Handing Over A Unit In A Hotel Establishment By Signing A Clearance Letter Doesn’t Discharge The Developer’s Liability To Obtain Hotel Licenses.

Introduction:

This article reviews the Dubai Cassation Court judgment (773-2021) concerning a buyer who has signed a clearance for the seller, and its effect on the hotel establishments’ licenses after handover.

 

Background:

According to decree no (17) of 2013 concerning Licensing and classification of Hotel Establishments in the Emirate of Dubai, it’s compulsory to obtain approvals and licenses to construct a hotel establishment in Dubai. According to the decree, the process starts by obtaining authorization from the DTCM to construct the hotel establishment and ends by getting the classification and NOC certificates after the project completion.

In the present case, our client purchased an off-plan “Hotel Apartment” unit in a deluxe hotel apartments project. There was no tribulation until our client received an email from the seller containing an addendum to change the permitted use for the unit to be “Residential” offering him a 0% VAT allowance.

Later, our client received plenty of phone calls from the seller promising him that if he accepted changing the permitted use to be residential, the seller would still rent the unit as a hotel apartment. Later, our client was informed by the seller to appear for the handover process which started by signing schedule no 3, “Letter of discharge”, and he received the unit.

Longer than a year later, our client found that the seller had already changed the building to be residential, and the purchased unit will NOT be rented as a hotel apartment. He requested our real estate team at AWS Advocates, the 1st professional legal team in UAE, to represent and protect his rights.

The claimant registered case no (339-2021), claiming voidness and termination of the SPA. On that note, the seller didn’t obtain the hotel licenses for the building which means that the building is residential. After many hearings, the first instance court issued its verdict that the case could not be heard because of the one-year expiry from the unit’s date was received according to article no (524) of the civil code.

The claimant appealed with appeal no (900-2021) based on that article no (524) is limited to terms of the article (523) regarding the increase and decrease of the sold item, which is irrelevant to our case, again the appellant argued about the hotel licenses availability.

After several more hearings, the appeal court issued its verdict to reject the case stating that although our argument regarding article no 524 is true, but the buyer has already signed a clearance letter discharging all the developer’s obligations and liability from all claims and disputes. We at AWS Advocates found that the judgment is not legally true, so we registered the cassation no (773-2021).

 

Cassation Arguments:

We based our cassation statement upon the error in applying the law, the shortcomings in the causation, the corruption in the inference, and the breach of the right of defense which causes the voidness and termination of the appeal judgment.

Our claim was based on the developer’s negligence in obtaining the necessary hotel licenses required by Decree No. 17 of 2013 and related regulatory decisions which are the criterion that describes the establishment as a hotel, the following points were our arguments against the appeal judgment:

1- The source of the obligation to obtain the hotel licenses is the law, and not the contract as all licenses are related to the public order rules. Assuming that the establishment was operated as a hotel without obtaining the hotel licenses stipulated in the decree, the developer cannot avoid penalties and invoke the regulating authorities using the clearance letter signed by the buyer!

2- The clearance and discharge letter on which the judgment was based expressly stated that it does not exempt the seller from the requirement to repair any defective works. This means that assuming the hotel licenses are included in the clearance letter, then the non-availability of the hotel licenses will be considered as a defect that the seller must repair.

3- A company relevant to the seller has sent an addendum to the buyer and to all the investors of the project to amend the permitted use mentioned in the SPA to be “residential”, linking the reason for the value-added tax appendix and reinforcing its messages with dozens of phone calls to urge him and other investors to accept this change.

4- The developer cannot justify the buyer’s receipt of the sold unit to waive the right to obtain hotel licenses because the final licenses are linked to hotel operation. Therefore, the buyer’s receipt of the sold unit is a concrete reason to assure the availability of the hotel licenses

 

Results:

The law obligated the developer to obtain hotel establishments licenses, and the developer’s liability cannot be discharged by the party’s will. The Dubai Cassation Court clarified that the appeal judgment did NOT face appellant arguments mentioned in the cassation statement; therefore, the cassation court overturned the appeal judgment.