Red Residence

[Sophielsie]

Also - as per rental agreement, there is no mention of operating is AS a hotel:

4.3 Operation of the Rental Program
MED shall:
1 Use the Unit solely for the purpose of providing short term let, serviced apartments, corporate
residence and/or short term housing and the operation of such other reasonable activities as are
customary and usual in connection with the aforementioned activities, together with any other
activities previously agreed between the Owner and MED;2 Establish all prices, price schedules, rates, rate schedules, rents, lease charges and concession
charges for the Unit; and
3 Supervise, direct and control the collection of all income of any nature derived from the operation
of the Rental Program.

 

[mike.stewart]

Offer to opt-out of the rental program

Below is what we were offered (by Hasham Ganji, who since has moved on, and MED says they will not oblige to any of the agreements made by him),to opt-out of the hotel-rental program:

"We have encouraged a number of clients to come off the rental program because the apartment hotel rental concept has not been fairing well after the financial crisis. There are number of apartment hotels in Barsha near the Mall of the Emirates that are presently facing occupancies of less that 50 %. If you read the rental contract carefully you will see that the split between the hotel operator and the client is 40/60 respectively and if in the first three years the hotel operator does not give you more than 8% yield MED guarantees an 8% yield for the first three years. The problem with that is that you are still required to pay maintenance charges which will equate to 1% so you will be left with a net yield of 7%. Additionally in years 4, 5 , 6 if the hotel operator gives you a yield of 2, 3, 4% you are stuck because you cannot come out the hotel program unless you pay a penalty of 2% of the purchase price. In light of this information, we have advised clients to avail the AED 50 dirham per square foot discount and go with the unfurnished option. We have also said that we will have leasing agents on site to lease your unit for you without paying MED any commission of any kind. Plus you are not obliged to lease through these agents you can use anyone you like and collect the rent cheques directly.

However, having said that we believe in honoring our commitments so if you should choose to stay in the apartment rental concept you can do so. MED will guarantee the yield of 8 % for the first three years (less maintenance charges) of the hotel operator. We believe the first is a better alternative. In the end it is your decision. Please keep in mind if you are locked into the rental program and you wish to sell your unit, your buyer will be forced to continue with the rental program which clearly limits your ability to sell the unit.

As far as charges and responsibilities whether in the rental program or not, your only obligation is the building maintenance fees which should run in the vicinity of between 6-10 dirhams per square foot. We are at present not in a position to confirm this number because it is in the hands of the Dubai Municipality .

Lastly, we believe we can run a mixed use development because there will be certain floors dedicated apartment concept. However, clients not in the rental program will still have all the features such as use of the pool, fitness center etc.

I trust that I have explained the above sufficiently in order for you to make decision. Please get back to me and let me know which way you decide to go."

 

[mike.stewart]

Break down of the offer

Here is the breakdown of the discount for opting out of the rental plan (which we declined in 2011/12):


Discount Offer (17%): 174,039.03 for cancelling finance and rental program

NEW PAYMENT TERMS

Due to complete 60% payment -( immediately 110,597.47)
10% Due on March 30, 2011 (102,375.90)
30% Due on handover (307,127.70)

 

[mike.stewart]

Irish investor group lawer

I also found out that a group of Irish investors hired a law firm (Joyce Simon) and had a lot of work done to sue MED.
I communicated with Joyce in 2013 - they are no longer proceeding with any legal action against MED.

(we are not planning to pay the 4% fees).

Regards
Mike

 

[mike.stewart]

Solicitors - TLG

Hi Lawrence,

We approached TLG (Fareya Azfar) and paid for initial assessment, but did not proceed as we felt that MED was, at that time in 2012, not in violation of any commitments.

We too purchased this investment as it was being sold as "hands-free, hotel-apartment rental plan". Had this not been the case, we would not have purchased the flat.

So I think as soon as MED provides in writing that their intentions are not to run the development as initially intended, TLG should be able to make a case and sue MED for full refunds.

Mike

 

[jaimeybug]

Hi All

Just to clarify. In order to run a development as a hotel apartment concept MED would have to get some sort of Licence from the Dubai Tourism Authority which, from the information we were given they do not have and Red Residence is simply an apartment block. It does not mean that MED cannot have a change of mind and meet all the requirements to run the Rental Programme. We are pretty sure this is not going to happen but until such time as handover is attempted we cannot know for sure.

Jaimeybug

 

[Sophielsie]

Hotel or Not ?

Hi All,

I am not sure they need a hotel license to do the following:

4.3 Operation of the Rental Program
MED shall:
1 Use the Unit solely for the purpose of providing short term let, serviced apartments, corporate residence and/or short term housing and the operation of such other reasonable activities as are customary and usual in connection with the aforementioned activities, together with any other activities previously agreed between the Owner and MED;
2 Establish all prices, price schedules, rates, rate schedules, rents, lease charges and concession charges for the Unit; and
3 Supervise, direct and control the collection of all income of any nature derived from the operation of the Rental Program.

I have asked a colleague who lives in Dubai

Rgds Lawrence

 

[jaimeybug]

Hi Lawrence

In Ioana's e mail to you she refers to getting a Licence from the Department of Tourism which will be needed by the Hotel Operator? She seems to be suggesting that they would need a Licence so not sure what your thoughts are. Are you saying they are hiding behind not being able to get the Licence when they suggest they may have to cancel our rental programme ? The way we understood the investment it would be run on a hotel concept. We were advised of certain days we were not allowed to take personal use, we were given 30 days a year personal use, we were getting a furnished apartment etc.. All these things will not now apply if they cancel the Programme. I am left a little unsure of what your thinking is. Can I take it that you are going to now accept the apartment as a residential unit without it being run on the hotel concept and take possession. Do you feel that there is no case for legal action? Can you clarify further.

Jaimeybug

 

[Sophielsie]

Rental Addendum

Hiya,

I believe MED will claim they cant get a tourist license and therefore cant run a hotel - and therefore claim force majeure (beyond their reasonable control).

This is inaccurate as this was a foreseeable risk and therefore could be anticipated.

However, even if they claim this, their obligations in the agreement are NOT predicated on them running a Hotel.

The obligations to us ( furnish it, pay rental guarantee, 30 days use, etc) are not reliant on anything else within the agreement;

We have a very strong legal case and unless they fulfill their obligations under the rental agreement - I will be suing them and also going after late delivery - and they will also claim force majeure - in that they will say they have no controls over the master developer. Again this is incorrect as below:

I have written to them in 2012 as below:

I have consulted with my Lawyer, Fareya Azfar of TLG, (The Legal Group),E-313 Al Saha Offices B, Souk Al Bahar, Burj Khalifa, Old Town, Dubai and if I do not receive the assurances I need, I will instruct Fareya to draft a termination notice to be served to MED, outlining the specific legal grounds upon which a termination is being sought.

If upon the serving of the letter, to MED, you do not co-operate and the termination notice results in being ineffective for the purposes of obtaining a refund, TLG will proceed with filing an action before the judicial authorities to seek an order of declaration that the termination was valid.

As you are probably aware, upon termination, I am, by law entitled to be restored to the same position in which I was before I entered into the contract. Therefore, the court will award me all monies that I have paid, aswell as award me a 12 percent interest, which I would have earned had I put the money in the bank, aswell as all my legal costs and expenses.

As I am sure you are aware this is legally straight forward, I paid monies to purchase a property from MED, and I never received what I purchased.

Please be advised that a failure to deliver the subject matter of contract is a breach of the most primary obligation, this obligation is so basic that it gives you an unencumbered right to terminate the contract.

As regard any reliance on force majeure, previous references you have made to the master project, etc, cannot be relied upon as they can be construed as reasonably anticipated.

 

[jaimeybug]

Hi All

Absolutely. We agree with what you are saying and if we do end up in litigation we have to go for everything we can in order to at least end up with our money back and as much compensation as possible. It never was out of their control to build Red Residence in line with them being able to operate our Rental Programme. As the building progressed any changes required they would have to have carried out. It is still in their control to make the changes they need should they wish to. The fact remains if MED are not willing or able to run the building in accordance with our contract they will be in breach and obliged to refund our money. It is a pity that until handover, although we pretty much know what is happening, they are withholding this information. It defies belief that MED think they can sell one thing and deliver another with a very different concept. From purchasing a hotel room to now having a flat that will most certainly not be a "hands off" investment!

Jaimeybug

 

[mike.stewart]

TLG - Dubai courts - costs

TLG appears to be the only law firm with a history of MED clients, wanting to sue MED.
They appear to have a lot of experience, and should know wheater or not, in the current Dubai legal climate, any private investor has ever gotten refunds.

Dubai courts are notoriously unreliable, from what I have come to know.
50% of the legal fees are to be paid upfront, and would be in the region of about 70,000 AED. Back in 2010-11, I think TLG did some "no-win-no-fees" deals, but stopped shortly after. One can only guess the reason they stopped.

I would be extremely delighted and encouraged, if a single case of refund is brought to fruition.

Mike

 

[mike.stewart]

Non-disclosure agreements

Then there is also the 'non-disclosure' agreements that totally restrict sharing of information after the litigation process and settling of the cases.

The disadvantage we have is lack of 'developer-side' information - something law firms representing MED would have, or other developers (some indicated in other threads on this forum) should have, as most developers are in similar situations. Similar to the investors coming together to share information, I bet the developers in Dubai meet up too.

Is there no investor in Dubai who currently owns a hotel-apartment and can share the information in regards to revenue, occupancy rates, other costs, and 'real' profits from such investments? I think there are other ugly surprises hidden in the charges and costs.

Mike

 

[expatindubai]

hotel apartments

i doubt very much that MED are in a position to honor the Developer finance promised to some investors and the rental guarantee promised to others

 

[mike.stewart]

Hi expatindubai,

May I ask what are you basing your thoughts on?
As I am an investor, I am naturally very keen on getting any information that is fact based, in regards to MED, and the finances and the obligations.

Ar you in contact with MED offices?

Kind regards
Mike

 

[expatindubai]

can we talk offline

 

[alexie62]

Your Red Residence concerns

I have been an external consultant for MED from inception and monitoring from then until now for my clients where I have a very good relationship with the owners. Now although this was posted in 2014 it is now in handover phase where investors are instructed to pay deregistration and also registration to Land Department and I am sure you all received that email

We are concerned investors in Red Residence Dubai Sports City. We would like to hear from any other investors in this project who may have concerns of any sort. Our concern is the shortage of information for the last 6 years from MED. On a recent visit to Dubai our son-in-law made a site visit by appointment with the Developer who showed him around and in particular showed him our apartment. The project does seem to be reaching a conclusion in terms of structure Our problem now is the information he was given by the developer's representative It appears the way we understand it from him that the way the development will be handled once it is completed and all final payments are made could be contradictory to the Addendum to Sales and Purchase Agreement Briefly In this Addendum it states that there will be a 20 year leaseback to MED who will manage the project at a level of service and quality similar to a 5 star hotel. Similar apartments will be pooled and the rental income shared amongst the owners after costs and expenses being maintenance fees, municipal fees, master development fees and sinking fund. The way we now understand it from the information given to our son-in-law and also confirmed by MED by e mail to us is that the apartments will be let out on a normal term and we are told it should bring AED 65 000 per annum for a 1 bed unit. (Although not guaranteed we were given a figure almost 3 times this when MED compared this project to Arabian Crowne back in 2006 which would have been a decent return) This figure was given to us as a typical rent for a 1 bed apartment in Dubai and we were directed to websites which were letting out normal residential apartments as opposed to those being run similar to a 5 star hotel with nightly rates. MED are going to take a 40% fee after expenses basically for letting out an apartment in a normal way like any other estate agent Whether there will be a restaurant, shops and boutiques referred to in the marketing material is yet to be confirmed and yet the most recent update says the project will be ready end June 2014!! We are currently unable to get any responses to these issues from MED causing us this concern that they are not going to run it in accordance with the contract. We are being ignored. We just get generic updates. Apologies for the length of the post but wanted to get across the concerns we have.

 

[mike.stewart]

Thanks for sharing Alexie62.

It quite neatly summarizes the current concerns:
- Delays
- Lack of transparency in terms of pricing and percentages
- Delivering flats, rather than 5-star hands-off hotel, as was promised, with HIGH returns based on 75% occupancy

Regards

 

[mike.stewart]

Government backed developers

It makes sense that back in 2011-2012, RERA insiders let MED know that only the UAE Government backed developers (Emmar and Nakheel, for example) are going to get the license to release hotel rooms (as there is an over-supply) so only their hotels get tourists money. That left private developers like MED out cold.

(Just guessing. Would be happy to get more info on this.)

So then, desperate MED, started negotiations, rather randomly, panicky and with individual investors, taking advantage of the information black-out.

Now, it is all a mess. Delays, agreement failures and contract breaches. Dubai courts are favouring developers. But I know many - MANY - have taken the legal route and sued MED and other developers. As there is no freedom of press, we never get to know the outcome of the litigations.

Regards
Mike

 

[zamalliance]

I am also an affected investor in MED. I bought a one bed in Red residence and its been 10 years now i have not received delivery. My rental programme was terminated and i was given a 40,000 DHS discount. It was rather a forced termination. Many emails to MED have been fruitless. They say each year that delivery is in four months, but each year goes by and there is no delivery. I heard yesterday that DEWA is not giving them electricity and MED is faced with 35 million DHS fines also. They are in a total mess. They have played with investors money. I also heard that the 5 star building finishing is not there, all inferior quality material has been used. I wonder why Dubai Govt has not taken any action against them and why investors who want their money back are still stuck like me. If delivery was 2008-2009, then how we are unable to get refunds. I spoke to a lawyer a week ago, she sent me a verdict in favour of MED customers who won cases with 6% financial charges also. I am now wondering if i should do the same.

I think we should all make a group and sue them and get our money out. We waited ten years with no returns & we lost all our rental returns for at least six years now!!!

 

[mike.stewart]

I agree with the suggestion to engage the services of a law firm, but if anyone on this forum already has a lawyer, well informed and up to speed with the recent developments, then it might probably make sense to first see what chances we have to win a case against MED (and the upfront cost) and the time it has taken other investors to get their moneys back.

From the look of it, there is an over-supply of hotel rooms and the returns on a hotel-apartment might not be as much as promised initially (while the costs and charges for maintaining one have risen)

Regards
Mike