What can a Developer carry out prior to obtaining a Development License in accordance with RERA?
Decision No. 2 of 2018 ‘Concerning Licenses of Real Estate Development Projects’ (Decision No. 2) was issued on 1 March 2018. This key piece of legislation provides some of the finite detail on a number of areas of the RERA Law (Law No. 27 of 2017), including, but not limited to, further details regarding the application for a development license, the requirements for advertising a project and the necessary information and formalities regarding some of the legal documentation. For the purposes of this Article, we will focus on the detail regarding the development license application, and what a developer is permitted to do before a development license has been obtained.
Decision No. 2 extends the information that a developer is required to submit to the Real Estate Regulatory Authority (RERA) in order to apply for a development license. It states that, in addition to the other requirements listed under the RERA Law, a developer must also supply the following: a copy of the standard sale and purchase agreement for the buyers of off-plan sale units for the project, its Developer License details and a certificate from the escrow account agent demonstrating that the escrow account has been opened for the project.
In accordance with Decision No.2, a developer may research, advertise and test the appetite for a project in the market, providing that the developer has received its Developer License and that the developer has obtained a Market Research Advertising License (the Initial Advertising License). The application for an Initial Advertising License requires certain documents and details to be submitted to RERA, including, but not limited to: 1) the approved master plan; 2) details of the Developer License; and 3) certain project details as described under Decision No. 2. It is important to note that the Initial Advertising License is only valid for a period of 9 months from the date it is issued by RERA.
Once a developer has obtained the Initial Advertising Licence, the developer may enter into a Letter of Interest with potential buyers. The Letter of Interest is an attractive way for developers to assess whether there is any interest in the project from buyers in the current market. It also provides consumer protection to buyers by stating that the fee may only be BHD 1,000 and if the buyer does not wish to proceed with the purchase of the property or the seller chooses not proceed with the project then the fee is fully refundable.
With the introduction of the Initial Advertising Licence and Letter of Interest, RERA has allowed developers to initially gauge the market’s response to a particular project ahead of complying with the main administrative requirements of the RERA Law, whilst at the same time providing consumer protection to buyers. In our next article we will focus on the ‘post development license’ details.
This article was written by Simon Green and Sarah Bennett-Hughes. For more information please contact Simon on +971 4246 1902 / firstname.lastname@example.org or Sarah on +44 (0)9731 7133 200 / Sarah.Bennett-Hughes@crsblaw.com.