A sale and purchase agreement is one of the most vital documents in real estate contracts in Dubai or UAE. In simple terms, it is a document that consists of terms and conditions on which both parties agree when entering into a real estate transaction. A sale and purchase agreement generally facilitates off-plan properties in Dubai and the UAE. To learn more about it, you can read our detailed article on the sale and purchase agreement in Dubai.
However, today’s subject of discussion is how to terminate sale and purchase agreements in Dubai and the UAE. It is important to note that a sale-purchase agreement is a legally binding contract. Both parties involved in the contract can only terminate it according to the law.
Here is a detailed guide (in accordance with the law) on how to terminate a sale and purchase agreement in Dubai and UAE. Before that, let’s understand the word “termination” in this context.
Termination of sale and purchase agreement in Dubai and UAE
The sale and purchase agreement termination means the agreement between the parties is over, along with their contract. Reasons to terminate SPAs include
- Not meeting contract duties,
- Delays in transferring property rights,
- Not making payments,
- Giving false information, fraud or mistakes, or
- Unexpected events like force majeure.
In Dubai real estate, if developers don’t do their part in a sale/purchase agreement, the buyer can cancel the agreement and get back what they paid for the property. However, it is necessary that the buyer has completed their legal responsibilities and can prove this fact in court.
SPA contracts often mention when the buyer should get the property (Anticipated Completion Date). Depending on the circumstances, this date can be extended up to one year.
Trying to cancel a SPA too soon is not a wise move, either. The seller can use force majeure to defend against termination if the buyer did not meet their contract duties.
Dubai Law No. 19 of 2017, which amended Article 11 of Dubai Law No. 13/2008, lets developers end a sale and purchase agreement with a buyer who didn’t follow the agreement. This process involves the Dubai Economic Department and DLD (Dubai Land Department).
Article 267 of the Civil Transactions Law says contracts can end by agreement, court order, prior agreement, or legal rules. These are the ways in which parties can terminate a sale and purchase agreement in Dubai and UAE. Let’s discuss them in detail.
How to Terminate Sale and Purchase Agreement in Dubai—4 Legal Ways
A sale and purchase agreement in Dubai can be terminated in the following ways:
- Mutual agreement
- Judicial order
- Prior agreement
- Termination due to force majeure
1. Mutual agreement
Parties involved in a contract have the right to mutually agree to terminate the agreement and end their contractual relationship—Article 268 of the Civil Transactions Law.
It is important to note that this agreement must be consensual. It must allow both parties to revert to their original positions before entering the contract.
This termination process is also known as Iqala. It signifies the conclusion of the contract and the relationship between the parties, leading to the creation of a new agreement concerning any third parties involved.
2. Judicial Order
This termination method is applicable as per Article 272 of the Civil Transactions Law when one party fails to fulfill their contract-bound duties in a bilateral agreement.
Before moving to legal action, the party in breach or the offending party must receive notification from the affected party. Subsequently, the affected party can take legal action against the offender.
The resulting court decision may require the defaulting party to
- Fulfill their contract-bound duties,
- Delay performance for a specific period, or
- Terminate the agreement altogether,
The court may also require the defaulting party to compensate for damages.
3. Pre-Agreed Termination
Article 271 of the Civil Transactions Law allows parties to include a provision for pre-agreed termination. That is, both parties can agree to SPA termination if either party fails to perform.
Adding such a provision in the sale and purchase agreement in Dubai makes termination obligatory and eliminates the need for legal intervention.
Despite this pre-agreement, the non-defaulting party must still notify the defaulting party before implementing the termination clause.
4. Termination Due to Force Majeure
When fulfilling the contract becomes impossible due to external factors beyond the parties’ control, the contract automatically ends.
This type of termination is outlined in Article 273 of the Civil Transactions Law. However, it requires specific conditions to be met.
These conditions include the
- Impossibility of fulfilling the contract,
- Cause of impossibility not being related to the parties,
- Occurrence of impossibility after the contract’s formation, and
- Impossibility affecting the entire contract
Compensation in sale and purchase agreement termination in Dubai
In case of a sale and purchase agreement termination in Dubai, the affected party must send a notice to the defaulting party and provide 30 days to make a reconciliation. The contract will be considered terminated after the grace period. Here is what the law says.
If the Developer Defaults
If the developer fails to meet their contractual duties, the buyer can terminate the contract. This usually happens when the developer does not deliver the property on the agreed-upon date.
In such situations, the developer usually gets an extension of 6 to 12 months to complete the property. If the developer still fails to deliver it within that extended period, the buyer can cancel the contract and get their money back.
If the Buyer Defaults
When the buyer fails to fulfill their obligations, the developer will receive compensation based on how much of the project is completed. Here are the different stages of property completion and the corresponding compensation for the developer.
Pre-construction: If the buyer defaults before construction begins, the developer will receive 30% of the buying price.
Less than 60% completed: If the default occurs before the property is 60% complete, the developer will receive 25% of the buying price.
More than 60% completed: If the property is more than 60% complete when the buyer defaults, the developer will receive 40% of the buying price as compensation.
- Note: Keep in mind that the contract can be terminated depending on the termination clause in the Sale and Purchase Agreement (SPA). So, make sure to thoroughly review the termination clause in the SPA. Additionally, if the matter goes to court, the court’s decision will also affect contract termination and compensation.
Important Things to Consider Before Entering a Sale and Purchase Agreement in Dubai
It is paramount to consider all possible factors before entering into a sale and purchase agreement. Consider the following elements before signing a sale and purchase agreement in Dubai and UAE.
a) Check Developer’s License
Only licensed real estate agents and developers are permitted to operate in the region. Request the developer’s license and verify it with the authorities. You can also ask for their government-issued good conduct certificate.
b) Confirm Project Registration
Ensure that the real estate development project is registered with the relevant authority of the respective Emirate.
For example, in Dubai, it should be registered with either RERA or DLD. Similarly, in Abu Dhabi, it would be registered with TAMM. Verify this information on the official website of the concerned authority.
c) Review the Contract
The Sale and Purchase Agreement in Dubai is vital, so take sufficient time to go through it thoroughly. Request at least a week to review and discuss any concerns with the developer before signing. Ensure that all verbal agreements are documented in the contract.
d) Verify Escrow Account
For off-plan property transactions, payments should be made into a dedicated escrow account. Request the bank account details from the developer and verify them directly with the bank for security purposes.
e) Pay Attention to Details
The government has strict regulations for real estate transactions. However, it is still advisable to check for any subtle or hidden conditions in the sale and purchase agreement.
Look for terms in smaller fonts or indicated with an asterisk (*), which denotes applicable terms and conditions.
f) Validate Developer’s Emirates Identity
Confirm that the Emirates ID and passport details of the developer mentioned in the contract match their official documents. This helps ensure transparency and authenticity in the transaction.
That was all about how to terminate sale and purchase agreement in Dubai. Looking forward to investing in off-plan properties in the growing Dubai real estate market? Feel free to give us a call.
You can also read about how to register a sale and purchase agreement with DLD.