RAK Crown Prince issues decree on Guarantee Accounts for property sector

The Decree, `Concerning Guarantee Accounts of Real Estate Developments in the Emirate of Ras Al Khaimah', makes it mandatory that developers wishing to sell off-plan units in real estate development projects must apply to Ras Al Khaimah Investment Authority (RAKIA) to open a Guarantee Account in which amounts paid by buyers towards property purchases or by project financing parties will be deposited.

As per the decree, developers licensed to carry out real estate development activities in the emirate should be registered in the `Register of Developers' to be prepared by RAKIA.

To open the Guarantee Account, the developers must submit a set of documents including the title deed or affection plan of the plot, copy of the contract executed by the master developer and the sub- developer, conceptual designs and layouts approved by RAKIA, trade license of the firm and a financial statement authenticated by a certified legal accountant on the revenues and expenses of the project, among others.

Developers shall not advertise in local or foreign media or participate in exhibitions to promote the sale of units or properties off the plan until having obtained a written permit from RAKIA.

On receiving approval, the Guarantee Account shall be created under a written agreement between the developer and the Account Trustee, which shall be a bank or financial institution certified by RAKIA.

As per the decree, RAKIA is also authorized to become itself an Account Trustee providing Guarantee Account services.

Any amount of money paid by buyers of off- plan units or project financiers must be deposited in the special account opened in the name of the real estate project with the Account Trustee.

If the developer has more than one project, separate Guarantee Accounts must be opened for each project.

The decree states that the Guarantee Account shall be used exclusively for the purpose of the real estate project.

Payments will be made to the contractors and suppliers based on the progress of the project and in accordance with the agreement concluded between the developer, contractor and the consultant.

The Account Trustee must provide RAKIA with statements for the revenues and expenses of the Guarantee Account on a regular basis. Depositors or their representatives may also examine their account records and obtain copies.

The Account Trustee has to retain 5 % of the total amount deposited in the account after the developer obtains the completion certificate.

The reserved amounts shall not be paid to the developer until the lapse of one year from the date of registration of the units in the names of buyers or unless the developer issues a bank guarantee for the same amount valid for one year.

The registration of the developer in the Register will be cancelled if the developer does not tender the project or award it to contractor within six months from the date of approval to sell off- plan, unless there is an acceptable excuse for the delay.

Stiff penalties, including fines not less than Dhs100000, will be imposed on anyone who fails to meet certain provisions of the decree.

The decree shall be effective from the date of its issuance which was on July 3, 2008.

However, the provisions of the decree shall not apply to RAK Properties (PSC), nor to any other company for which a special decree has been issued.

Jihad Quzmar, Legal Advisor, Government of Ras Al Khaimah, said that the decree intends to streamline property purchases in the emirate by bringing in more transparency and would help boost the confidence of real estate investors by securing their interests.