How to Terminate Sale and Purchase Agreements in the UAE

While signing an agreement for Sale or Purchase of a property, it is quite pertinent to carefully read the terms and read between the lines, to get a full grasp on the rights included and what needs to be given attention. As far as contracts in the UAE is concerned, a Sale Purchase Agreement is key to the finalization of sale of Real Estate and any other moveable or immovable asset. A Sale and Purchase Agreement (hereinafter: “SPA”) is a contract that facilitates business transactions. These contracts are governed by Federal Law No. (5) Of 1985 on the Civil Transactions Law of the United Arab Emirates (hereinafter: “The Civil Transactions Law”). This article seeks to delve into one of the aspects relating to Sale Purchase Agreements – Termination.

Termination

Termination of an SPA denotes the end of the agreement between the parties as well as their contractual relationship. Common motivations to terminate SPAs include non-performance of contractual obligations, delay in possession or transfer of title, failure to provide payments, misrepresentation, fraud, mistake and unforeseen circumstances or force majeure.

Within the real estate sphere, if developers fail to perform their duties under an SPA, the purchaser can terminate the agreement and be recompensed for the consideration given while purchasing the land. Pursuing this mode, however, requires the purchaser to have completed their obligations and prove that they have done so. Most contracts in this arena mention an Anticipated Completion Date which indicates the date on which the buyer must receive possession of the property from the developer. This date can be extended for up to twelve months. A claim to cancel an SPA can be unsuccessful if it is brought before this period has elapsed. The seller can utilize force majeure as a defence against an action for termination initiated by the purchaser where they have not complied with their contractual duties.

Article 1 of Dubai Law No. 19 of 2017, which amended Article 11 of Dubai Law No. 13/2008, also provides developers with an opportunity to terminate an SPA with a defaulting purchaser. This method operates through the Dubai Land Department and the Dubai Economic Department.

Article 267 of the Civil Transactions Law provides that a contract may be terminated through mutual agreement, judicial order, prior agreement among the parties, or owing to statutory mandate. Here are the ways in which a SPA can be terminated in the UAE.

Mutual agreement

According to Article 268 of the Civil Transactions Law, parties to a contract retain the right to revoke the agreement and end their contractual relationship provided both parties consent to this conclusion. It entitles parties to be restored to their original position prior to the contract. This mode of termination is termed Iqala and it denotes the end of the contract and the relationship between the parties as well as the formation of a new agreement with regards to the third party.

Judicial order

This method of termination is applicable, in accordance with Article 272 of the Civil Transactions Law, when one party refrains from performing their contractual obligations in a bilateral contract. Prior to seeking judicial recourse, the defaulting party must be notified by the other party following which, the latter can initiate proceedings against the former. The resulting court order may instruct the defaulting party to comply with their contractual obligations, defer performance for a certain period, or cancel the agreement entirely, requiring the payment of damages.

Prior agreement

Article 271 of the Civil Transactions Law stipulates that parties may insert a clause in the contract, agreeing to its cancellation upon non-performance by either party. The inclusion of such a condition makes termination mandatory and precludes judicial action. Despite prior agreement being enshrined within the agreement, the other party must provide the defaulting party with a notice before enforcing the clause.

Termination due to force majeure

In the circumstance that undertaking the contract becomes impossible for reasons outside the parties’ control, the contract will automatically come to an end. This mode of cancellation is detailed under Article 273 of the Civil Transactions Law and requires the fulfilment of certain conditions. These entail that performing the content of the agreement is impossible and that the impossibility is not caused by or is unrelated to the concerned parties. Additionally, the impossibility must occur following the contract’s conclusion and it must concern the contract as a whole.