Taking Handover of Defective Property

21 Apr 2022

Robert Allen, one of the most influential investment advisors, gave a simple piece of advice: “Don’t wait to buy real estate. Buy real estate and wait.” 


There are many people who are interested in investing in real estate, but there are just a few who go for it. UAE has been a buyer’s market since the pandemic, which resulted in the global social and economic disruption. The following article gives you a brief idea of the market of the real estate industry in the UAE. It explores the laws and repercussions of defective property that are handed over. 


Real Estate Market in the Current Scenario 

Although there are no express restrictions against foreigners owning land in the UAE, under the Federal Constitution of the UAE, the Emirates are allowed to enact their own rules for property ownership control. Earlier, only UAE and GCC nationals could own property in the UAE, and leases for 99 years were permitted for ex-pats. It was uncertain how it worked beyond 99 years and was also a concern for certain people who only wanted freehold, which kept them from having absolute ownership of the property. The Government of Dubai passed the Real Estate Law No.7 in 2006, which cited Concerning Land Registration in the Emirate of Dubai. For the first time under Article 4, non-citizens may be granted the right to own freehold property. This legislation eliminated the limitations on foreign ownership of land in Dubai. Such designated areas include prime investment zones such as Dubai Marina, Bluewater Islands, Al Barari, amongst other places.


Property Defects Whether Patent or Latent

The term property defect does not have a standard definition. It is necessary to decide if the defect is patent or latent after detecting an undisclosed defect on a property after the sale contract has been signed. A patent defect is an evident defect in the property, and it can be easily disclosed by any prospective buyer, such as damp walls, a hole in a wall, or broken tiles. The prospective buyer can then negotiate with the seller to repair the defects or decrease the price of the property. However, latent defects are specified in Article 544 of the Civil Code of the UAE: “For a defect to be regarded as old it must have been latent, and a latent defect is one which cannot be observed by an external inspection of the goods, or which would not be apparent to the ordinary man, or which could not be discovered by any person other than an expert, or which would only be apparent on testing.” 


Applicability of UAE Laws Related to Defective Property 

Article 237 of the Civil Transactions Law of the UAE states that if a defect is found, then the contract can be terminated even if the contract does not hold such a clause. Article 240 of the Civil Transactions Law briefly mentions that the contract’s subject-matter shall be returned to the owner if the contract is revoked due to a defect. The article also says that the price paid is recoverable by the affected party. Another article that talks about law related to defective property is Article 241 (1) of the Civil Transactions Law. The option to terminate the contract won’t be applicable if the party accepts the defect after acknowledging it. Lastly, Article 242 of the Civil Transactions Law states that the person who has the option of rejecting a defect can still keep the thing contracted for and claim a decrease or reduction in value. 


Decennial Liability

As the name suggests, decennial liability (a form of strict liability) is a 10-year liability imposed upon engineers, contractors, and architects in the event of a total or partial collapse of a building or structure or of defects in the building or structure that threaten the building’s structural integrity under the Civil Transactions Law of the UAE. The primary purpose of decennial liability is to improve public safety and promote good workmanship. Articles 880-883 of Civil Transactions Law of the UAE provide for decennial liability: 


I. Article 880 (1) states that a contractor and a supervising architect (which may mean a supervising engineer if the context permits) are collectively liable to pay the employer for a term of ten years from the start of delivery of the work, provided that the building suffers

(a) a total or (b) a partial collapse or (c) a defect or fault which threatens the stability and safety of the building. 


II. Article 880 (2) states that the remedy given to the employer is in the form of compensation, which is an obligation notwithstanding the fact that the defect or collapse results from a defect in the land itself, or else the employer has consented to the construction of the defective buildings or installations. 


III. Article 880 (2) states that the liability begins with the delivery of the work, which is generally considered to be the issuing of the Taking Over Certificate. However, the starting date may be debatable, and evidence as to the date of delivery or deemed delivery can be sought. 


IV. Article 881 distinguishes between where the architect produces the design and supervises the works and where the architect produces the design without supervising the works. 


V. Article 882 mentions that a supervising architect or contractor cannot contract out of decennial liability or limit his liability. This is a matter of strict liability, and no evidence of negligence is necessary. Instead, they can only refuse liability on the grounds of force majeure, or they can attempt to argue that the defect is due to an underlying reason, likely due to the actions of the employer or a third party in relation to the building. 


Limitation Period

In the UAE, based on the type of dispute between the parties concerned, the duration of the limitation period varies. The limitation term for contractual claims in civil matters is usually set at 15 years under Article 473 of the UAE Civil Code. However, limitation periods are not found in common comprehensive law, or in a piece of legislation, but there are different exceptions to the general rule. As for the limitation period mentioned in Article 883, this begins when the employer notices the defect. The employer must then begin civil proceedings by filing a lawsuit before the Court of First Instance or by bringing a claim in arbitration within a span of three years from the date of discovery of the defect.