Dispute over period of committing real estate developers to fix unit faults

Shaimaa Al-Aees
4 Min Read

Parliament’s Economic Affairs Committee is currently discussing the consumer protection draft law submitted by the government to the state council and then submitted to the parliament for discussion.

The Committee prohibited, in article no. 5 of the law, the announcement of booking or reserving real estate units, signing contracts to sell these units as well as selling land prepared for construction or division only after obtaining a building permit in accordance with the provisions of Building Law No. 119/ 2009.

The new law also mentioned in clauses under articles no. 26 and 27 that the developer or the company has to fix the default within three years of delivery.
Nevertheless, real estate developers affirmed that they did not receive any notification or invitation to participate in discussing the draft law.
Chairperson of Real Estate Development Chamber, affiliated to the Federation of Egyptian Industries (FEI),Tarek Shoukry, said that the article related to the prohibition of announcing booking or reserving real estate units or contract to sell units before obtaining the building permits was a draft submitted by the chamber.

Shoukry added that that prohibition is in favour of the client to guarantee their rights and protect them against fraud.
Shoukry explained that obtaining ministerial decision for project is important to launch reservations or booing in projects, this applies for developers and big companies. He added that obtaining building permits for small buildings and activities is important even the units are not built.
He noted that article will not affect the financial liquidity of the companies because they can buy their units before building but on condition of obtaining building permits.

He pointed out that the article will participate in organising the real estate sector and prevent random and informal building.
As for finishing, Shoukry disagreed with the article no. 26 related to fixing the faults with unit finishing work within three years of delivery to customer, pointing out that once the client received their unit, there should be no responsibility on the developer or the companies.
“This article will open great disputes in the market between the developer and the client, opening the door for sharing blame for defects in finishing or defects in use,” Shoukry noted. “Furthermore, it affects companies’ investment flow.”

From his part, Ashraf Dowidar, CEO of ARDIC Real Estate Development agreed with Shoukry that the article that prohibs selling units prior to obtaining permits prevents fraud in the market but complicates the legal situation of companies.

“In ARDIC, we do not have any concerns on the article because the ministerial decree is very important and the main condition to launch the project and obtaining other permits come after that,” said Dowidar. “I think a period of three years to compensate the client or fix the faults is a very long period. However, an article in construction contracts states that the final delivery by the contractor is within a year, through which the developer is responsible to fix any defaults in the building but not inside units. Thus, a year is a suitable period rather than three years.”

He added that this will be added on the cost of the unit borne by the client.

Beta Egypt for Urban Development chairperson Alaa Fekri agreed with Dowidar that fixing faults within three years will lead to increasing unit cost, which will again be borne by the client.

Fekri said that three years is a very long period and has to be reduced to be in the range of six months to a year.

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