When purchasing property in a secondary transaction, one of the most pressing concerns for buyers is how secure they are when asked to settle a seller's outstanding dues to either the developer or the bank before the official property transfer date. Buyers often seek a risk-free transaction, but the truth is that some level of risk exists in any transaction. However, with the right measures in place, buyers can navigate this process confidently, knowing they are legally protected under Dubai's property laws.
Common Practices in Secondary Transactions
In the Dubai real estate market, it is not uncommon for sellers to still have financial obligations on their property, whether with a developer due to an ongoing payment plan or with a bank if the property is financed. These obligations often mean that before the property can be transferred to the buyer, the seller's dues must be settled, and in many cases, the buyer is asked to step in and settle these amounts as part of the total purchase price. Here are two frequent scenarios:
1. Settling Developer Payments
Sellers may still owe payments to the developer as part of a payment plan. As part of the resale process, a No Objection Certificate (NOC) is needed from the developer, which may only be issued once a specified amount is settled. In such cases, the seller often requests that the buyer cover this payment, with the amount being deducted from the total selling price. While this is standard practice, buyers frequently question how protected their interests are if they settle this amount before the official transfer date.
2. Handling Mortgage Liabilities
If the seller has financed the property with a bank, the property undergoes a “blocking” process at the Dubai Land Department (DLD), where the buyer pays off the seller's remaining mortgage. After the bank releases the mortgage, the remaining balance of the sale price is then transferred to the seller. While this process is also common, buyers often seek assurances about the security of their funds, particularly when they are paying off someone else’s liability.
Security Measures for Added Protection
To address these concerns and provide additional peace of mind, several security measures can be requested or implemented in the transaction to protect the buyer:
- Security Cheque from Seller: One commonly used protection is for the seller to issue a security cheque in the buyer’s name, which is kept with the conveyancer until the transfer date. The cheque amount should match the amount the buyer is settling on behalf of the seller, whether to the developer or the bank. In the event of any default or issue, this cheque serves as a financial guarantee for the buyer.
- Power of Attorney (POA): Another layer of security is for the seller to provide a Power of Attorney (POA) for selling to the conveyancer. This POA grants the conveyancer the legal authority to manage the transaction on behalf of the seller, ensuring that the deal can proceed smoothly even if the seller becomes unresponsive or difficult to reach. This also allows the conveyancer to take any necessary actions in case of complications, adding an extra level of protection to the transaction.
Understanding Legal Protections Under Unified Contract F
Dubai’s property laws, particularly the Unified Contract F, provide a solid foundation of protection for both buyers and sellers. The Unified Contract F outlines the obligations and rights of each party in a secondary property transaction, offering security to buyers even when they are asked to pay the seller’s dues before the transfer.
- Binding Terms: Once the Unified Contract F is signed, it is legally binding. Any payments the buyer makes on behalf of the seller are considered part of the agreed sale price and are explicitly mentioned in the contract. This formal documentation ensures that the buyer's payments are accounted for and protected.
- Property Blocking: When a signed Unified Contract F is in place, the property is blocked at the Dubai Land Department (DLD) for a specified duration. This means the seller cannot sell the property to anyone else during this timeline. The property remains blocked until the contract expires or the sale is completed, providing legal assurance to the buyer that the property is secure during the transaction process.
- Recourse in Case of Default: If the seller fails to fulfill their obligations, such as clearing their dues or completing the sale, the buyer has the legal right to file a claim with Dubai Courts. The courts can enforce the sale or require the seller to refund any amounts paid, along with potential compensation for breach of contract as stipulated in the contract which is equal to the deposit amount in the deal.
Risk Is Inevitable, but Protections Are Strong
No property transaction is completely risk-free, whether you are paying off a seller’s mortgage or developer dues. However, the protections in place under Dubai’s legal framework, combined with additional security measures such as security cheques or a POA, offer significant peace of mind for buyers. By understanding these processes and taking the right steps, buyers can minimize risk and ensure a successful and secure transaction.
At Fam Conveyancing, we provide expert guidance on handling these complexities, ensuring that your property transaction proceeds smoothly. For personalized assistance with your sale or purchase, feel free to contact us.