How to Terminate Sale and Purchase Agreement in UAE

The Sale and Purchase Agreement (SPA) is a legal contract that contains all terms and conditions which relate to company shares sale and purchase. This Agreement contains information such as the Buyer or seller’s name, the type of sale, the date of the initial Agreement, payment terms, and the date of the contract’s final closing. In some cases, the Developers (seller) or the Investor fail to fulfill their contractual obligations. Consequently, they can finish the SPA, but how to terminate a Sale Purchase Agreement in UAE? According to Article 272 of Federal Law Number 5 of 1985, the contract parties could demand the rescission of it if the counterparty does not satisfy its contractual obligations. Suppose there is a dissolution of the contract. In that case, the two contracting parties shall be reestablished to their former position (Article 274), which means that the Developer or the investor could finish SPA.

Termination of the Sale and Purchase Agreement by the Developer

Law Number 19 of 2017 amended Article 11 of Law Number 13 of 2008, which regulates the Interim Real Estate Register in the Emirate of Dubai (Law 19). Law 19 establish the procedures to be followed by a developer in the case of default by an off-plan investor. Before the SAP termination, it is necessary to comply with some requirements in the Dubai Land Department (DLD).

  1. Requirements in the DLD: first, the Developer shall inform DLD about any default committed of the SPA by the off-plan purchaser. Secondly, The DLD will write a notification to the defaulting purchaser with a thirty days notice period to remedy its default. Suppose in thirty days the default is not rectified. In that case, the DLD shall issue an official document in favor of the Developer stating that:
  1. Once the Developer has received the DLD report, the Developer could terminate the SPA.

Depending on the percentage of completion of the property/unit, different situations may arise

  1. If the Developer concludes more than 80% of the construction, the Developer has three options:

  1. If the Developer concludes between 60%-80% of the unit, he shall terminate the contract at his option and deduct not more than 40% of the value of the unit provided for in the contract. The rest shall be reimbursed to the Buyer within one year from the date of the dissolution of the contract or within sixty (60) days of the unit’s resale to another Buyer.
  2. If the percentage of achievement is under 60%, the Developer may deduct no more than 25% of the Purchase Price provided in the contract, and the excess shall be paid to the Buyer within one year from the date of dissolution of the contract or within sixty days from the resale of the unit to another Buyer, whichever comes earlier.
  3. When the construction has not started for any reason beyond the will and capacity of the developer, and without negligence, the Developer may terminate the contract at his option and subtract no more than 30% of the price of the amounts paid to him by the investor, the rest shall be a return to the Buyer within 60 days from the date of termination of the contract.

Termination of the Sale and Purchase Agreement by the Buyer

When the Developer fails to fulfill their contractual obligations, like failing to deliver the property on the contractually agreed date, it could result in the Sale and Purchase Agreement’s termination. Normally in the SPA, it is included an Anticipated Completion Date (ACD), date when it supposes that the Developer will deliver the property to the Buyer; this period could be extended to six (6) to twelve (12) months, it means that the termination of the SPA can be requested after this period. If a buyer decides to terminate the SPA, he /she could do it based on Article 272 of Federal Law Number 5 of 1985. In general, the amount will be reimbursed + 9% of the interest. Nevertheless, in the case of force majeure (article 273- Federal Law Number5 of 1985), the contract will be rescinded immediately. The force majeure is an external event, an unforeseen circumstance where the Buyer could request the refund of the amounts paid. If there are any legal complications that occur there are well-known real estate lawyers to you safe from any legal issues.