow before signing the sale and purchase agreement Dubai:
- Check the developer’s license and verify it with authorities, along with requesting a government-issued good conduct certificate.
- Confirm that the real estate project is registered with the relevant authority of the Emirate (e.g., RERA or DLD in Dubai, TAMM in Abu Dhabi).
- Thoroughly going through the payment schedule.
- Thoroughly reviewing cancellation clauses and terms.
- Thoroughly review the Sale and Purchase Agreement. Take your time to understand and discuss any concerns before signing.
- Getting a copy of the title deed.
- Confirming the ACD (Anticipated Completion Date) and the consequence of failure to meet it.
- Verify the escrow account details for off-plan property transactions directly with the bank for security.
- Pay attention to details, including hidden conditions or subtle terms in the agreement.
- Validate the developer’s Emirates ID and passport details to ensure transparency and authenticity in the transaction.
Sale and Purchase Agreement Dubai; FAQs
What is the legal agreement called when purchasing or selling off-plan properties in Dubai?
SPA is the legally binding agreement between the buyer and developer of an off-plan property. It stands for Sales and Purchase Agreement and lays out essential conditions such as property price, payment schedule, cancellation terms, handover date, and more.
What are some key clauses and information a SPA must have?
Some key clauses and information that every SPA must have are as follows:
- Completion and Passing of Risk
- Purchase Price and Payment Schedule
- Handover Clause
- Disposal Restrictions
- Termination Clause
- Dispute Resolution
- Contact and Personal Identification of Both Parties (buyer and seller)
- Comprehensive Property Details (size, floorplan, parking spaces, view, no. of rooms, location, etc.)
What is the cancellation grace period for a Sale and Purchase Agreement in Dubai?
After the cancellation warning, the grace period allowed for a Sales and Purchase Agreement in Dubai is 30 days.
Final Words
This extensive guide will tell you everything you need to know about the Sales and Purchase Agreement Dubai (SPA), its meaning, significance, key clauses, and SPA registration process.
To summarize, you should take the time to learn as much as possible before signing a SPA. You should also read all the clauses, terms, and conditions exhaustively to understand how the SPA may benefit or harm you.
If you’re pressed for time, hiring the services of a reliable real estate agency will prove beneficial in helping you understand the terms of the Sale and Purchase agreement Dubai and whether it is safe to invest.