Construction Law

The financial crisis of 2008 had serious consequences for the Dubai construction market. The crisis led to an increase in construction disputes, both litigation and arbitration. Ahmed Law Firm works with clients involved in construction disputes as well as pre-deal negotiations and the formation of construction related contracts. Below is a summary of some construction law issues in Dubai and the UAE.

Developer Rights

Under Law No. (9) of 2009 (Amending Certain Provisions of Law No . (13) of 2008 Regulating the Interim Real Estate Register in the Emirate of Dubai), where a purchaser who breaches ‘any terms or conditions of the real estate sales contract concluded with the developer,’ the purchaser will be given a 30 day notice to fulfill purchaser’s obligations.

If the purchaser does not fulfill his obligations in the allotted notice period, then the developer is given certain rights under the law. If the developer has completed 80% or more of the real estate project, the developer may retain the full amount paid by the purchaser and demand that the purchaser settles the outstanding contract price. If the remaining contract price is not paid then the developer has the right to demand that the property be publicly auctioned. If the developer has completed at least 60% of the real estate project, the developer may revoke the contract and retain up to 40% of the value of the property agreed upon in the contract. For projects which are less than 60% completed, the developer may revoke the contract and retain up to 25% of the agreed upon value of the property. The law also allows developers to keep up to 30 % of the amounts paid by the purchaser and void the contract even when construction has not commenced, as long as the reasons for the project not starting are outside the developers control and not due to his negligence.

Contractor, Employer, and Engineer Issues

The prevalent form of contract used in the UAE, the 1987 and 1999 editions of the FIDIC Red Books, contain provisions that allow the contractor to suspend works on a project. The contractor may suspend work if the employer fails to make payment on a timely basis under any payment certificate issued by the engineer. The engineer may also instruct a contractor to suspend works on a project. In many instances, the suspension of work gives rise to legal issues surrounding relief and remedies for the parties affected adversely.

Under the FIDIC Red Books, contract engineers also have the power to instruct contractors to expedite work on a project. Engineers do this often when a project will most likely not meet its contractual deadline due to delays or other reasons. A common dispute in this situation occurs when a contractor argues that it is not responsible for the delays on the project and that it is entitled to an extension.

A third common issue is “back to back” or “pay if paid” provisions in a contract. These provisions provide that a subcontractor will not get paid until the main contractor receives compensation from the main employer. The wording of these provisions is usually unclear. It is possible that UAE courts would not accept such provisions if a dispute reaches the litigation stage. Nevertheless, It is essential for all parties involved to review such provisions with their legal advisors.