Retention penalty slashed from 40% to 10% as judges prioritize buyer fairness.
Dubai: A Dubai real estate court has ordered a property developer to refund Dh185,000 to an investor, ruling that prolonged construction delays justified reducing the retention amount the company could withhold following the termination of the contract.
The court also ordered the developer to pay legal interest at 5 per cent from the date the lawsuit was filed until full payment is made, after reducing the company’s retention entitlement from 40 per cent to 10 per cent of the value of an off-plan unit.
Project delayed for years
The dispute dates back to 2017, when the investor purchased three units in a residential development, including one valued at approximately Dh463,000. The unit was initially scheduled for handover by the end of 2018, with a contractual extension allowing completion until December 2019.
Court records indicate that the investor paid approximately Dh231,000—nearly half the unit’s value—along with registration fees before halting further instalment payments.
However, reports from the Real Estate Regulatory Agency revealed that construction progress had reached only 15.17 per cent by January 2019. The project was eventually completed in February 2023, more than three years past the final agreed deadline.
Contract terminated
In 2023, the developer requested payment of outstanding instalments. When the investor did not comply, the company initiated termination procedures under Dubai’s off-plan property law. The unit’s registration was cancelled in the investor’s name and returned to the developer, which retained the amounts already paid.
The investor did not dispute the legality of the termination but filed a lawsuit seeking a reduction in the penalty percentage, arguing that the developer’s prolonged delays constituted a breach of contractual obligations and that his funds had been held by the company for years.
Court reduces retention
The developer maintained it was entitled to retain the full 40 per cent allowed under the law and noted that it had issued a manager’s cheque covering part of the amount.
The court ruled that while developers may retain a portion of payments in termination cases, judges have the discretion to determine a fair retention amount based on the circumstances.
Finding that the prolonged delay constituted a serious breach, the court ruled that retaining the maximum percentage would be unjust, particularly as the developer had regained ownership of the property and benefited from the investor’s payments since 2017.
The court therefore reduced the retention to 10 per cent of the unit’s value and ordered the developer to refund the remaining balance, along with legal interest, court costs, and attorney’s fees.
