New RERA Law Overview
Law 27 of 2017 Concerning the Promulgation of the Real Estate Sector Regulation Law (New Law) was issued on 3 August 2017.
The New Law has been long awaited and replaces, amongst other laws, Law 28 of 2014 Concerning Real Estate Development (Development Law). The New Law has 109 Articles and is separated into several sections. The first of the sections deal with the establishment of a Real Estate Regulation Authority (RERA), but this Article will concentrate on the areas of the New Law which relate to property development. We will discuss other aspects of the New Law and its impact on the property sector in the Kingdom of Bahrain as a whole in future articles.
The New Law contains many similar requirements as the Development Law and we note a few examples below:
- The New Law prohibits developers from undertaking development activities without a developer’s licence. The exact requirements for obtaining, renewing and amending such a licence shall be included within a resolution issued by RERA and a register shall be kept by RERA which shall include details of all licensed developers;
- Prior to commencing development, developers are required to deposit a sum of money into an escrow account. The exact requirements (including the amount of the deposit which we do not expect to change from 20% of the project costs) shall be contained within a resolution which will be issued by RERA. The amount deposited in the escrow account is to be utilised for the development only. The Central Bank of Bahrain (CBB) will issue the rules and regulations in relation to the escrow agent. There is also a requirement to retain a sum of money in the escrow account for a period of 1 year after the completion of the project;
- Each development must have its own development licence which can be obtained from RERA. When applying, a developer will need to provide the title deed or its substitute, the approved architectural and structural engineering designs, a copy of the main scheme stating the completion date, the implementation phases and any division of the project, the Building Permit, a copy of all agreements entered into by the developer, a letter from a Committee of organizing Engineering Professional Practice certified engineer providing an estimate of the value of the project, the main data related to the financing of the Project and any other information required by RERA;
- A developer cannot offer for sale off-plan units without a development licence;
- A resolution will be passed dealing with the requirements for a template off-plan sales contract. This contract will include details of the payment schedule, termination and stipulate the main terms; and
- An off-plan sales register shall be created at RERA which will include details of the development i.e. the units within the development and sale contracts.
As noted above, the New Law has many similarities with the Development Law. However, the New Law does have some major differences. One of the main differences is the establishment of RERA. Some of the key functions of RERA are as follows:
- RERA will regulate all real estate in Bahrain and will be responsible for the issuance of the developer and development licences;
- The legal structure of the developer may now only change during the development if such a change is in the interests of the development and the consent of RERA has been obtained;
- A developer must disclose all conflicts of interest and a resolution will be issued by RERA to clarify the types of conflicts of interest which must be disclosed;
- Small development projects may be exempt from requiring a developers licence and further details are awaited;
- RERA may permit developers to receive part of the profits from the Escrow Account subject to approval from RERA and the Central Bank of Bahrain. However the sums must be returned if the distribution of such sums lead to obstruction or cessation of the project within 12 months of the developer receiving such payment;
- A developer may not advertise in Bahrain or abroad without a licence to advertise from RERA. The previous requirement for advertising was simply obtaining a development licence; and
- RERA may issue standard form sales contracts which all developers and end users will be required to use in its unaltered form.
With the establishment of RERA, the New Law provides an all-encompassing entity which will oversee the Real Estate sector in Bahrain. We await the resolutions as noted above which will provide greater clarity in relation to Real Estate Development in Bahrain.
We will, in later articles, explore the requirements of the New Law on the development process as well as other new areas which this very comprehensive legislation now addresses, such as ‘real estate brokerage’, ‘real estate evaluation and appraisal’, ‘property management’, ‘jointly owned property and strata’ as well as important changes in what constitutes a ‘property interest’ and the fact that such an interest can now be registered and mortgaged.
In our view, the New Law now provides the platform for a significant evolution in the real estate sector within Bahrain, which can only benefit all relevant stakeholders and create a better environment to attract investment.
News & Insights
Conditional payment clauses in the UK and Middle East
Niel Coertse writes for Practical Law Construction on how conditional payment clauses help to prevent cash flow difficulties.
Managing risk in property management companies – corporate governance and considerations for directors
We take a closer look at the guide launched by the Companies House highlighting key considerations for flat management company directors.