The 40% Retention Rule

When an off-plan sale in Dubai is cancelled, whether by the developer under Article 11 of Law No. 13 of 2008 or by a court, the developer does not simply return whatever the buyer has paid. Law No. 19 of 2017 amended Law No. 13 of 2008 to set out a formula governing how much of a buyer's payments a developer is entitled to retain.

The formula is tiered according to how far construction has progressed at the point of cancellation. The further construction has advanced, the more a developer may retain. At full completion, a developer may retain up to 40% of the total contract price, not 40% of whatever the buyer has actually paid. That distinction matters, because it is a common point of confusion for buyers estimating what they will recover.

A common assumption is that a buyer who has paid 66% of the contract price will recover 26%, on the basis that 66% minus 40% equals 26%. That assumption is incorrect, because it treats the 40% figure as a percentage of the amount paid rather than a percentage of the total contract price. The retention is calculated against the contract price as a whole, then subtracted from whatever the buyer actually paid.

There is a further complication for some buyers. Where a buyer stopped making payments during a period in which the developer was itself in delay, the buyer's eventual recovery can be reduced if that delay period is not formally established as part of the record. Establishing the developer's delay, with reference to the contracted delivery date and any documented extension, is often a necessary step before a retention calculation can be properly challenged or verified.

A worked example, using figures documented on this site:

In this example, the contract price is AED 1,495,000. A 40% maximum retention against that contract price is AED 598,000. The investor paid AED 966,744 toward the contract. Subtracting the maximum retention from the amount paid gives an expected refund of AED 368,744, which matches the refund amount recorded at the DLD in this case. The formula, in other words, appears to have been applied correctly. What the formula does not address is disbursement: a refund correctly calculated and recorded is not the same as a refund actually paid.

For investors facing a cancellation, the practical step is to request the underlying calculation, confirm which figure it is applied against, the full contract price or the amount paid, and check whether any developer delay period has been factored in before accepting a retention figure at face value.