Property

Dubai Courts dismisses 2.2 billion dirham private island claim and sets new ‘precedent for disputes’

Purchaser unsuccessful in claims that surface area of the island had decreased by 50% and the SPA had not been registered with the DLD, says Baker McKenzie Habib Al Mulla

A recent ruling by the Dubai Courts in favour of a major real estate company in Dubai has set a precedent on how courts interpret sale and purchase agreements in relation to private islands registered for development, say legal experts Baker McKenzie Habib Al Mulla (BMHAM).

In a first-of-its-kind private island dispute, the purchaser, a major real estate investment company had sought a claim worth AED 2.2 billion (US$619,487,526), plus a refund of AED 12 million ($3,267,084) 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% and the SPA was nullified as it was not registered with the Dubai Land Department (DLD).

With representation and legal advice from BMHAM’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.

BMHAM, acting on behalf of the seller, had also successfully argued during the proceedings 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,” BMHAM clarified in a statement.

It further explained that the defense strategy carried out by the Dubai real estate company 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. A certificate of land ownership was also provided proving the correct development surface area which covers dry land on the island, the shore and portion of the water area.

Additionally, it was argued 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’ which was supported by the filing of 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.

According to BMHAM, “the Dubai Courts had accepted these arguments and issued the judgment in favour of the Seller on the basis that: The reduction of the surface area of the purchased island did not exceed 1.04% 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.

It added: “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 $13,068,336 for the remainder of the purchase price and $653,416 in registration fees, plus interest (at a rate of 9% annually from the date of filing of the counterclaim).”

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