Off-plan sales in Dubai: Oqood, escrow and broker duties

The frame: Law No. 8 of 2007

Off-plan sales in Dubai sit under Law No. 8 of 2007 Concerning Escrow Accounts for Real Estate Development. It defines an escrow account as the bank account of a development project into which payments by purchasers of units sold off-plan, or by the project's financers, are deposited. It applies to developers who sell units off-plan and receive payments towards them.^[1] The words used here come from the English translation on the Dubai Legislation Platform, which says the Arabic text prevails.

The law is written for developers. Brokers meet it indirectly, through the marketing and payment rules the Land Department attaches to developers and brokers, and through an offence that falls on a developer who deals with an unregistered broker. Reading it first explains why the broker rules look the way they do.

The developer, the register and the escrow account

Article 4 says no developer may engage in the business unless it is recorded in the developer register and licensed. Article 5 says a developer may not advertise off-plan sales in local or international media, or take part in exhibitions to promote them, without written authorisation from the Department. Article 17 provides for a developer to be struck off if, without an acceptable reason, it fails to start construction within six months of being granted permission to sell off-plan.^[1]

Article 7 provides for the escrow account to be opened under a written agreement between the developer and the escrow agent, in the name of the project. The escrow agent is the financial or banking institution accredited by the Department. Article 9 adds that the account is dedicated exclusively to the construction of that project and that no attachment may be imposed on the payments in it for the benefit of the developer's creditors. Where a developer runs several projects, each needs a separate account.^[1]

For a brokerage the practical meaning is that a buyer's payment is a payment into a project account. It is not a payment to the developer's own account, and never one to the brokerage.

Two further articles extend the account's reach. Article 13 says that where a developer mortgages a project to obtain a loan, the lender must deposit the loan amount in the project's escrow account. Article 14 says the escrow agent must retain five per cent of the total value of the account once the developer obtains the completion certificate, to be released one year after the units are registered in the purchasers' names.^[1]

Industry sources describe the release of construction funds against an engineer's completion certificate and Department sign-off. The articles read for this guide do not set out that milestone mechanism, so it is best understood as executive-regulation or operating practice rather than statute.^[1]

What the law says about brokers

Executive Council Resolution No. 6 of 2010, which approves the implementing bylaw of Law No. 13 of 2008 on the Interim Real Property Register, speaks to brokers directly. Article 10 says that where a developer markets a project through a broker, the project must be registered with the Land Department, the broker must be approved and licensed under Bylaw No. 85 of 2006, and the project marketing agreement with the broker must itself be registered.^[2]

Article 11 says any legal disposition involving the off-plan sale of a unit before the competent entities approve the project's commencement and it is registered with the Land Department is null and void. Article 12 is the rule with the most direct effect on a brokerage's cash: the broker must deposit the sale price into the project escrow account, may not deposit it into its own account or deduct its commission first, and any agreement to the contrary is null and void.^[2]

The RERA Brokerage Practice Guide says the same in operational terms. For off-plan projects, brokers must ensure the project is licensed and registered with the agency, that an escrow account is linked to it with buyers instructed to deposit only into that account, and that a marketing contract exists between the developer and the brokerage office.^[3]

The offences sit with the developer. Article 16 of Law No. 8 of 2007 provides jail and a fine of at least AED 100,000, or either penalty, for a number of acts. They include developing without a licence, knowingly offering units in fraudulent projects, taking money delivered for a project and, in the case of a developer, dealing with a broker who is not registered under Bylaw No. 85 of 2006.^[1] That last item is why developers ask to see a broker's registration number.

Reservation, contract and Oqood

Many launches take a holding deposit before the sale and purchase agreement, through an expression of interest. Industry explainers describe amounts ranging from a few thousand dirhams to well over AED 100,000 for luxury stock, and describe refund terms as differing from project to project.^[7] The law read for this guide does not standardise them, so the terms are best read for each project and not assumed.

The sale and purchase agreement then triggers the payment plan. The Dubai Land Department's Oqood service is the portal through which developers register off-plan units. Its service terms say the contract must be registered in the provisional register within 90 days of signing, and list a fee of 2 per cent of the sale value each for seller and purchaser.^[4] Industry explainers describe Oqood as the interim registration that records the buyer, the developer and the project escrow account against the unit before a title deed exists.^[5]

Article 8 of the escrow law lets a purchaser ask the Department to update the registry entry for the plot to show a purchase agreement has been concluded, and Article 12 lets depositors gain access to their accounting records and ask for copies.^[1]

When a buyer defaults or a project stalls

Article 15 of the escrow law deals with a project that is not completed. The escrow agent must, after consulting the Department, take the measures needed to preserve depositors' rights and ensure the project is completed or depositors are refunded.^[1]

The implementing bylaw also sets out what happens when a purchaser defaults. As summarised in the research reviewed for this guide, the developer serves a notice and allows 30 days, and after that the amount it may keep depends on how far construction has progressed, with caps stated as percentages that differ between stages. The percentage of completion is certified by a technical report from an approved consultant.^[2] The exact tiers and their wording should be read in the text, and this guide did not establish whether the bylaw has been amended since it was issued.

The bylaw also lists grounds on which a purchaser may go to court to end the contract, such as a developer refusing the final sale agreement without valid reason or a material deviation from the specification, and it treats a sub-developer selling off-plan without the master developer's written approval as negligence by the developer.^[2]

Resale before handover

A buyer who sells before handover is assigning the sale and purchase agreement. The official pages and statutes read here do not set a single rule for assignment, so the figures that circulate come from developer contracts and market sources.

Industry sources suggest that most developers require 30 to 40 per cent of the price to be paid before they allow an assignment, that the developer's no-objection certificate is the gating document and is valid for about 30 days, and that the combined cost of the transfer commonly reaches 6 to 11 per cent of the resale price.^[5][6] The last figure comes from a single source and the thresholds are developer-specific, so a developer's own contract decides the actual terms.

One structural point is firmer. Because the sale price goes to the project escrow account and Oqood records the buyer against the unit, an assignment changes who the registered buyer is and what remains payable under the developer's payment plan.^[1][4]

Commission and the questions it raises

The rate and timing of commission on off-plan sales are set in the developer's agreement with the brokerage and are not fixed by the statutes read. One proptech blog describes rates clustering between 3 and 8 per cent of the unit price depending on developer tier, commission often released in stages as buyer instalments clear, and clawbacks if a buyer cancels soon after booking.^[8] That is a single commercial source and the figures are not offered as a market norm.

Broker guides also summarise RERA's commission-disclosure rules as requiring commission to be disclosed and prohibiting hidden fees.^[9] Reports of undisclosed payments between developers and brokers appear in market talk, but the sources reviewed contained no named case or regulator action, so this guide treats them as unverified.

Whatever the rate, the escrow rule in Article 12 of the bylaw stays the same: the price goes in whole, and the commission is paid separately under the agency agreement.^[2]

What a system tracking off-plan sales has to hold

The following is an inference from the texts above, not a requirement stated in them. A system that records off-plan sales should treat the escrow account as a property of the project, not of the unit or the developer. It should record the date permission to sell was granted, because Article 17 runs from it. It should hold the registered marketing agreement, the Oqood registration date and its 90-day limit, and a dated record of the no-objection certificate where an assignment is involved.

The Works CRM, which The Works Group sells and which is still in build, lists Oqood, the sale and purchase agreement and the reservation form on the deal for off-plan sales.^[10] It is one way of keeping these on a record. A written checklist does the same job for a small office, and neither replaces reading the current texts.

Questions