Off-Plan Reservation Contracts in Dubai: Legal Duties of Developers, Escrow Accounts and Buyer Protection

Dubai’s off-plan real estate market continues to attract a broad spectrum of international investors lured by promises of low entry prices, generous payment plans, and prospects of rapid capital gains. However, behind sleek marketing campaigns and persuasive agents, the legal substance of so-called “reservation” agreements often diverges from the buyers’ expectations. In many cases, clients are invited to submit what is labeled as an "Expression of Interest" (EOI), accompanied by a deposit—typically 5% to 10% of the unit value—paid into a regular account that is not connected to the project’s escrow system.

When these funds are not deposited into the official escrow account as mandated by Dubai’s real estate regulations, buyers risk losing their deposits if they later wish to cancel, or if the project is delayed or never completed. Moreover, even after signing a formal reservation agreement, numerous buyers face challenges: vague cancellation terms, opaque payment tracking, unilateral project changes by the developer, or refusals to refund deposits.

This evolving context highlights the need for investors to clearly distinguish between promotional deposits and legally binding reservations, and to understand the protective mechanisms and remedies available under the jurisdiction of Dubai Land Department (DLD) and the Real Estate Regulatory Agency (RERA).

This article provides a dual analysis of the framework applicable to off-plan reservations:

I. Legal obligations of developers and the role of escrow accounts

II. Right to cancel and available remedies in case of dispute or non-compliance

I. Legal obligations of developers and the role of escrow accounts

A. The reservation contract versus the “expression of interest”

Under Law No. 13 of 2008 governing real estate projects in Dubai, any developer launching a new off-plan project must obtain a RERA permit, register the project with the DLD, and open a designated escrow account to hold buyer funds. Despite this regulatory framework, a significant number of developers and agents circumvent the law by collecting deposits under the guise of an “expression of interest” or informal reservation.

These EOIs are not genuine contracts under Dubai law and often come with payment requests that are not deposited into a registered escrow account. Instead, they are held in regular developer or broker accounts, with no legal guarantee or oversight. As a result, buyers who withdraw at this stage have no claim to refund, unless they can demonstrate misrepresentation or deceit.

A proper reservation contract must include:

• The RERA project number

• The escrow account number registered with DLD

• The full payment schedule linked to construction milestones

• An expected handover date

• Dispute resolution mechanisms.

  
  

If such terms are missing, the developer is in breach of applicable real estate laws and may be sanctioned.

B. The escrow account: protection or illusion?

Escrow accounts, governed by Law No. 8 of 2007, serve as a legal guarantee that payments made by off-plan buyers are exclusively used for the corresponding project. These accounts are supervised by the Dubai Land Department and the designated bank, which only releases funds upon certification of actual construction progress by an independent RERA-approved engineer.

Nevertheless, some developers:

• Delay registering the project to avoid escrow obligations

• Collect pre-escrow funds under marketing campaigns or EOIs

• Withhold escrow account details from buyers.

  
  

Buyers must verify that their payments are issued through the Mollak platform, which generates official payment receipts and ensures the traceability of funds. Any payment made outside this channel may be deemed a personal agreement and might not benefit from DLD protections.

II. Right to cancel and available remedies in case of dispute or non-compliance

A. Cancelling the reservation and seeking refunds

Dubai law does not establish a universal "cooling-off" period for off-plan contracts unless explicitly provided in the agreement. Nonetheless, several circumstances justify a refund or legal cancellation of the contract:

• No commencement of construction within 12 months

• Suspension or cancellation of the project by DLD

• Failure to open an escrow account

• Breach of the agreed handover timeline without cause

In these cases, the buyer can serve a formal legal notice to the developer and lodge a complaint with the Legal Affairs Section of the DLD. If funds were paid into the registered escrow account, the chances of a refund are significantly higher. If not, refunds become discretionary or entirely denied, especially for EOIs.

It is crucial to understand that courts are unlikely to order refunds for payments made under an informal arrangement not linked to an escrow system unless fraud or bad faith is established.

B. Legal recourse and procedural steps for affected buyers

If the developer refuses to refund a legitimate deposit or if the project suffers unjustified delays, the following steps can be considered:

• Issue a legal notice (mise en demeure) through a licensed UAE lawyer

• File an official complaint with the DLD or RERA, supported by evidence of payments

• Initiate civil proceedings before the Dubai Courts to seek termination of contract or damages

Buyers should also consider the financial consequences of prolonged legal disputes, particularly if they are not UAE residents. The cost of being stranded in Dubai without access to funds or lodging can be significant. For this reason, securing professional legal support from firms such as Nextcap, which works alongside licensed Emirati lawyers, is highly recommended. This support enables buyers to assess the legitimacy of their agreements, build a case strategy, and defend their rights effectively.

Akram Cheik, Lawyer