UAE Property Developer Reneges On Agreement

Yet another law suit in the offing as yet another UAE developer decides the small print means "no deal" on a "guaranteed" offer. It appears that the larger developers really do think small investors are good for one thing only. I have long been of the opinion that the shoddy treatment of smaller investors will backfire on the UAE as and when there is a turn around in the market.An investor in Ajman-based BSEL Infrastructure Realty's Pearl Tower is seeking 12 per cent interest on his principal amount as assured by the developer under his buyback offer.

However, the developer, who has returned the principal amount to him, through a post-dated cheque, said the offer was valid only for investors who had paid "up front" in full for the units.

Anis Alaeddin, who invested in a unit in Peal Tower, Emirates City, said the developer in a letter (published below) guaranteed a buyback at a premium of 12 per cent per annum and was to return the money within 15 days from the date the buyback option was exercised. BSEL's Executive Director Manish Kanakiya contested the claim, saying the contract clause clearly mentioned that cancellation or termination of the agreement would lead to forfeiture of a maximum of 15 per cent of the total value of the unit.

Kanakiya said: "The buyback offer was valid only if the investor had paid 100 per cent at the time of booking. But if the purchase was made on a payment plan, then clauses will come into force, and clause number 8.10 will be enforced."

Clause 8.10 reads: "In the event of cancellation/termination of this agreement by request of the buyer, or by default by the buyer of any clause in this agreement, all payments previously made by the buyer, subject to a maximum 15 per cent of the total price [hereinafter referred as 'agreed amount'] will be absolutely forfeited by the seller and the refundable amount, if any, will only be paid to the buyer after rebooking of the unit."

In October 2007, BSEL Infrastructure Realty, a fully owned subsidiary of India's BSEL Infrastructure Realty Limited, said in a press statement that it will develop seven towers in Ajman with first being the Pearl Tower.

The statement further said: "The launch of the project, with each tower rising up to 50 floors, also comes with a 'one-of-its-kind' offer of buy back with assured 12 per cent returns after one year."

Alaeddin said he had bought a unit in Pearl Tower for Dh590,000 in November 2007, only after reading about the developer's buyback offer. The offer, according to him, could be exercised 12 months after making the first payment. In October, the developer finally gave him a cheque, post-dated January 31, 2010, for the principal amount.

He said: "In April 2009, I visited BSEL's office and asked to exercise my buyback guarantee right. As per the agreement, the developer has to pay back my total investment along with 12 per cent interest within 15 days of the request date. But they have refused to abide by the documents they have signed. The developer initially told me they would refund the money if I forfeited 15 per cent of the total price."

He visited BSEL's office again on May 14 after being told a cheque, post-dated to July 31, 2009, would be ready for collection. "However, the company's accounts department refused to give me a post-dated cheque and did not show any flexibility over my request even though I have every right to ask for my money within 15 days of exercising my right."

Alaeddin said he again visited BSEL's office in June and asked for his cheque but the company still refused to give it to him. "I then approached the Ajman Real Estate Regulatory Agency (Arra) to ask for my money and there followed a series of e-mails between the authority and BSEL."

In July BSEL said a 15 per cent penalty on the total value of the unit had to be levied before the principal plus interest could be paid. In early September the developer offered to pay the investor Dh33,000 lesser than the principal amount - 30 per cent less than the promised amount.

According to Kanakiya, the developer had issued buyback letters to not more than 12 to 13 investors, and only five or six people had paid 100 per cent on booking.

"It was a scheme that we were running for one or two months but stopped it after the Ajman authority said developers can't offer buybacks. However, they told us, 'You cannot cancel whatever we had assured in the past'.

"We will not deduct any money if an investor is staying until the project completion and we will pay him 12 per cent on a pro-rata basis on his investment, including guaranteeing a buyback," he added.

In late September, the company told Alaeddin it would return his principal payment by the year end and had sent a letter to Arra requesting the money be transferred from their escrow account to his bank account

When contacted, an Arra representative told Alaeddin that the company had sent a letter but the authority had rejected it because it was against its policy to return money out of an escrow account to a "canceled" buyer.

"The agency has requested that the developer pay me from the company's funds and not the escrow account," the investor added.

We shall see, but the various lawsuits in Dubai have invariably ended with a ruling in favor of the developers.