7.3 Off-Plan Buyer Default, Contract Termination and Cancelled Projects (Law No. 19 of 2020)
Key Takeaways
Article 11 of Law No. 13 of 2008, as replaced by Law No. 19 of 2020, governs developer action against a defaulting off-plan buyer.
DLD serves the buyer a 30-day notice, tries to mediate, then issues a document confirming the procedure and the project's completion percentage.
Where the project is more than 80% complete, the developer may keep the contract and claim the balance, ask DLD to auction the unit, or terminate and keep up to 40% of the unit value.
At 60–80% completion the developer may keep up to 40% of the unit value, and below 60% (after work has started) up to 25%, refunding any excess within one year or 60 days after resale.
If work has not started for reasons beyond the developer's control, or RERA cancels the project, the developer must refund all payments under Law No. 8 of 2007.
7.3 Off-Plan Buyer Default, Contract Termination and Cancelled Projects (Law No. 19 of 2020)
When an off-plan buyer stops paying, the developer cannot simply cancel and keep everything. Article 11 of Law No. 13 of 2008 lays down the only lawful route, and it has been rewritten three times: by Law No. 9 of 2009, by Law No. 19 of 2017 and, most recently, by Law No. 19 of 2020 (issued 24 November 2020), which is the version in force. Older course notes based on the 2010 bylaw or the 2017 text give outdated answers for projects that have not started, so learn the 2020 version.
1. The procedure (Article 11(a)(1)–(3))
Key points:
- The developer must notify DLD using DLD's form, describing the unit and the obligations breached.
- DLD (not the developer) serves the 30-day written, dated notice and, where possible, mediates.
- If the buyer neither performs nor settles, DLD issues an official document confirming (a) that the developer complied with the procedure and (b) the percentage of completion of the project, calculated under RERA's standards.
- With that document the developer may act without recourse to courts or arbitration, but only within the limits below.
2. Remedies by completion level (Article 11(a)(4))
| Project completion | What the developer may do | Refund timing for any excess |
|---|---|---|
| More than 80% | (1) keep the contract, keep all amounts paid and claim the balance of the contract value; or (2) ask DLD to sell the unit by public auction to recover what is owed, with the buyer liable for the sale costs; or (3) terminate, keep up to 40% of the unit value stated in the contract and refund the rest | Within 1 year of termination or 60 days of resale to another buyer, whichever is earlier |
| Between 60% and 80% | Terminate, keep up to 40% of the unit value, refund the rest | Same |
| Below 60%, provided the developer has taken possession of the site and started construction under approved designs | Terminate, keep up to 25% of the unit value, refund the rest | Same |
Note that the percentages are of the unit value stated in the contract, not of the amounts paid.
3. Projects not started or cancelled (Article 11(b))
Where the developer has not started work on the project for a reason beyond its control and without negligence, or RERA cancels the project by a final reasoned decision, the developer must refund all payments made by the buyers, following the procedures of Law No. 8 of 2007. The earlier rule that let a developer keep up to 30% of payments in a project that had not started was removed by Law No. 19 of 2020.
4. Other rules in Article 11
- (c) The procedure does not apply to sales of land that do not involve an off-plan sale.
- (d) It applies to off-plan agreements made before or after the law took effect.
- (e) Measures taken earlier under the law then in force stay valid unless revoked by a final court judgment.
- (f) The rules are public order: ignoring them makes the developer's act null.
- (g) The buyer keeps the right to go to court or arbitration.
5. Worked examples
Example A (68% complete). Contract value AED 3,000,000; buyer has paid AED 1,800,000. The developer may keep up to 40% × 3,000,000 = AED 1,200,000 and must refund AED 600,000 within one year of termination or 60 days of resale, whichever is earlier.
Example B (45% complete, work started). Contract value AED 2,000,000; paid AED 700,000. Maximum retention is 25% × 2,000,000 = AED 500,000, so the refund is AED 200,000.
Example C (not started, beyond the developer's control). Contract value AED 2,000,000; paid AED 400,000. The developer must refund all AED 400,000.
6. Cancelled and unfinished projects: the special tribunal
When RERA cancels a project, the implementing bylaw requires a technical report, written notice to the developer, an auditor's review of the project accounts and a request to the escrow agent (or the developer) to refund buyers within 14 days; if the escrow account is insufficient, the developer must pay the balance within 60 days (EC Resolution No. 6 of 2010, Articles 23–27). Disputes over cancelled projects go to the special tribunal formed by Decree No. 21 of 2013 for the liquidation of cancelled real property projects, whose remit Decree No. 33 of 2020 extended to unfinished projects.
An off-plan buyer contracted to pay AED 3,000,000 and has paid AED 1,800,000, then defaults. After DLD's 30-day notice expires, DLD's document states the project is 68% complete. If the developer terminates, what may it keep and what must it refund?
Keep all AED 1,800,000
Keep AED 750,000 and refund AED 1,050,000 within 90 days
Keep up to AED 1,200,000 (40% of the unit value) and refund AED 600,000 within one year of termination or 60 days of resale, whichever is earlier
Keep AED 540,000 (30% of payments) and refund the rest immediately
A buyer has paid AED 400,000 towards an AED 2,000,000 off-plan villa. The developer has not started construction because of master-plan changes beyond its control and without its negligence, and the buyer stops paying. Under the current Article 11 (Law No. 19 of 2020), what is the developer's obligation?
It may keep 25% of the contract value, so the buyer owes a further AED 100,000
It may keep 30% of the amounts paid (AED 120,000) and refund AED 280,000
It may keep 40% of the contract value
It must refund all payments made by the buyer, following the procedures of Law No. 8 of 2007
An off-plan project is 85% complete and a buyer defaults. Once DLD has issued its official document, which of these is NOT one of the developer's options under Article 11?
Keep the contract, retain the amounts paid and claim the balance from the buyer
Ask DLD to sell the unit by public auction, with the buyer bearing the sale costs
Terminate and keep up to 40% of the unit value, refunding the rest
Terminate and keep 100% of the amounts paid without any refund obligation
Sections you finish are checked off in the contents.