Escrow law 8 makes off-plan property investment in dubai the safest in the world!

All You Need to Know About Dubai's New Escrow Law


What is the new escrow law in Dubai?

Dubai real estate will have major impact from the newly formed escrow law. The said escrow law is Law No. 8 Concerning Guarantee Accounts of Real Estate Developments in the Emirate of Dubai. The law states that all funds received by real estate developers with respect to a property have to be administered through an escrow account, which in turn will be regulated by the Dubai Land Department.

Who all have to subscribe to the escrow law?

All real estate developers who engage with the sale of units off-plan and get payment from buyers/financiers before the completion of the property development have to comply by the escrow law. This will apply whether the respective property development is in the planning phase or under construction.

What is the time-frame for complying with the escrow law?

The escrow law came into force on June 28, 2007 with an allowance of six-month transitional period. In other words, all concerned have to subscribe to the law by December 28,2007.

Who will keep record of property developers subscribing to the escrow law?

Dubai Land Department will keep a register of property developers in Dubai who have been licensed to carry on real estate business.

What will be the consequences of non-compliance with the law?

Unless a property developer is registered with Dubai Land Department under the escrow law, s/he won’t be able to carry out any activity related to real estate development
(including advertising).

Where can one get the registration form?

Property developers can get hold of the registration form from the Dubai Land Department.
Registration is compulsory along with bearing a valid trade license.

Without being registered, can a property developer conduct advertising?

Before advertising a property development through regional or foreign media, the concerned property developer must obtain a written permit from the Dubai Land Department.
This is compulsory and is additional to getting registered with the Department.

Can a property developer sell units from a development after registration?

After getting registered with the Dubai Land Department, a property developer must apply for a guarantee account (escrow account) for managing the funds received from buyers, investors or financiers.

What are the documents required to apply for an account?

• The trade license of the property developer;
• The developer’s certificate of registration with the Dubai Chamber of Commerce and Industry;
• The original title deed of the plot on which the property is to be developed;
• A copy of the contract for the sale/purchase of the plot between the property developer and the master developer;
• A letter from the master developer stating approval for the development;
• Architectural plans approved by Dubai Municipality and the master developer;
• A building permit issued by the concerned authorities;
• A financial statement prepared by the consultant of the property developer and certified by an accountant (with details of cash flows and amount payable to the
creditors of the development);
• A copy of the developer’s pro forma sales contract for off-plan sales; and
• Developer’s undertaking to start construction after getting hold of master developer’s approval to sell off-plan.

Note: If it is not possible for the developer to submit all of the documents listed above, s/he must provide all documents available at the time
of application. However, the outstanding documents have to be submitted to Dubai Land Department as and when acquired by the developer.

Who will manage the escrow account?

The property developer will enter into an agreement with a bank/financial institution certified by Dubai Land Department. A copy of the same will have to be submitted with the Department. The respective bank/financial institution becomes the account trustee and will manage the escrow account. This will be done under constant supervision of the Dubai Land Department.

Which banks/financial institutions have been certified to be account trustees?

• HSBC
• Dubai Islamic Bank
• Tamweel
• Amlak Finance PJSC
• Abu Dhabi Commercial Bank
• Commercial Bank of Dubai
• National Bank of Dubai
• Emirates Bank

Which funds need to be deposited in the escrow account?

• Any funds obtained by way of mortgage for the property development;

• Payments by buyers/financiers for units on the plan;

Note: If a property developer has more than one property development
up for sale, s/he must open separate escrow accounts for each one of them.

How are deposited funds managed?

The property developer will be able to get payments from the escrow account for contractors’ and consultants’ costs on the respective development only on obtaining an invoice of the same. For drawing money from the escrow account, s/he has to apply to the account trustee. A certificate from the project manager stating the completed stage of development has to be attached with the claim for payment. Before issuing payments, an engineer from the account trustee will inspect and confirm the completed stage of development.

When are the profits of the property developer issued?

5 percent of the total amount of the escrow account will be kept in the respective account by the Dubai Land Department for one year after the property developer has obtained a certificate of completion of construction on the development. Funds will not be released to the property developer unless an year has passed after all the units in the development are registered in their buyers’ names.

Are there any costs for subscribing to the escrow law?

Yes, there are. These are given hereunder.

• According to the escrow law, the Dubai Land Department may collect fee for services
provided under the law. However, the amount has not been mentioned.
• The developer has to pay costs (if any) of the account trustee.
• The developer also has to pay for costs involved in the opening and management
of the escrow account.

Note: There are no costs for registration or obtaining written
permit for advertisement from the Dubai Land Department.

What are the penalties for violators of the escrow law?

A fine of not less than 100,000 AED and imprisonment for an undefined period will
be imposed on anyone who engages in any of the following activities:


• Developing property without a license;
• Submitting false documents/statements to the authorities in order to obtain a
license;
• Advertising units from a bogus property development knowingly;
• Misappropriating funds paid to the developer for the development of the property;
• Being an auditor, preparing false reports or concealing facts;
• Being a consultant, approving false documents; and
• Being a developer, dealing with an agent who has not been registered with the
Dubai Land Department.

The registration of a property developer will stand cancelled if s/he:


• Declares bankruptcy;
• Violates any laws connected with real estate development;
• Cancels his/her license; and
• Doesn’t start construction within six months after getting hold of approval from Dubai Land Department for selling property off-plan.

Can there be any further rules and regulations on the escrow law?

The Dubai Land Department will issue rules and regulations concerning the advertisement of property developments. The Department has also made it clear that it will issue further rules for escrow accounts through the recently established Real Estate Regulatory Authority (RERA).

What is RERA?

The Real Estate Regulatory Authority – RERA – has been formed under the affiliation of the Dubai Land Department recently. RERA will regulate real estate activities in Dubai (including the escrow law). With administrative and financial autonomy, RERA will supervise and regulate real estate developers, real estate agents, financiers and co-owners’ associations.

Why have RERA and escrow laws been founded?

RERA and escrow laws have been founded in order to eliminate the risks involved in Dubai real estate market hitherto. These had amounted to: • Property developers with no clear title to the development or the corresponding land;

• Lack of a proper record of real estate related activities in Dubai;
• Lack of uniformity in rules and regulations concerning real estate;
• Risks in the mortgage market that go against the property buyers’ interests; and
• Uncertainty involved in the completion of a real estate project.