In brief

A recent judgment by the Dubai Courts in favor of a major real estate company in Dubai had set a precedent on how the courts interpret sale and purchase agreements in relation to private islands registered for development.

The defense strategy (which was proposed by Baker McKenzie Habib Al Mulla) carried out by the Dubai real estate company (acting as the Seller) and accepted by the courts involved:

  • Registering the sale and purchase agreement (SPA) in the name of the Purchaser with the Dubai Land Department (DLD) during the proceeding to invalidate the claim that the SPA was nullified;
  • Providing a certificate of land ownership proving the correct development surface area which covers dry land on the island, the shore and portion of the water area;
  • Argument that the Purchaser is a professional real estate company and that it had inspected the island and accepted that the sale of the island is completed “as is”; and
  • Filing a counterclaim seeking the court to oblige the Purchaser to perform their obligation under the SPA and pay the remainder of the purchase price and registration fees.

In detail

In a first-of-its-kind private island dispute, a major real estate investment company (the Purchaser) had sought a claim worth AED 2,263,377,775 plus a refund of AED 12,000,000 for the purchase price and the termination of a share purchase agreement (SPA) entered into with the Dubai real estate company (the Seller) in relation to a private island in Dubai. The Purchaser argued that the surface area of the purchased island decreased by 50 per cent and the SPA was nullified as it was not registered with the Dubai Land Department (DLD).

With representation and legal advice from Baker McKenzie Habib Al Mulla’s Real Estate Litigation team led by counsel Wael El Tounsy and associate Alia Al Mulla, the Seller carried out a successful defense strategy which involved registering the SPA in the name of the Purchaser with the DLD before the issuance of the judgment to invalidate the claim that the Seller breached its obligation to register the SPA.

Baker McKenzie Habib Al Mulla, on behalf of the Seller, had also successfully argued during the proceeding that the Purchaser is not a layperson but a professional company with sufficient experience in the real estate sector. As such, the Purchaser was aware upon inspection that the development area is not restricted to the dry land on the island but also extends to the shore and portion of the water area and that the Purchaser can construct what is known as “sea-horse” villas which are partially on the water. A certificate of land ownership was also provided to prove the correct development surface area.

Further, a counterclaim request was filed on behalf of the Seller, seeking the court to oblige the Purchaser to perform their obligation under the SPA and pay the remainder of the purchase price and registration fees.

The Dubai Courts had accepted these arguments and issued the judgment in favor of the Seller on the basis that:

  • The reduction of the surface area of the purchased island did not exceed 1.04 per cent of the agreed surface area and such reduction is not material to justify the termination of the contract.
  • It is established that the contract was concluded in good faith and it follows that the Purchaser had accepted that the sale of the island is completed “as- is” after having inspected the island before purchasing and accepted it under the condition thereof as indicated in the purchase offer. As such, the Purchaser had reviewed the actual plot before purchasing and accepted the condition of the island “as-is”.

The court also ordered the Purchaser to pay the Seller an amount of AED 48 million for the remainder of the purchase price and AED 2.4 million in registration fees, plus interest (at a rate of 9% annually from the date of filing of the counterclaim).

The abridged version of the Arabic judgment and the English translation can be accessed in the links below.

To speak to us with respect to any real estate or litigation matters, please reach out to one of the contacts above or your usual Baker McKenzie contact.

Author

Wael El Tounsy is the Head of the Real Estate Dispute Resolution practice at Baker McKenzie Habib Al Mulla, based in Dubai. He has practiced law in the Middle East for over 30 years with a focus on real estate and construction litigation, including in relation to property investment and development, sale and purchase agreements and specialist commercial real estate. His experience extends to arbitration-related court proceedings, criminal litigation matters and maritime disputes.

Author

Alia Al Mulla is a mid-level associate in Baker McKenzie Habib Al Mulla’s Dispute Resolution practice group, based in Dubai. She focuses on civil and commercial litigation matters, appearing in courts throughout the Emirates. As a licensed UAE lawyer, Alia has full rights of audience in local and federal courts of the UAE and represents individuals and multinational corporates on commercial disputes across a variety of industry sectors, including the real estate, construction and insurance sectors.

Author

Marina Gaballah is an associate in Baker McKenzie Habib Al Mulla's Dispute Resolution Practice Group, based in Dubai, with a focus on real estate, construction and civil and commercial litigation matters. She has been involved in various complex disputes that were reviewed before the courts and other judicial entities, such as the Rental Committee in Dubai and the Dispute Resolution Centre in Dubai.

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