12 Issue 33 • SEPTEMBER 2014

Country foCus/Qatar

Qatar:

New Law, Better Protection

Salient pointS of the new law Qatar’s Real Estate Development Law No (6) of 2014 came into force in May 2014. However, at time of writing, the necessary enabling Ministerial resolution/decisions are still awaited. This is the first law in Qatar aimed at regulating the construction of commercial and residential multi-storey buildings for the purpose of selling units off-plan. “Selling” includes both freehold sales and off-plan usufruct (lease) sales. It is, effectively, a consumer protection law relating to the purchasing of real estate off-plan; this has become more commonplace in Qatar since the Non Qataris’ Property Law of 2004 and developments like The Pearl and Lusail. When buying off-plan the purchaser is ordinarily required to pay amounts towards the total purchase price at various payment milestone dates, but acquires no interest in the unit/property until completion of construction and handover of the property title into his name. Inevitably this means a lack of (legislative) security for such purchasers. The Real Estate Development Law aims to provide such legislative protection.

The key areas that it seeks to regulate are the licensing of developers, the procedures for selling off-plan and the protection of monies paid by purchasers prior to completion and handover of the real estate.

The penalties for failure to comply include imprisonment and/or fines of up to QAR200,000. To this end, a Real Estate Development Dispute Committee

will be formed to settle all related disputes, and only the Court of Appeal may set aside its decisions.

licenSing of developerSThe Law requires all developers that are constructing commercial or residential multi-storey buildings for the purpose of selling units off-plan (defined in the law as Real Estate Development) to be properly licensed by the concerned department within the Ministry of Economy and Trade (the Ministry) and to be registered on the Real Estate Developers’ Register at the Ministry – neither of which exist to date. (This is in addition to the ordinary requirements as to commercial registration required under the Foreign Investment Law, the Commercial Register Law, the Commercial Companies Law and the like).

If the licensee is a natural person he must be a Qatari national, not have been convicted of a crime of honour or trust nor have been declared bankrupt, have at least three years’ management experience in construction and building projects and be registered on the Commercial Register.

If the licensee is a juridical person which is a Qatari company (meaning its ownership is 100 percent Qatari) it must be: established under the Commercial Companies Law; have real estate development works as one of its objects; have been involved in construction and building works for at least three years; and, not have been declared bankrupt.

Qatar recently issued a new real estate development legislation that tightens licensing and registration requirements. Katrina Wilson highlights the key areas of the law.

13theoath-me.com • the Oath

Country foCus/Qatar

This Law limits the applicability of the Foreign Investment Law’s prohibition on foreigners conducting real estate business in Qatar (and which prohibition has created uncertainty since Qatar’s real estate market opened up 10 years ago), by stating that if the licensee is a non-Qatari company it can carry out such Real Estate Development works but only in areas where non-Qataris can own property; it must have been properly established abroad and have real estate development works amongst its corporate objects; it must have at least 10 years’ experience in construction and building works and have completed similar projects; and, it must be duly registered in Qatar.

The Law sets out the procedures for licensing and licence renewals, plus the ability to submit a grievance in respect of any rejection. Additionally, the relevant Department has the ability to cancel licences in various instances – including failure by the Developer to commence the project within six months of approval to sell off-plan, or misuse of the monies deposited in the Escrow Account.

required procedureS for Selling off-planPrior to selling any subdivided units off-plan, the (licensed) Developer must submit a request to do so to the relevant department at the Ministry, along with various documents: proof of opening of Escrow Account; title deed of the land and evidence of subdivision; auditor approved estimated budget for the project; draft advertisement for selling (containing such information in the advert as is required under this Law); pro forma sale and purchase contract; approved architectural designs and engineering plans; and, if applicable, the contract between the developer and sub-contractor.

Additionally, the Developer is required to submit a request and relevant documentation, to the competent authority at the Ministry of Justice, to subdivide the real estate into units. The request will then be submitted to the relevant department in the Ministry of Municipalities and Urban Planning. The Ministry of Justice will issue ‘initial’ title deeds for such units, and maintain a (so-called) Initial Real Estate Register (an official pre-registration register), in which all real property rights, transfers and like relating to the units must (pre-) registered.

Any actions that are not entered on the (pre-registration) Register shall merely create a personal obligation (rights in personam); any selling and other acts in respect of unapproved units will be considered void. Additionally, within 60 days issuance of the Building Completion Certificate the Developer must register the units in accordance with the Real Estate Registration Law in the main Real Estate Register.

This system of pre-registration in the Initial Real Estate Register should prevent any double-selling and will act as evidence in respect of both the sale itself

and the amounts paid by the purchaser to date. Additionally, the Law stipulates what must happen

if the actual size of the handed over unit differs from that mentioned in the sale and purchase contract.

neceSSary opening of an eScrow/guarantee account into which purchaSe monieS for off-planS SaleS and conStruction financing proceedS are to be put The third, and perhaps, most important consumer protection in this area is the requirement for such Developers to open a Guarantee/Escrow Account (with a bank licensed by Qatar Central Bank) for each Real Estate Development it is involved in.

Purchase payments received by off-plans purchasers must be paid directly into this account, as must all property development finance monies. The Law imposes restriction on when (only after at least 20 percent of construction has been completed, and after necessary approvals) and for what purpose monies can be withdrawn from such account.

In order to encourage developers to remedy property defects properly and promptly, Article (22) provides that the relevant bank will retain 10 percent of the project’s total value until such time as determined by Ministerial Decree (whether this will be for the length of the decennial liability -10 years – period is yet to be seen, though does seem rather excessive) or against an approved bank guarantee.

Additionally, the Law affords protection of purchasers’ monies held in the Escrow Account, should the Developer face financial difficulties.

changeS that will be required to exiSting practice and likely impact on current projectS already underwayThe Law states that Developers must adjust their status comply with the Law within 6 months of issuance, or such later date as determined by Ministerial Decision. What is unclear yet is whether this date will be delayed and/or what will be required where an off-plan sales development is partially constructed and/or partially sold already.

Once implemented, in practice this Law should offer real protection to consumers buying property off-plan. However, how long we will have to await a Strata Law in Qatar – to deal with issues such as the management and administration of commons areas and facilities in jointly owned buildings or developments/mixed-use communities – remains to be seen.

Text by: Katrina wilson, senior legal consultant, Hassan Al Khater Law Office, Qatar