Sales and Purchase Agreement (SPA) in Dubai and the UAE
Discover the best practices regarding the Sales and Purchase Agreement (SPA), an essential legal document for off-plan property purchases in the UAE.
Sales and Purchase Agreement (SPA) in the UAE off-plan market
A Sales and Purchase Agreement (SPA) is a contract between a buyer and a seller that is commonly used to solidify many types of business transactions, including real estate transactions. The SPA finalizes the terms and conditions of the property purchase.
You will always be required to sign a SPA with the developer if you are buying an off-plan or under-construction property in the UAE. You may be required to sign a SPA for the resale of a property, but more often for ready property transactions between an individual buyer and seller, a Memorandum of Understanding (MOU) is used instead. SPAs are legally binding agreements between a buyer and a developer for new properties that aren’t yet completed. Once you sign a SPA, every agreement made before (whether made verbally or in writing) is null and void.
It’s important to understand where the SPA typically fits into the buying process.
Buyer decides on an off-plan property to purchase and pays the initial booking amount (a non-refundable deposit of around 2% of the purchase price)
Developer issues a receipt for the booking amount
Developer issues a 2-3 page booking form
Buyer signs the booking form
Buyer makes the down payment (often 10% or 20% of the purchase price) - down payment is made via cheque addressed to the developer, the transfer of which occurs only when ownership is transferred to the buyer.
Developer issues the SPA for the buyer to sign
The SPA is one of the documents required to register the initial sale with the Dubai Land Department (DLD). For off-plan properties, DLD registration will take place via the Oqood portal and the buyer will be issued an Oqood certificate. This certificate automatically becomes the regular title deed once the property is completed.
SPA contents
The SPA is a comprehensive legal document containing various clauses, with the goal of resolving any disputes that may arise. The SPA contract can be anywhere from 15 to 100 pages.
The contract must contain the following elements:
Purchase price
Technical details or the property specifics, including the size, floorplan, view, number of parking spaces, etc.
Personal details that identify the developer and the borrower (or lawyer if applicable) and give both parties’ contact information
Payment plan that specifies the payment schedule and if the payments are construction-linked (based on construction progress) or time-linked
Anticipated Completion Date (ACD) or the date when the property will be handed over to the buyer
Signatures of the developer and the buyer
If the buyer is less than the legal age, their guardian must also sign and attach a copy of their passport or another identity document
For commercial property purchases, the SPA may include additional details such as the leases the property is subject to, the details of any commercial contracts, and/or warranties that are in effect upon property completion.
SPA cancellation terms
If either the buyer or developer fails to meet their obligations as outlined in the SPA, the other party could seek to cancel the contract. The defaulting party must receive an official notice and have a 30-day grace period to remedy the situation before contract cancellation.
If the buyer doesn't meet their contractual obligations, the developer can seek to terminate the contract. The most common occurrence is when the buyer fails to make payments per the payment schedule laid out in the SPA. Depending on the percentage of completion of the property, the developer may be entitled to different levels of compensation.
Here are the different scenarios that could occur when a buyer defaults:
If construction hasn't begun for a reason that isn’t attributable to the developer, they can keep up to 30% of the purchase price.
If the property is less than 60% completed, then the developer can keep up to 25% of the purchase price.
If the property is more than 60% completed, then the developer can keep up to 40% of the purchase price.
In each case, the remaining percentage of the purchase price must be refunded to the buyer.
If the developer doesn’t meet their contractual obligations, the buyer can seek to terminate the contract. The buyer must prove that they have fully complied with their obligations in order to seek cancellation of the SPA. The most common occurrence is when the developer fails to hand over the property by the Anticipated Completion Date (ACD). In general, the SPA allows for a 6 to 12-month extension past the ACD. This means that the buyer can only file to cancel the SPA if the property has not been handed over within 6-12 months of the ACD. If this period has passed, the buyer can attempt to request a refund of the amount they’ve made towards the purchase so far plus interest.
However, it’s important to note that the buyer may not be entitled to any refund or may only be entitled to a percentage interest per month past the expiration of the completion date. The SPA may have specific clauses that limit the possibility of a refund. If there are no clauses in the SPA, the buyer could be entitled to full reimbursement plus 9% interest.
Alternatively, the developer and buyer can cancel the SPA through mutual agreement, upon which they would be restored to their original positions prior to entering the contract (this case is known as Iqala in the UAE). There could also be a termination clause written in the SPA that specifies other situations that would allow either party to end the contract without necessitating a judicial decision to be made.
What to know before signing a SPA
The SPA helps ensure that a property transaction will go smoothly and will actually occur. It can offer a sense of security to both the developer and the buyer, but only when both parties fully understand the contents of the SPA. Many buyers are in a rush to sign and fail to review all parts and clauses of the SPA, which can make them feel trapped in the deal later on.
By the time you sign the SPA, chances are you’ve already paid an initial deposit, signed the booking form, and made the down payment. You could have paid upwards of 20% of the property price by the time you receive the SPA. Even if a buyer reviews the entire SPA and finds a section they disagree with, the developer will generally not change the contract. In this case, the buyer can decide to not sign the SPA and will be refunded the down payment, but probably won’t get the initial deposit back.
To help ensure that you know exactly what the SPA will contain, you should get confirmation of the property details and payment plan in writing from the developer in advance. Every buyer should aim to get this information in writing as soon as possible before you make the initial deposit. You should ask for the property price, size, number of parking spaces, view, payment plan, and any other fees. Once you get this information in writing, it can serve as a guarantee that the SPA details will be the same as those offered to you initially as per the booking form. Otherwise, it’s possible that the developer will offer you a different property with different terms and conditions in the SPA than what you originally thought you were agreeing to, since the SPA makes all prior agreements null and void.
Here are some other best practices before signing a SPA:
Make sure the developer and real estate project are registered with the appropriate authorities (eg. via the DLD Approved Real Estate Developers list for Dubai)
Get a copy of the title deed
Check the payment schedule
Review any termination clauses
Check the escrow account details
Check the completion date and any failure consequences
Next steps
Once the SPA is signed by both parties, the developer continues with construction and the buyer makes payments as per the schedule. The property transaction (including transfer of ownership) can typically be finalized about 30 days after the SPA is signed.
At some point, the buyer must get a No Objection Certificate (NOC) from the developer to ensure that there are no outstanding service charges on the property. The NOC acts as proof of a clear title deed and that all utility bills have been paid. The buyer may have to sign two NOCs with the property developer and the master developer of the area if applicable. It’s necessary to get a NOC before the transfer of ownership takes place. In some cases, the buyer may have to get a NOC before signing the SPA.
If you’re considering buying an off-plan property in the UAE, you should also learn about off-plan mortgages and post-handover payment plans. We have a portfolio of thousands of Dubai properties, including the latest off-plan developments and ready-to-move-in properties. You can use a mortgage calculator to estimate your monthly budget and potential rental profit. If you need help finding the best investment or getting a mortgage, our experts at Kredium are here to help. Contact us or register on our website to start getting guidance on the road to property ownership!
Photo Credits:
Contract from Mina Živić | Kredium
Photo from Architecture & Properties
Photo from DCBA LA County
Photo from Webbers Attorneys
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