Real Estate Register Law: Supreme Legislation Committee’s Explanatory Note on Article 11 – Part 3 of 3

After discussing, in the previous section, the evolution of the article, under interpretation, and the amendments made thereto before the issuance of Law No. 19/2017, we now turn to the judicial application of this article under the referenced laws. This will serve as a prelude to the commentary on the interpretation.

Judicial Application

As stated in the explanatory memorandum, judicial interpretations and applications of Article 11 of Law No. 13/2008, along with its subsequent amendments, have varied. Initially, courts of first instance treated the decision of the Land Department to terminate the contract and allow the developer to deduct the specified percentage as an administrative decision, requiring challenges to be made through the designated procedures for contesting administrative decisions. However, the Court of Cassation established that the decision issued by the Land Department is not a judicial ruling and does not hold the authority of res judicata before the competent judicial bodies. Therefore, courts reviewing disputes related to such decisions are not bound by them and have the authority to subject them to judicial scrutiny and rule contrary thereto. Consequently, the issuance of such decisions does not prevent parties from filing lawsuits to resolve disputes related thereto (Real Estate Appeal No. 94/2012). Thus, the aforementioned ruling did not deny the developer’s right to terminate the contract and deduct amounts, provided that the procedures outlined in Article 11 were followed.

Moreover, some rulings of the Court of Cassation considered the rules set forth in Article 11 of Law No. 13/2008, as amended by Law No. 9/2009, to be of public order. This was affirmed in the Dubai Court of Cassation’s ruling in Real Estate Appeal No. 123/2010, which stated:

“If the legislator has enacted Law No. 13 of 2008 regarding the regulation of the initial real estate register in the Emirate of Dubai, and amended some of its provisions through Law No. 9 of 2009, stipulating in Article 11 that ((……………)), the implication is that the legislator has established binding rules that shall be followed by the developer, the Land Department, and the Real Estate Regulatory Agency (RERA) in their respective capacities. The objective behind these rules is to uphold the principles of justice, maintain a balance between the interests and rights of both parties, and ensure stability in real estate transactions, which are a sector of significant economic importance in the Emirate of Dubai. Therefore, these rules are deemed to be of public order.”

The court ruling mentioned above reaffirmed judicial oversight over the developer’s exercise of their right to terminate the contract under Article 11. The court did not deny this right, provided the developer complied with the requirements of Article 11, as any violation of the article would result in nullity. The violation in the case under review occurred when the developer, relying on a contractual clause with the buyer, deducted more than the percentage specified in Article 11 of the law.

Another ruling issued by Court of Cassation confirmed the same principle, emphasizing that the rules set forth in Article 11 are part of public order. In Real Estate Appeal No. 352/2011, the ruling stated:

“If the legislator enacts a legal rule to regulate a specific matter in a well-defined manner, it shall be strictly adhered to in order to safeguard the public interest, prioritizing it over any conflicting private interests. In such cases, the legal rule is considered mandatory and forms part of public order. At the same time, it acts as a supplementary provision that aligns with the will of the contracting parties. The final part of Article 11 of Law No. 13/2008, as amended by Law No. 9/2009, states that its provisions apply to all contracts concluded before the enforcement of this law. This means that the legal framework set forth in the first part of the article applies retroactively to off-plan property sales contracts and their future effects, even if these contracts were entered into before the issuance of the law.”

However, recent judicial interpretations have taken a different approach. They now consider a developer’s termination of a contract and deduction of the specified amount to be legally invalid, unless the termination occurs through law, judicial ruling, or an explicit termination clause in the contract. This new approach strips such unilateral actions of any legal effect, meaning that the termination is not recognized as lawful termination under the law. Accordingly, courts following this interpretation rule that the contract is automatically terminated if the developer unilaterally terminates it without resorting to litigation or arbitration. This contrasts with the previous judicial approach, which recognized the developer’s right to terminate the contract under Article 11, effectively treating such terminations as lawful terminations by virtue of the law. Additionally, this new judicial stance reaffirms the court’s authority to oversee the developer’s actions and ensure compliance with the law. This latest judicial interpretation has been reflected in two unpublished appealed rulings. One was not appealed and has become final and binding. The other is currently under review before the Court of Cassation.

Law No. 19/2017:

This law redefined the measures stipulated in Article 11, referring to them as “rules and procedures” instead of “provisions”, as previously designated in Law No. 9/2009. One of the most significant amendments introduced by this law in relation to Article 11 is the addition of new rules as follows: Clause A/4 grants the developer the right to terminate the contract and deduct the specified amount without resorting to litigation or arbitration. Clause (E) establishes that the rules and procedures outlined in this article are part of public order, imposing nullity as a penalty for any violation. Clause (F) acknowledges the buyer’s right to seek judicial or arbitral recourse in case of developer misconduct in applying the rules and procedures stated herein.

Interpretation of the Article in the Explanatory Memorandum

The explanatory memorandum does not deviate from the law; rather, it aligns with a judicial trend that had already been established. It affirms the developer’s right to terminate the contract without resorting to litigation or arbitration. At the same time, it does not eliminate the judiciary’s or arbitration’s oversight over the developer’s actions when a buyer chooses to contest the termination. This interpretation serves to protect the buyer, who retains the right to approach the competent court or chosen arbitration forum. Additionally, it relieves the developer from the burden of initiating legal proceedings when a buyer fails to meet their contractual obligations, thus ensuring a steady cash flow for project completion.

As for the explanatory memorandum’s interpretation of the retroactive application of the article, it is well-founded in constitutional principles, legal provisions, and judicial precedents, as stated in the memorandum. It would be inconsistent for a court to issue a ruling that contradicts rules considered part of public order while the law enforcing these rules is in effect. Therefore, any ruling that had not become final before the law’s enactment shall adhere to these rules.

This interpretation does not harm the buyer, who, as mentioned, has the right to resort to the courts or arbitration in cases where the developer acts arbitrarily or fails to comply with these rules. If the developer violates any of the provisions set forth in the article—such as failing to follow the proper notification procedure, omitting required details in the notification, neglecting to document the notification date, deducting more from the buyer’s payments than allowed by the rules, failing to refund the remaining balance within the stipulated timeframe, or any other breach of the prescribed rules or procedures—then the developer’s actions will undoubtedly be deemed null and void.

In our humble assessment, adhering to this sound interpretation ensures justice for both parties, contributes to the stability of legal rulings, and further supports the real estate market.