Saturday, January 15, 2011

Developer assets may be attached to escrow account for projects

Developer's assets can be attached to escrow account for projects, in case the project does not have sufficient funds to pay back an investor, in cases wherein the court has ordered a refund, a legal expert said.

Explaining the issue, Scott Hutton, Senior Counsel, Real Estate & Construction Department, Habib Al Mulla & Company, said that the problem arises when the developer is a special purpose vehicle (LLC) set up for the sole purpose of completing the project. In such cases, there may be no other assets in the developer company, and the investor cannot recoup their losses.

The Dubai Land Department (DLD) mentioned that only companies formally registered as offshore entities with Jebel Ali Free Zone Authority (JAFZA) will be eligible to register properties from 1st January 2011. The initiative aims to track any change in ownerships, which are otherwise never reported to DLD.

According to Hutton, more claims were filed in 2010, as until then investors were hesitant to file cases hoping for market improvement or a new regulation to be introduced to solve their issues.

However, law experts are of the opinion that some developers may use legal loopholes to escape payment.
The Property Court, an arm of Dubai's First Instance Court, was established in August 2008. Depending on the case in question, it takes atleast a year for a judgment. The DLD has established a mediation committee to help resolve developer-investor conflicts, if the parties seek an out-of-court settlement.

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