Dubai Court of Cassation (General Assembly), Resolution No. 11 of 2024, 1 October 2024
Under Article 13 of Dubai Law No. 8 of 2007 on Real Estate Development Escrow Accounts, a finance institution lending to a developer against a mortgage of the project must deposit the loan amount in the project's escrow account. The General Assembly held that the deposit requirement adds a legal condition to the mortgage itself: the mortgage is subject to a suspensive condition (Articles 420 and 425 of the Civil Transactions Law) that the loan be paid into the escrow account. If it is not, the mortgage of the project is treated as never having existed, has no effect and cannot be enforced, even if registered, and the loan becomes a personal debt of the developer.
The Technical Office of the Court of Cassation asked the General Assembly how to apply Article 13 of Dubai Law No. 8 of 2007 on Real Estate Development Escrow Accounts, under which, if a developer mortgages a project to obtain a loan from finance institutions or companies, they must deposit the loan in the escrow account to be managed under that law.
The Assembly noted that Dubai Law No. 14 of 2008 on Mortgages in the Emirate of Dubai permits mortgages of property recorded in the property register or the interim register and requires registration with the Land Department on pain of nullity. Under Articles 420 and 425 of the Civil Transactions Law a condition is a future, uncertain event on which the existence or extinction of an obligation depends; a suspensive condition suspends the obligation until the event occurs, so that in the meantime the obligation exists but is not enforceable. Article 7 of the Escrow Law provides that the escrow account is created by a written agreement between the developer and the escrow agent, under which payments from off-plan purchasers or financiers are deposited in a special account in the project's name, with a copy lodged with the Department. Article 13 requires finance institutions to deposit the loan in the escrow account where the loan is for the project, because its purpose is to enable the developer to complete it.
The Assembly concluded that the legislature added a legal condition for the existence of a mortgage between a developer and a financier, even a registered one, where the loan finances the project: that the loan be deposited in the project's escrow account. The mortgage is therefore subject to a suspensive condition; if the loan is not deposited, the mortgage has lost a condition of its existence, is extinguished and treated as never having existed, may not be enforced, and the loan becomes a personal debt of the developer. The Assembly resolved accordingly.
Lenders financing Dubai developers against a mortgage of the project lose their security if the loan is not paid into the project's escrow account, even where the mortgage is registered, and are left as unsecured creditors of the developer. The resolution protects off-plan buyers by keeping project financing within the escrow system.
| Articles 7 and 13 of Dubai Law No. 8 of 2007 on Real Estate Development Escrow Accounts in the Emirate of Dubai — text of articles 7, 13 |
| Dubai Law No. 14 of 2008 on Mortgages in the Emirate of Dubai |
| Articles 420 and 425 of Federal Law No. 5 of 1985 (Civil Transactions Law) — text of articles 420, 425 Decided under this law; it has been replaced by Civil Transactions Law 2025. |
“عقد رهن المشروع العقاري يعتبر كأن لم يكن إذا لم يتم إيداع مبلغ القرض في حساب الضمان”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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