Renowned for its skyscrapers, sun-kissed beaches, and eccentric lifestyle, Dubai attracts tourists and businessmen alike from across the globe into its vibrant atmosphere. Subsequently, major Real estate developers have been quick to capitalize on the quickly flourishing tourism market through promoting a more convenient alternative to short-term accommodation in the form of “Hotel Apartments”. As such, it is essential to critically analyze how the real estate developers coped with the mounting demand for short term accommodations and if they were they able to fulfil their legal obligations and promises towards the investors and tourists alike?
Before answering these questions, it is essential to first identify what the term “hotel apartment” truly refers to.
A hotel apartment or serviced apartments as more commonly referred to internationally, in the legal sense depict a building comprising of fully furnished and serviced villas or apartments with a homogenous combination between the services and lavishness offered in hotel rooms, as well as the amenities and coziness found in a private residence. Hotel apartment projects are required to be run and managed by a specialized Hotel management firm that deals with the bookings and services such as room service and valet parking in the establishment and offer a fully equipped kitchen and dining area as well all while not being as exorbitantly expensive as a hotel.
The distinguishing factor however lies in the fact that such establishments are governed by the decree No. 17 of 2013 concerning hotel establishments in Dubai, which prohibits the operation of any hotel apartment establishment with prior classification and licensing from the Dubai Tourism Department (DTCM).
The main aim of the federal decree is to regulate and monitor the operations of such establishments while clearly outlining the duties of real estate developers that aim to construct such projects.
Hotel apartment establishments follow a similar star rating system to a traditional hotel, wherein the terms “Deluxe, Luxury, and standard” refer to the three levels of hotel apartment in the UAE based on over 300 criteria standards.
As can be observed above, the concept of investing or residing in a hotel apartment is exciting, especially with the bold claims and extravagant advertisements made by developers on the expected return on investment compared to the traditional strictly residential projects. As such, the hotel apartment market has witnessed a massive boom over the last decade alongside the construction of hundreds of hotel establishments in the country.
However, over the past three years, we have observed a concerning trend from certain developers; wherein the permitted use of the project had instead been reversed to residential without prior notice to the investors. Such reversal in the permitted use deems the unit practically expendable, as it can no longer be classified or operated as a hotel apartment.
Such actions by certain developers have in turn, caused a shockwave effect wherein over 500 investors filed claims for termination of the sales and purchase agreement due to the material breach in the contractual obligations. The exact reasons behind the developer’s sudden decision to reverse the permitted use and default in providing the hotel apartment requirements are still unclear despite the catastrophic legal and financial repercussions that will be faced by the developers.
Having handled over 300 similar cases the past year alone, we have attained a consistent outcome from the Dubai courts regarding this dispute. One case worth noting is (379/2021 Real estate cassation) in which the supreme court had ruled that in the instances where it is found that the developer had failed to attain a valid and active hotel apartment license and classification from the Dubai Tourism department (DTCM) for the project at the time of handover, which subsequently classifies the project as strictly “residential”, it is deemed that the developer had breached the fundamental purpose of the contract and to be the defaulting party. Such breach in the fundamental laws governing hotel apartments and the terms of the agreement, i.e., the “permitted use,” warrants sufficient legal grounds for investors demand to terminate the sales and purchase agreement and full refund of the paid amount as well as compensation for moral and financial damages sustained. This particular judgment by the supreme court had set a precedent in the Dubai courts, in which any dispute of a similar nature will follow an identical path and be adjudicated accordingly.
The concept of investing in Hotel Apartment projects is genuinely an exciting prospect to investors, and the apparent benefits are substantial. As per the latest expert reports from the property consultants in Dubai, the average return on investment is estimated between 12-15% per year, and when comparing it with residential units which reap a maximum of 5% per year, it is a seemingly an obvious destination for investors to place their savings. However, investors must utilize the services of a competent legal consultant to review the agreements and provide the proper and trusted advice before signing any documents to preserve their rights.
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