All You Need To Know: Terminating A Property Contract in United Arab Emirates

Terminating a contract essentially implies extinguishing the liabilities mentioned within the contract. When a contract is terminated by one of the parties, it is no longer enforceable under the law. Both the parties are under no obligation to perform their part of the contract anymore.

A property contract can be of two types:

1. If you purchased a property from a developer or a broker, you entered into a contract for sale and purchase, also known as a Sale and Purchase Agreement (SPA).
2. If you are living as a tenant on the property owned by a landlord, you entered into a contract for tenancy, or a tenancy agreement.

The process of termination of both of these contracts is different, owing to the nature of the two. This article discusses termination of property with respect to Sale and Purchase Agreements.

Sale and Purchase Agreement: A sale and purchase agreement, just like any other contract, may be terminated as per Article 267 of the UAE Civil Code, Federal Law No. 5 of 1985. Accordingly, a SPA may be terminated by:

1. Mutual consent of the parties, as per Article 268 of the Law
2. Previous agreement, i.e. a clause in the contract stating that in case of non-performance the contract may be rescinded, as per Article 271 of the Law
3. Order by the court stating the revocation of the contract under Article 272 of the Law
4. Impossibility of performance of contract, under Article 273 of the Law

Developer’s fault: A common scenario is that developers fail to deliver the property within the stipulated time frame and the purchaser is forced to terminate the contract. This mostly happens in off-plan property purchases. Article 274 of the Civil Code states that once a contract is terminated the parties will be restored back to the position they were in before entering into the contract. In case this is not possible, the court will order to pay compensation for the damages.

A SPA of property will generally contain an Anticipated Completion Date (ACD) in its clauses. This is the date on which the developer is supposed to hand over the property to the buyer. If the developer fails to deliver the property as per the anticipated date, he may be allowed an extension from six to twelve months where the contract specifies so, and it is only after the expiration of this extended period that a buyer can file an action to terminate the SPA.

It must be kept in mind that a buyer can bring an action against the seller only if he himself has abided by all of his contractual obligations.

Force Majeure: The only remedy available to a developer in case he fails to deliver the property on time is that of force majeure under Article 273 of the Law. It means that if the developer failed to observe the contractual obligations due to unanticipated circumstances which could not have been ascertained beforehand, the performance of the obligations is suspended.

Awatif Mohammad Shoqi Advocates & Legal Consultancy is a full-service law firm in UAE committed to delivering sound judgment to its clients on their most difficult and important matters.