Dubai Court of Cassation Judgment 7 of 2021
Khaled Gamaleldeen Senior Counsel, Litigation
Mohamed Elkholy Senior Associate, Litigation
In general, it is mandatory to register all contracts made in relation to units that are sold off-plan in Dubai. As a result, any instrument transferring, or restricting title or purporting to grant any ancillary rights in connection with off-plan properties must be registered in the interim real estate register at the Dubai Land Department or otherwise it will be deemed void (Law No. 13 of 2008 regulating Interim Real Property Register in the Emirate of Duba).
The General Assembly of the Dubai Court of Cassation (which is tasked with unifying the judicial principles within the Court of Cassation) (General Assembly) has issued a judgment outlining some exceptions to this general rule. This article considers the exceptions stipulated by the General Assembly in Dubai Court of Cassation judgment 7 of 2021 to the above general rule and the application of Law No. 13 of 2008 and Law No. 7 of 2006 concerning the Real Property Registration in the Emirate of Dubai. Law No. 7 of 2006 governs the registration of all other sales of constructed properties and title deeds, which are issued (final registration).
A real estate developer concluded a sale and purchase agreement for a unit in Dubai pursuant to which the developer agreed to develop and sell such unit to the purchaser at a total cost of AED 120 million. Under the terms of agreement, the purchaser was required to pay AED 30 million upon signing the contract (as a down payment) and the balance upon completion of building construction and the project. The developer completed the project, obtained a building completion certificate, and requested payment from the purchaser as agreed. However, the developer claimed that the purchaser breached his contractual obligations and refused to abide by the terms of the agreement, for no legitimate reason.
The developer filed a claim against a purchaser requesting the Court of First Instance to issue a judgment to enforce and validate a sale contract concluded between the parties, along with a request to transfer ownership of the property to the purchaser. The developer further requested that the purchaser pay the outstanding balance of AED 90 Million plus interest.
The purchaser filed a counterclaim requesting issuance of a judgment terminating the sale and purchase agreement and obliging the developer to return the UAE Dirhams 30 Million (i.e. the down payment) along with interest and compensation. The purchaser claimed that that the developer had changed the construction plans, specifications, building finishes, raw materials and the tools agreed to be used in the development.
The Court of First Instance issued a judgment dismissing the counterclaim and considered the agreement valid and enforceable. It further obligated the purchaser to pay the developer AED 90 Million along with other expenses.
The Court of Appeal overturned the judgment of the Court of First Instance, dismissed the developer's claim and annulled the sale and purchase agreement. In addition, the court ordered the developer to return the down payment to the purchaser, plus interest.
In its reasoning, the Court of Appeal referenced Articles 3 and 5 of Law No. 13 of 2008, as interpreted by prior Dubai court judgments. The Court held that it is mandatory to register all disposals made in relation to units that are sold off-plan, and that the sale and any related transfers and/or restrictions on ownership will be considered null and void if not registered in the purchaser’s name in the interim register at the Dubai Land Department. The Court of Appeal considered that the sale was made as an off-plan sale at the time when the contract was entered into and so the contract must be deemed null and void notwithstanding that the unit was subsequently completed. According to the Court of Appeal, this analysis is aligned with applicable law and the contract must be annulled because of its lack of registration on the interim real estate register. The Court of Appeal disregarded the fact that the certificate of completion of the project was issued and that the sale was registered in the final real estate register.
The developer appealed the above judgment before the Court of Cassation. This case was referred to the General Assembly for it to consider reversing the principle established by previous rulings, as outlined in the appealed judgment.
Following the decision by the General Assembly on its request, the Court of Cassation held that:
1. In a dispute over a real estate unit that was not previously registered in the interim real estate register, Law No. 13 of 2008 does not apply in the following two instances:
If the unit in question was completed before the dispute was submitted to court. This is because completion prior to the commencement of proceedings renders the dispute as one relating to a fully-constructed real estate unit rather than an off-plan real estate unit.
If the disputed unit was registered in the Real Property Register at any stage of the proceedings. This is because the registration of the unit transfers title and renders the contract binding.
2. In these two scenarios, the general rules and provisions on contracts shall govern the dispute in accordance with applicable law.
3. Law No. 13 of 2008 concerns property units which are sold on the basis of architectural drawings at the time of the sale and subject to the initial registration system. In other words, these units do not exist in reality, which means that they are not more than geometric drawings at the time of contracting.
4. The unit was not previously registered in the interim register and therefore Law No. 13 of 2008 did not apply as long as the scenarios mentioned above (1(a) and (b)) exist.
5. Furthermore, a completion certificate was issued by Dubai Municipality in relation to the unit prior to filing the case before the court of first instance and as a result, Law No. 13 of 2008 does not apply.
As a result, the Court of Cassation overturned the Court of Appeal’s decision in light of the opinion issued by the General Assembly.
This judgment has special significance given that it was issued by the General Assembly. It provides importance guidance on how Law No. 13 of 2008 is to apply in relation to off-plan sale of units, which we summaries as follows:
If the contract is registered in the Interim Register, the provisions of Law No. 13 of 2008 shall apply, including its provisions regulating special compensation that is usually awarded to the developer. In addition, the Dubai Land Department will have jurisdiction in relation to the termination of the contract as a result of a purchaser’s breach.
Law 13 of 2008 will not apply if the unit was completed before the commencement of the dispute before the courts (i.e. if the developer obtained a completion certificate for the property before the dispute was filed with the courts).
Law 13 of 2008 will not apply if the unit was registered in the real estate register at any stage of the litigation process. If a dispute arises in relation to a concluded off-plan sale contract (which was not registered in the interim real estate register), the developer can avoid the risk of annulling the contract by registering it in the final real estate register. In those circumstances, the courts will not annul the contract and will not apply the provisions of Law No. 13 of 2008. This requires the completion of the project by the developer to enable the unit to be registered in the final real estate register in the name of the purchaser.
For further information, please contact Khaled Gamaleldeen or Mohamed Elkholy.
Published in July 2022
