1. The Real Estate Transaction Process
A typical real estate transaction in the UAE involves several parties: the buyer, the seller, the buyer’s agent (broker), the seller’s agent (broker), and, where the buyer is obtaining finance, the financing bank. The transaction ordinarily proceeds through the following stages.
Memorandum of Understanding. The buyer and seller enter into a memorandum of understanding (MOU) or similar preliminary agreement. Under the MOU, the seller undertakes to sell the property and the buyer undertakes to purchase it at an agreed price, within a specified period. That period allows the buyer to finalise financing arrangements and permits the parties to organise and complete the transfer of the property at the relevant land department.
Deposit. At the time of signing the MOU, the buyer is normally required to pay a non-refundable deposit. This deposit is typically forfeited to the seller if the buyer defaults or withdraws from the transaction. Conversely, most MOUs provide that if the seller is the party who withdraws, the seller must pay the buyer a sum equivalent to the deposit (commonly referred to as a “breakaway fee”).
Agent commissions. Each agent is entitled to a commission upon successful completion of the sale. The buyer’s agent is paid by the buyer; the seller’s agent is paid by the seller. If the transaction does not proceed, agents are normally entitled to a reduced commission or a portion of their full fee, depending on the terms agreed.
Security cheques. The buyer’s deposit cheque and the seller’s breakaway fee cheque are usually handed to their respective agents. These cheques are made out in the name of the other party (i.e. the buyer’s deposit cheque is in the name of the seller, and the seller’s breakaway fee cheque is in the name of the buyer). The MOU typically provides that, if one party defaults, that party’s agent will hand over the relevant cheque to the non-defaulting party.
Payment of the purchase price. On the day of transfer at the land department, the buyer delivers a manager’s cheque (or bank draft) for the purchase price to the seller, and the property is transferred into the buyer’s name.
2. The Problems
While this structure is well understood and widely used, it gives rise to a number of significant risks, particularly where one or more of the parties acts in bad faith or where the transaction does not proceed as planned.
- Agents are not parties to the MOU. Although the MOU contemplates that agents will hold and, if necessary, hand over cheques, agents are not usually signatories to the MOU. The contractual obligations imposed by the MOU therefore do not bind them. An agent who refuses to release a cheque to the non-defaulting party may face no direct contractual liability under the MOU.
- Failure to procure cheques. Agents may neglect or fail to procure the required deposit cheque from the buyer or the breakaway fee cheque from the seller at the outset. Where this occurs, the intended security mechanism is absent from the start, and the non-defaulting party may find itself without recourse if the other party withdraws.
- Lack of trust in cheque custody. Buyers and sellers are ordinarily required to sign and hand over two cheques to their respective agent: one for the agent’s commission and another for the deposit or breakaway fee. A buyer or seller may reasonably be reluctant to do so, given the risk that the agent may present both cheques for encashment prematurely, fail to return them, or otherwise mishandle them.
- Agents refusing to release cheques. If the transaction fails, the agent holding the defaulting party’s cheque may refuse to hand it over to the non-defaulting party. This may occur because the agent disputes entitlement, seeks to use the cheque as leverage for unpaid commission, or simply acts in its own interest.
- Agents not being paid. Agents face their own risks, whether the transaction proceeds or collapses. If the sale completes, a buyer or seller may refuse to honour the full commission cheque. If the transaction collapses, the agent may not receive even the reduced fee to which it is entitled. In either case, the agent is left without payment for work already performed.
- Buyers unable to recover deposits or receive breakaway fees. Where the transaction does not proceed, buyers may be unable to recover their deposit cheque or receive the breakaway fee to which they are entitled, particularly where the relevant cheque is held by an uncooperative agent or where the seller simply refuses to pay.
- Overseas buyers without UAE bank accounts. An overseas buyer who does not hold a bank account in the UAE faces additional practical difficulties. Such a buyer cannot issue cheques (whether for the deposit or the agent’s commission) and cannot obtain a manager’s cheque for the purchase price. This creates a significant obstacle to completing the transaction within the customary framework.
3. The Solution: Escrow Services by Salloum & Partners LLC
Salloum & Partners LLC offers a professional escrow service specifically designed to address these risks and to protect the interests of all parties involved in a real estate transaction.
Under this service, Salloum & Partners LLC acts as an independent, neutral escrow agent. Depending on what the parties agree, the escrow arrangement may cover funds, cheques, documents, or any combination. Funds are held in a designated escrow account; cheques and documents are held in secure custody by the firm. In each case, release is governed by clear, pre-agreed escrow terms that bind all parties, including the agents. The escrow arrangement operates as follows.
- Independent and neutral custody. All deposits (whether in the form of funds or cheques), breakaway fee cheques, commission cheques, and the purchase price are held by Salloum & Partners LLC, rather than by either party’s agent. Funds are deposited into the escrow account; cheques and other instruments are held in secure custody. This eliminates the risk of cheques being mishandled, withheld, or prematurely encashed, and ensures that funds are safeguarded by an independent party.
- Binding escrow terms on all parties. Unlike the typical MOU structure, the escrow agreement is signed by all relevant parties: the buyer, the seller, the buyer’s agent, and the seller’s agent. Each party’s rights and obligations in relation to the funds and instruments held in escrow are clearly defined and contractually enforceable.
- Ensuring all required cheques or funds are in place from the outset. The escrow arrangement requires that all necessary cheques, funds, or a combination of both (as the parties may agree) are delivered into escrow before the transaction proceeds. This eliminates the risk that agents neglect or fail to procure the required deposits or security instruments from the buyer or seller, ensuring that the agreed security mechanism is in place from the start.
- Conditional release of funds and instruments. Funds and instruments are released only upon the occurrence of clearly specified conditions. If the transaction completes, the purchase price is released to the seller, commission payments are released to the agents, and deposit and breakaway fee cheques are returned to their issuers, where applicable. If a party defaults, the cheques or funds are released in accordance with the escrow terms, ensuring that the non-defaulting party receives the sums to which it is entitled without having to pursue the defaulting party or its agent.
- Protection and certainty for all parties. Agents’ commission entitlements are protected within the escrow structure. Commission cheques or funds are held securely and released upon completion, or in accordance with the agreed terms if the transaction does not proceed. Equally, the arrangement provides certainty for buyers and sellers, each of whom knows that their entitlements (whether the deposit, the breakaway fee, or the purchase price) will be released to them in accordance with the escrow terms, without reliance on the goodwill of the other party or its agent.
- Facilitation for overseas buyers. For overseas buyers who do not hold a UAE bank account, the escrow service provides a practical solution. The buyer remits funds by international wire transfer to the escrow account. Salloum & Partners LLC then holds those funds in escrow and releases them to the relevant parties in accordance with the escrow terms, whether to the seller (as payment of the purchase price), to the agents (as commission), or otherwise as the escrow agreement provides. This allows the overseas buyer to participate in the transaction without the need to open a UAE bank account or to issue local cheques.
- Professional oversight and compliance. As a licensed law firm regulated in the UAE, Salloum & Partners LLC is subject to professional and ethical obligations in the management of client funds. The escrow account is maintained in accordance with applicable regulations, and all transactions are fully documented and transparent. In addition, Salloum & Partners LLC conducts regulatory compliance checks on all parties to the escrow arrangement, providing an additional layer of security and due diligence that is not available under the conventional transaction structure.
For further information
For further information on how our escrow services can support your real estate transaction, please contact Salloum & Partners LLC.
Website: www.salloum.law
Email: saleco@salloum.law
1. The Real Estate Transaction Process
A typical real estate transaction in the UAE involves several parties: the buyer, the seller, the buyer’s agent (broker), the seller’s agent (broker), and, where the buyer is obtaining finance, the financing bank. The transaction ordinarily proceeds through the following stages.
Memorandum of Understanding. The buyer and seller enter into a memorandum of understanding (MOU) or similar preliminary agreement. Under the MOU, the seller undertakes to sell the property and the buyer undertakes to purchase it at an agreed price, within a specified period. That period allows the buyer to finalise financing arrangements and permits the parties to organise and complete the transfer of the property at the relevant land department.
Deposit. At the time of signing the MOU, the buyer is normally required to pay a non-refundable deposit. This deposit is typically forfeited to the seller if the buyer defaults or withdraws from the transaction. Conversely, most MOUs provide that if the seller is the party who withdraws, the seller must pay the buyer a sum equivalent to the deposit (commonly referred to as a “breakaway fee”).
Agent commissions. Each agent is entitled to a commission upon successful completion of the sale. The buyer’s agent is paid by the buyer; the seller’s agent is paid by the seller. If the transaction does not proceed, agents are normally entitled to a reduced commission or a portion of their full fee, depending on the terms agreed.
Security cheques. The buyer’s deposit cheque and the seller’s breakaway fee cheque are usually handed to their respective agents. These cheques are made out in the name of the other party (i.e. the buyer’s deposit cheque is in the name of the seller, and the seller’s breakaway fee cheque is in the name of the buyer). The MOU typically provides that, if one party defaults, that party’s agent will hand over the relevant cheque to the non-defaulting party.
Payment of the purchase price. On the day of transfer at the land department, the buyer delivers a manager’s cheque (or bank draft) for the purchase price to the seller, and the property is transferred into the buyer’s name.
2. The Problems
While this structure is well understood and widely used, it gives rise to a number of significant risks, particularly where one or more of the parties acts in bad faith or where the transaction does not proceed as planned.
- Agents are not parties to the MOU. Although the MOU contemplates that agents will hold and, if necessary, hand over cheques, agents are not usually signatories to the MOU. The contractual obligations imposed by the MOU therefore do not bind them. An agent who refuses to release a cheque to the non-defaulting party may face no direct contractual liability under the MOU.
- Failure to procure cheques. Agents may neglect or fail to procure the required deposit cheque from the buyer or the breakaway fee cheque from the seller at the outset. Where this occurs, the intended security mechanism is absent from the start, and the non-defaulting party may find itself without recourse if the other party withdraws.
- Lack of trust in cheque custody. Buyers and sellers are ordinarily required to sign and hand over two cheques to their respective agent: one for the agent’s commission and another for the deposit or breakaway fee. A buyer or seller may reasonably be reluctant to do so, given the risk that the agent may present both cheques for encashment prematurely, fail to return them, or otherwise mishandle them.
- Agents refusing to release cheques. If the transaction fails, the agent holding the defaulting party’s cheque may refuse to hand it over to the non-defaulting party. This may occur because the agent disputes entitlement, seeks to use the cheque as leverage for unpaid commission, or simply acts in its own interest.
- Agents not being paid. Agents face their own risks, whether the transaction proceeds or collapses. If the sale completes, a buyer or seller may refuse to honour the full commission cheque. If the transaction collapses, the agent may not receive even the reduced fee to which it is entitled. In either case, the agent is left without payment for work already performed.
- Buyers unable to recover deposits or receive breakaway fees. Where the transaction does not proceed, buyers may be unable to recover their deposit cheque or receive the breakaway fee to which they are entitled, particularly where the relevant cheque is held by an uncooperative agent or where the seller simply refuses to pay.
- Overseas buyers without UAE bank accounts. An overseas buyer who does not hold a bank account in the UAE faces additional practical difficulties. Such a buyer cannot issue cheques (whether for the deposit or the agent’s commission) and cannot obtain a manager’s cheque for the purchase price. This creates a significant obstacle to completing the transaction within the customary framework.
3. The Solution: Escrow Services by Salloum & Partners LLC
Salloum & Partners LLC offers a professional escrow service specifically designed to address these risks and to protect the interests of all parties involved in a real estate transaction.
Under this service, Salloum & Partners LLC acts as an independent, neutral escrow agent. Depending on what the parties agree, the escrow arrangement may cover funds, cheques, documents, or any combination. Funds are held in a designated escrow account; cheques and documents are held in secure custody by the firm. In each case, release is governed by clear, pre-agreed escrow terms that bind all parties, including the agents. The escrow arrangement operates as follows.
- Independent and neutral custody. All deposits (whether in the form of funds or cheques), breakaway fee cheques, commission cheques, and the purchase price are held by Salloum & Partners LLC, rather than by either party’s agent. Funds are deposited into the escrow account; cheques and other instruments are held in secure custody. This eliminates the risk of cheques being mishandled, withheld, or prematurely encashed, and ensures that funds are safeguarded by an independent party.
- Binding escrow terms on all parties. Unlike the typical MOU structure, the escrow agreement is signed by all relevant parties: the buyer, the seller, the buyer’s agent, and the seller’s agent. Each party’s rights and obligations in relation to the funds and instruments held in escrow are clearly defined and contractually enforceable.
- Ensuring all required cheques or funds are in place from the outset. The escrow arrangement requires that all necessary cheques, funds, or a combination of both (as the parties may agree) are delivered into escrow before the transaction proceeds. This eliminates the risk that agents neglect or fail to procure the required deposits or security instruments from the buyer or seller, ensuring that the agreed security mechanism is in place from the start.
- Conditional release of funds and instruments. Funds and instruments are released only upon the occurrence of clearly specified conditions. If the transaction completes, the purchase price is released to the seller, commission payments are released to the agents, and deposit and breakaway fee cheques are returned to their issuers, where applicable. If a party defaults, the cheques or funds are released in accordance with the escrow terms, ensuring that the non-defaulting party receives the sums to which it is entitled without having to pursue the defaulting party or its agent.
- Protection and certainty for all parties. Agents’ commission entitlements are protected within the escrow structure. Commission cheques or funds are held securely and released upon completion, or in accordance with the agreed terms if the transaction does not proceed. Equally, the arrangement provides certainty for buyers and sellers, each of whom knows that their entitlements (whether the deposit, the breakaway fee, or the purchase price) will be released to them in accordance with the escrow terms, without reliance on the goodwill of the other party or its agent.
- Facilitation for overseas buyers. For overseas buyers who do not hold a UAE bank account, the escrow service provides a practical solution. The buyer remits funds by international wire transfer to the escrow account. Salloum & Partners LLC then holds those funds in escrow and releases them to the relevant parties in accordance with the escrow terms, whether to the seller (as payment of the purchase price), to the agents (as commission), or otherwise as the escrow agreement provides. This allows the overseas buyer to participate in the transaction without the need to open a UAE bank account or to issue local cheques.
- Professional oversight and compliance. As a licensed law firm regulated in the UAE, Salloum & Partners LLC is subject to professional and ethical obligations in the management of client funds. The escrow account is maintained in accordance with applicable regulations, and all transactions are fully documented and transparent. In addition, Salloum & Partners LLC conducts regulatory compliance checks on all parties to the escrow arrangement, providing an additional layer of security and due diligence that is not available under the conventional transaction structure.
For further information
For further information on how our escrow services can support your real estate transaction, please contact Salloum & Partners LLC.
Website: www.salloum.law
Email: saleco@salloum.law
