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Developers opt for cash over court

Developers opt for cash over court

Property developers in Dubai are increasingly opting to keep defaulters’ payments rather than pursue them in court, according to reports. Kipp takes a look.

August 22, 2010 1:59 by

Just a few weeks ago Emirates 24-7 also reported that developers were trying to invoke “force majeure” provisions in their contracts to explain delays in projects, and thus avoid potentially costly compensation payouts to investors.

“We are aware of only a handful of developers who willingly agree compensation is due for delays, whereas the majority of developers try to use the contract to invoke ‘force majeure’ provisions or other acts beyond the control of the developer to explain delays,” said Ashraf Sayed, Associate, Hadef & Partners. “As a result the developers often refuse to pay compensation. The most common explanation used by developers is delay by master developers or government authorities in providing consents or delays in handover of plots in order to commence construction.”

Meanwhile the trend to opt for cash over court was in evidence a few months ago when media reported that Dubai developers had issued hundreds of cancellation notices to purchasers who were late in their payments. The companies involved included Emaar Properties, Deyaar Development, Omniyat Properties and Al Fajer Real Estate.

“Most developers are in a very strong position legally, given the lack of rules we had in the market and clarity we had in the contract [at the time they were signed],” said Nabil Ahmed, the head of research for the region at Deutsche Bank, in the National. But he did concede the move to cancel contracts and repossess properties was a last resort for developers.

“Most developers have been managing to limit default rates through consolidation,” he said. “They are now working on the 20 or 30 per cent of those they couldn’t help and who are defaulting simply because they don’t have the means to pay the remaining amount.”

There is, however, recourse for investors, according to Gulf News. Andrew Yule, associate at Afridi & Angell law firm, told the paper in June that, “The purchaser may be able to persuade the Land Department to hold a roundtable meeting among all parties at which the purchaser can explain his position. Even if the developer does proceed to terminate the contract, the purchaser still has the option of challenging this under the dispute resolution procedure detailed in the contract — by going to court or arbitration.”

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