Dubai: Property developers whose projects never got off the ground due to their "failure or negligence" are not allowed to keep any funds prepaid by individual investors, dictates a new law by Dubai government, XPRESS has learnt.

Dubai Executive Council's Decree No 6 of 2010, say government and industry officials, will go a long way toward transparency for a market that has witnessed a 50 per cent decline in real estate values.

It also spells out new rules to help purchasers who entered boom-time sales contracts with developers, but came up empty-handed awaiting real estate projects that never started.

"This is one more step towards transparency in the real estate market," said Mohammad Sultan Thani, Assistant Director-General of Excellence and Organisational Governance, Dubai Land Department. "A lot of customer rights are included in this."

According to the newly amended regulations of Law No 13 of 2008, a copy of which was obtained by XPRESS, a sliding scale of refunds will guide both developers and investors towards settlements (see illustration).

The new law instructs developers to notify a project's investors in writing to "abide by his contractual obligations".

Developers must then wait for 30 days for the contract to be fulfilled by each investor after which a developer can "rescind the contract" and return a portion of the investor's monies according to the sliding scale.

Legal provisions

If authorities deem that a developer delayed a project due to "his failure or negligence", he is not eligible to retain any of the original project funds held in trust and must return all monies in full.

If, however, a developer is found not to have started a development project due to "reasons out of his control", he can ask the land department to rescind the contract with purchasers and retain 30 per cent of the value of sums paid by purchasers.

A developer is "deemed negligent", provisions dictate, when he delays taking over the land, obtaining approvals "to initiate the project", getting plans and designs approved in writing, "delays preparing the project for structural activities", fails to register the project at the Land Department, fails to disclose project financial data to the department and sells off-plan without permission from the master developer.

The regulations also explain what is considered "beyond the developer's control" as including expropriation of project lands for public need, if service networks are found in the project lands and if the master developer changes the site borders affecting the sub-developer's site plan.

When a project is "cancelled" by the Land Department, an auditor will be appointed at the expense of the developer and a trustee of the escrow account will be asked to "repay the sums deposited in the account… to their first owners [purchasers] within a period of no more than 14 days commencing from the date of cancellation," the law states.

If the trust account is short of cash, the offending developer will have at least 60 days to pay or the land "department shall then take whatever procedures necessary to protect purchasers' rights, including referring the matter to the competent judicial authorities", the law states.