In light of recent global developments, certain economic fluctuations have been observed, affecting financial planning for few individuals. In the UAE, property investors who had executed Memorandums of Understanding (MOUs) and paid deposits with the Dubai Land Department are now experiencing constraints in fulfilling with their contractual obligations.
This current development highlights the importance of understanding the enforceability of legal doctrines such as force majeure under Article 273 and exceptional circumstances under Article 249 of Federal Law No. (5) of 1985 concerning the Civil Transactions Law of the UAE.
What is Form F (MOU) in UAE Real Estate?
Form F is a standard preliminary sale agreement approved by the Dubai Land Department (DLD). It is a conditional contract that records the mutually agreed terms between the buyer and seller. Typically, it includes:
- A security deposit (usually 10%)
- Purchase price
- Payment terms
- Completion date
- Obligations of both parties prior to transfer
It serves as a binding framework governing the transaction until the final transfer of property ownership.
Legal Framework Governing Force Majeure and Exceptional Circumstances
The UAE Civil Transactions Law provides two distinct mechanisms to address situations where unforeseen events beyond the control of the parties affect contractual performance. Article 273 deals with the doctrine of force majeure, which applies when performance becomes completely impossible due to an extraordinary event. In such cases, the contract may be automatically terminated. If only part of the obligation becomes impossible, that part is extinguished, and in continuing contracts, temporary impossibility may result in a suspension of obligations. However, the application of force majeure is not automatic. The courts will assess whether the event was unforeseeable at the time the contract was concluded, whether it could not have been avoided despite reasonable efforts, and whether it rendered performance impossible rather than merely difficult.
On the other hand, Article 249 introduces the concept of exceptional circumstances, also referred to as the hardship. This applies in situations where performance is still technically possible but has become excessively burdensome due to unforeseen public events. Where such hardship threatens the obligor with serious loss, the court is empowered to intervene and reduce the obligation to a reasonable level after balancing the interests of both parties. Unlike force majeure, this doctrine does not result in the termination of the contract but instead allows for its adjustment to achieve fairness.
The distinction between these two provisions is crucial. While force majeure applies where performance is completely impossible and may lead to termination, exceptional circumstances apply where performance is still possible but oppressive, allowing the court to modify the obligation without ending the contract.
In most Dubai real estate transactions, Form F does not include a detailed force majeure clause. In the absence of such provisions, the general principles of the UAE Civil Code continue to govern the contractual relationship between the parties.
Application to Current Scenario
The current scenario has led to financial constraints for some investors, particularly those who have been laid off or have experienced salary reductions. As a result, there is a likelihood of breaches of Form F contracts due to non-payment or inability to complete the transaction. Where a breach occurs, the consequences depend on the party at fault. If the buyer defaults, the seller is generally entitled to retain the ten percent deposit. Conversely, if the seller fails to complete the transfer, the buyer may recover the deposit and may also be entitled to compensation or damages, depending on the circumstances.
In the event of a dispute, the first step is to check whether the contract contains a force majeure clause or any similar provision. If no such clause exists, the affected party may issue a legal notice, and if the matter remains unresolved, it may be brought before the court. The court will then determine whether the conditions for force majeure under Article 273 are satisfied. If the non-performance is found to have resulted from a qualifying force majeure event, it may serve as a valid defence, potentially absolving the party from liability.
In a similar 2024 decision of the Dubai Court of Cassation arising from the Russia–Ukraine war, where the court recognized the war as a force majeure event in the context of a shipping contract. The court emphasized that the event was unforeseeable at the time of contracting and could not have been avoided, thereby rendering performance impossible.
At the same time, not all cases will meet the strict threshold required for force majeure. In situations where performance remains possible but has become financially burdensome due to unemployment or reduced income, Article 249 may provide relief. In such cases, the affected party may approach the court and demonstrate the extent of the hardship suffered. The court may then exercise its discretion to reduce the obligation to a level that is fair and reasonable in light of the circumstances.
Conclusion
In conclusion, the current global developments fulfilling obligations under Form F agreements have been difficult for few investors. While these contracts remain binding, the UAE Civil Code provides mechanisms to address unforeseen disruptions through the doctrines of force majeure and exceptional circumstances. The applicability of these doctrines ultimately depends on the specific facts of each case, and judicial discretion plays a central role in ensuring a fair balance between the parties.
We, at Ayesha Aldhaheri Advocates and Legal Consultants, provide dedicated legal support in handling real estate disputes arising from Form F (MOU) contracts. Our team is well-equipped to assist buyers and sellers in navigating contractual obligations, managing risks, and pursuing appropriate legal remedies in accordance with UAE law and the specific circumstances of each case.