In a landmark case, our Litigation Team successfully represented a seller in a real estate dispute, where both parties had mutually agreed upon the terms and conditions clearly outlined in a Sales and Purchase Agreement (SPA).
Facts
The Parties had entered into a SPA for the sale and purchase of property conditional upon the buyer’s obtaining a mortgage within a specific timeline. The purchase price was AED4,820,000, with a standard 10% deposit of AED482,000 payable by the buyer at the time of signing the SPA and retained by the broker of the deal.
The SPA contained precisely detailed provisions specifying a clear timeframe for the buyer to secure a mortgage. Such detailed provisions were critical in safeguarding our client’s interest in closing the sale in a timely manner. However, the transaction took an unfavorable turn when the buyer failed to secure the mortgage within the stipulated timeframe and filed a case before the Dubai Court to terminate the SPA and get back the amount of the deposit.
Case Overview
Before the Dubai Court, the buyer sought:
- Termination of the Sales and Purchase Agreement (SPA);
- Return of the amount of the deposit in the amount of AED482,000, which had been deposited with the broker; and
- Compensation for the material and moral losses the buyer claimed to have suffered.
In response, we have filed a counterclaim on behalf of the seller requesting the court to declare:
- The buyer’s failure to fulfill his contractual obligations as stipulated in the SPA, and specifically his obligation to secure his mortgage within the agreed timeframe;
- The seller’s right in collecting from the broker the buyer’s deposit in the amount of AED482,000; and
- The seller’s right to compensation for the material and moral losses incurred by the seller as a result of the buyer’s breach of the SPA.
Parties’ Arguments
Buyer’s Arguments:
The buyer argued that the seller didn’t allow the bank officers to conduct the valuation of the property required to complete the mortgage proceedings on the property. As a result, the mortgage was rejected, hence, the buyer was unable to close the deal.
Seller’s Arguments (Our Client):
We discredited the buyer’s allegation which is found baseless and with no clear evidence. In return, we supported our counter claim on the provision of the SPA which clearly reads: “if the buyer is unable to pay the full amount of the sale or failed to close the deal within a specific date for reasons not beyond his control, the seller shall have the right to terminate the SPA and collect the amount of the security deposit.”
Court Proceedings
During the proceedings, the court ordered the appointment of an expert to investigate the dispute in question and confirm each party’s liabilities, failures, and rights. The outcome of the expert report came in favor of the seller who confirmed that the buyer has failed to obtain the mortgage within the agreed timeframe in the SPA without any reasons beyond his control. Hence, the deal couldn’t be concluded.
Court Ruling
The Dubai Court of First Instance has found for the Seller (our Client) and determined that the buyer’s failure to secure the mortgage for the payment of the property in question, was not due to reasons beyond the buyer’s control, hence, the Court decided/ordered:
- To dismiss the buyer’s claim for being groundless;
- The termination of the SPA due to the buyer’s failure to fulfill his contractual obligations;
- The real estate broker to release the security cheque in the amount of AED482,000 to the seller;
- 5% interest from the date of filling the case until the complete payment is made to the seller; and
- The buyer to bear the total costs of the litigation.
The buyer chose to challenge the judgment of the Court of First Instance by filing an appeal before the Dubai Court of Appeal. We continued to represent our client, the seller, before the Court of Appeal. The Court of Appeal has upheld the decision of the First Instance Court in its entirety.
Conclusion
This case highlights the vital importance of thoroughly understanding the terms and conditions of a Sales and Purchase Agreement (SPA), particularly the clause related to securing a mortgage in scenarios where a transaction is not paid in full by the buyer but needs to be funded through a loan.
It is imperative for the parties involved, especially buyers, to comprehensively grasp what processes are entailed in securing a mortgage in the UAE. This understanding should be based on proper due diligence factoring the time needed to obtain mortgage approval, the amount that can be borrowed against the applicant’s profile, and the specific parameters under which a resident might be offered a mortgage by the different banks.
About M&A
We advise on the full spectrum of the real estate transactions involving sale and purchase of property, off plan projects, mortgaging, transfer of ownership, and landlord and tenant relationships. Our real estate litigators have handled a wide variety of disputes involving sale and purchase agreements, delayed handover, canceled projects, and discrepancies in saleable area and rental disputes. For more info about our Real Estate Practice, please visit: http://motei.com/real-estate/.
