7.1 Law No. 8 of 2007: Off-Plan Escrow (Trust) Accounts
Key Takeaways
Law No. 8 of 2007, issued on 6 May 2007, applies to developers who sell units off-plan and receive payments from buyers or financiers.
Each project must have its own escrow account, and payments in it cannot be attached by the developer's creditors (Article 9 of Law No. 8 of 2007).
A developer needs DLD's written authorisation to advertise off-plan units or take part in exhibitions (Article 5 of Law No. 8 of 2007).
The escrow agent retains 5% of each account after the completion certificate, released one year after units are registered to buyers (Article 14).
Article 16 punishes listed offences, including a developer dealing with an unregistered broker, with jail and a fine of at least AED 100,000, or either.
7.1 Law No. 8 of 2007: Off-Plan Escrow (Trust) Accounts
Off-plan buyers pay before anything is built, so their main protection is that the money goes into a project account that the developer cannot spend freely. Law No. 8 of 2007 Concerning Escrow Accounts for Real Estate Development in the Emirate of Dubai, issued on 6 May 2007, created that protection. The course calls these accounts trust accounts; the law calls them escrow accounts.
1. Scope and definitions
- Who it applies to (Article 3): developers who sell units off-plan in real estate development projects and receive payments from purchasers or financiers.
- Escrow account (Article 2): the bank account of a development project into which payments by off-plan purchasers or by the project's financiers are deposited.
- Escrow agent: a financial or banking institution accredited by DLD to manage escrow accounts; DLD keeps a Register of Escrow Agents (Article 10).
- Developer register (Article 4): no developer may operate unless recorded in DLD's Register of Real Estate Developers and licensed by the competent entities.
2. Before a developer can sell or advertise
| Requirement | Article |
|---|---|
| Written authorisation from DLD before advertising off-plan units in local or international media or taking part in exhibitions | 5 |
| Application to DLD to open an escrow account, with: Dubai Chamber membership, trade licence, title deed of the land, the master developer/sub-developer contract (if any), approved initial designs, a financial statement of estimated costs and revenues certified by an accredited auditor, an undertaking to start construction, and the standard sale contract | 6 |
| A written agreement between the developer and the escrow agent opening the account in the project's name, with a copy to DLD | 7 |
The implementing bylaw of Law No. 13 of 2008 adds that no off-plan sale may take place before the developer has taken possession of the land, received the demarcation certificate and obtained the required approvals, and that any off-plan sale before the project is approved and registered is null and void (Executive Council Resolution No. 6 of 2010, Articles 4 and 11).
3. Managing the account
- One project, one account (Article 9(2)): where a developer runs several projects, each must have a separate escrow account. Money cannot be moved from a well-funded tower to a struggling one.
- Dedicated and protected (Article 9(1)): the account is opened in the project's name, is dedicated exclusively to building that project, and no attachment may be imposed on it for the developer's creditors.
- Project loans (Article 13): if the developer mortgages the project to borrow, the lender must deposit the loan into the escrow account so it is managed under the same rules.
- Reporting (Articles 11–12): the escrow agent gives DLD regular statements of revenue and expenditure; DLD may request any data and appoint auditors; depositors may see their own records.
- Releases in practice: withdrawals are linked to construction progress certified by the project consultant and checked by RERA before the agent pays contractors and consultants.
Important
Brokers handling off-plan money. A broker marketing a project must deposit the sale proceeds into the project escrow account, must not put them in its own account, and must not deduct its commission first; any agreement otherwise is void (Executive Council Resolution No. 6 of 2010, Article 12). Cheques should be made out to the project escrow account named in the sale contract.
4. Completion, retention and emergencies
- 5% retention (Article 14): once the developer obtains the completion certificate, the escrow agent must retain 5% of the total value of each escrow account. The retention is released to the developer one year from the registration of the units in the purchasers' names. It gives buyers a fund in the period when early defects appear.
- Emergencies (Article 15): if a project is not completed, the escrow agent, after consulting DLD, must take the measures needed to protect depositors and ensure the project is completed or the depositors are refunded.
- Cancelled projects: where RERA cancels a project, refunds follow Law No. 8 of 2007 and the special tribunal for unfinished and cancelled projects (Chapter 7.3).
5. Penalties (Article 16) and striking off (Article 17)
Article 16 imposes jail and a fine of at least AED 100,000, or either penalty, on anyone who:
- Carries on real estate development without a licence.
- Gives the licensing entities false documents or information to obtain a licence.
- Knowingly offers units for sale in fraudulent projects.
- Steals, appropriates or wastes money delivered for implementing projects.
- As an auditor, deliberately prepares a fraudulent report or hides essential facts.
- As a consultant, knowingly certifies fraudulent reports.
- As a developer, deals with a real estate broker who is not registered in DLD's brokers register.
Under Article 17, a developer is struck off the register if declared bankrupt, if it fails without acceptable reason to start construction six months after being permitted to sell off-plan, if its licence is revoked, or if it commits certain Article 16 offences or other violations.
6. What a broker should check before selling off-plan
- The developer is on DLD's developer register and the project is registered.
- The developer has DLD's advertising authorisation and the advert carries a Trakheesi permit and QR code.
- The project has an escrow account with an accredited agent, and the buyer's payments go to it.
- The broker's own marketing agreement with the developer is registered with DLD.
- The sale is registered in the Interim Property Register through Oqood (Chapter 7.2).
A developer is building Tower Alpha and Tower Beta. Alpha's escrow account has a surplus; Beta needs AED 12,000,000 for overdue contractor invoices. The developer asks the escrow bank to transfer the money from Alpha's account to Beta's. How must the bank respond?
Refuse: each project must have a separate escrow account dedicated exclusively to that project (Article 9 of Law No. 8 of 2007)
Approve if the developer promises to repay Alpha within 90 days
Approve once Alpha is 80% complete
Refer the request to the master developer for arbitration
A project receives its completion certificate. Under Article 14 of Law No. 8 of 2007, what must the escrow agent do with the remaining funds?
Release everything to the developer immediately
Transfer the balance to DLD's treasury
Retain 5% of the total value of the escrow account and release it to the developer one year after the units are registered in the buyers' names
Retain 10% for five years to cover structural defects
A creditor wins a AED 40,000,000 judgment against a developer over an unrelated hotel venture and asks the execution judge to attach AED 30,000,000 sitting in the developer's residential project escrow account. What does Law No. 8 of 2007 provide?
The attachment succeeds because court judgments override escrow rules
Up to half the balance can be attached once units are handed over
The whole balance passes to DLD on completion
Payments deposited in the escrow account are dedicated to the project and no attachment may be imposed on them for the developer's creditors
A developer signs up an agent who is not entered in DLD's brokers register to sell its off-plan units. Under Law No. 8 of 2007, what is the developer exposed to?
Nothing, because only the agent is responsible for being registered
Jail and a fine of at least AED 100,000, or either penalty, under Article 16
A warning only, with no fine
Automatic cancellation of every sale contract the agent arranged
Sections you finish are checked off in the contents.