Termination of Real Estate Sale Agreements in Dubai: Earnest Money and Withdrawal under UAE Law

Termination of Real Estate Sale Agreements in Dubai: Earnest Money and Withdrawal from the Contract in Light of Dubai Court of Cassation Judgment No. 1183 of 2026

I. Legal Question What are the legal consequences of a purchaser’s failure to pay the remaining purchase price of a property by the agreed deadline where the purchaser maintains that completion of the sale was prevented by the other party’s failure to provide certain required documents? Does such failure to pay constitute withdrawal from the sale contract, resulting in forfeiture of the earnest money, or may the purchaser claim its refund and compensation for the alleged losses?

II. Introduction Real estate sale agreements in Dubai impose reciprocal financial and procedural obligations on sellers and purchasers, including payment deadlines, document requirements, and ownership transfer procedures. Disputes may arise when a transaction is not completed on time, particularly where the purchaser attributes the delay to the seller’s failure to provide required documents, while the seller alleges unjustified non-payment of the outstanding purchase price.

The legal consequences depend on the terms of the agreement and whether the amount paid constitutes part of the purchase price or earnest money linked to a right of withdrawal. Accordingly, determining the responsible party and the resulting financial consequences requires examining the contractual obligations and the applicable law.

In this context, the Dubai Court of Cassation, in Real Estate Cassation Appeal No. 1183 of 2026, decided on 22 September 2026, addressed the purchaser’s failure to pay the remaining purchase price by the agreed deadline and its implications for determining responsibility for the transaction’s non-completion.

III. Facts of the Case 1. The Parties and the Contractual Relationship The dispute arose from a sale agreement concerning a plot of land located in Palm Jumeirah, Dubai. A disagreement developed between the purchaser, on the one hand, and the parties involved in the sale and real estate brokerage transaction, on the other.

The dispute concerned completion of the sale agreement, the financial obligations arising from it, and the fate of a cheque in the amount of AED 5,100,000, in addition to claims relating to termination of the contractual relationship, cancellation of the precautionary attachment, and compensation for alleged losses.

2. Commencement of the Dispute and the Parties’ Claims The appellant, in her capacity as purchaser, brought proceedings before the Court of First Instance, seeking cancellation of the precautionary attachment imposed on the land in dispute, termination of the sale agreement, an order requiring the defendants to return a cheque in the amount of AED 5,100,000, and compensation for the losses she alleged she had suffered as a result of the dispute.

The central issue was the failure to complete the sale within the agreed timeframe and the determination of which party was responsible. The appellant maintained that the transaction had not been completed for reasons related to the fulfilment of the transaction’s procedural requirements, rather than because she had withdrawn from the sale. However, the assessment made by the courts on the merits was that her failure to pay the remaining purchase price by the specified deadline was attributable to her and that she had failed to provide a justification for withholding payment.

The dispute also concerned the relevance of a letter sent by the other party and its effect on determining responsibility for the transaction’s non-completion. The Court took that issue into account when assessing the evidence before it.

3. Legal Basis of the Dispute The legal issue centred on determining the true nature of the agreement between the parties, whether the failure to complete the sale constituted withdrawal from the contract, and whether the conditions necessary to trigger the resulting financial consequences had been satisfied.

In this regard, it is important to distinguish between a binding and final sale contract, which may not be withdrawn from unilaterally, and an agreement granting either or both contracting parties a right to withdraw subject to the agreed financial consequences. It is also essential to determine whether the amount paid constituted earnest money in the legal sense or merely an advance payment towards the purchase price, since the legal rules governing its recovery or retention differ accordingly.

IV. Procedural History and Decisions of the Courts 1. Judgment of the Court of First Instance The Dubai Court of First Instance heard Real Estate Full Case No. 586 of 2025 and delivered its judgment on 24 March 2026. The Court ordered that the termination of the sale agreement be recorded and required the second defendant to return the cheque in the amount of AED 5,100,000. The judgment also included an award of AED 1,000,000 together with legal interest. Furthermore, in respect of the counterclaim, the Court ordered the appellant to pay AED 5,100,000, together with interest and costs.

2. Judgment of the Court of Appeal The appellant challenged the first-instance judgment by filing Real Estate Appeal No. 1146 of 2026.

At its hearing on 22 July 2026, the Court of Appeal dismissed the appeal and upheld the judgment under appeal, thereby maintaining the outcome reached by the Court of First Instance concerning termination of the sale agreement and the consequences arising from the dispute.

3. Judgment of the Court of Cassation The appellant challenged the appellate judgment before the Dubai Court of Cassation in Real Estate Cassation Appeal No. 1183 of 2026, alleging an error in the application of the law and flawed reasoning. The substance of her challenge was that the lower court had treated her as the party who withdrew from the transaction because she had failed to pay the remaining purchase price by the agreed deadline, despite her contention that she had been seeking to complete the transaction.

The Court of Cassation held that the challenged judgment was based on sufficient evidence derived from the expert report and the documents in the case file, and that the appellant had failed to provide justification for not paying the remaining purchase price. The Court also found that the judgment had not overlooked the contents of the letter sent by the other party.

The Court considered that the grounds of appeal amounted merely to an argument concerning the assessment of facts and evidence. Such an argument was insufficient to overturn the judgment where the findings of the lower court were reasonable and supported by the case file. Accordingly, at its hearing on 22 September 2026, the Court of Cassation dismissed the appeal and ordered the appellant to pay the costs.

V. Analysis of the Judgment 1. The General Rule Governing Sale Contracts and the Prohibition Against Unilateral Withdrawal The general rule is that a valid and binding sale contract creates reciprocal obligations between the parties. Neither party may withdraw from the contract merely because of a change of intention, unless an agreement permits withdrawal or a legal basis exists for terminating the contract.

Article (232) of the UAE Civil Transactions Law provides as follows: “If a contract is valid and binding, neither contracting party may withdraw from it, amend it, or rescind it except by mutual consent, judicial proceedings, or pursuant to a provision of the law.” This requires a distinction between withdrawal based on a valid agreement and rescission sought as a result of one party’s breach of contractual obligations, since the legal basis and consequences of each differ.

2. The Legal Nature of Earnest Money and the Distinction Between Earnest Money and an Advance Payment Not every amount paid upon entering into a sale agreement constitutes earnest money that permits withdrawal from the contract. The amount may represent part of the purchase price, or it may be linked to a right of withdrawal where the parties have agreed accordingly.

Article (137) of the Law regulates this matter as follows: 1. Payment of earnest money at the time the contract is concluded indicates that the contract has become binding and may not be withdrawn from, unless the agreement or custom provides otherwise.

2. If the contracting parties agree that the earnest money shall constitute a penalty for withdrawal from the contract, either party shall have the right to withdraw. If the party who paid the earnest money withdraws, it shall forfeit the amount; if the party who received it withdraws, it shall return the amount together with an equal sum.

Accordingly, the fate of the earnest money depends on the true nature of the agreement, whether it grants a right of withdrawal, and which party exercised that right. The entitlement to retain the amount cannot be presumed merely because the sale was not completed.

3. The Financial Consequences of Withdrawal from the Contract Where the parties agree that the earnest money shall constitute a penalty for withdrawal, the party who paid it forfeits the amount if it withdraws, whereas the receiving party must return the amount together with an equal sum if it is the party that withdraws. This obligation may arise from the agreement itself and does not necessarily constitute compensation for actual loss.

Nevertheless, this arrangement must be distinguished from an advance payment of the purchase price and from compensation for contractual breach. The applicable legal treatment of each depends on the nature of the obligation and the terms of the contract.

4. The Court of Merits’ Authority to Interpret the Contract and Determine the Responsible Party The Court of Merits has the authority to ascertain and understand the facts of the case, interpret agreements, identify the party that withdrew from the contract, and determine whether non-performance resulted from that party’s own conduct or from a cause beyond its control. It may also determine the true nature of the agreement by examining its wording and the circumstances in which it was concluded, without being bound by the label used by the parties where that label does not reflect the agreement’s true substance.

In the case under consideration, the Court of Merits relied on the expert report and the documents in the case file to determine responsibility for the failure to complete the sale. It concluded that the appellant had failed to provide justification for not paying the remaining purchase price by the agreed deadline.

5. The Effect of Failure to Provide the Documents Required for Payment of the Purchase Price Merely asserting that certain documents were not provided is insufficient, in itself, to justify withholding payment. It is necessary to determine whether providing those documents constituted a contractual obligation essential to completing the transaction and whether their absence affected the possibility of performing the contract.

If the contract makes the provision of specific documents a condition precedent to payment, the effect of failing to provide them on the parties’ respective obligations must be examined. Conversely, if the provision of those documents is not such a contractual condition, it cannot be assumed that their absence justifies withholding payment without considering the circumstances of the transaction and the terms of the agreement.

6. The Legislative Basis for Seeking Specific Performance or Rescission Article (234) of the UAE Civil Transactions Law regulates the consequences of non-performance of obligations under reciprocal contracts and provides as follows: 1. In reciprocal contracts, if either contracting party fails to perform its obligation when due, the other party may, after giving notice to the defaulting party, request the court to order performance of the contract or its rescission.

2. The court may order the defaulting party to perform its obligation or grant it an extension of time where circumstances so require. The court may also refuse rescission if it is established that the defaulting party has averted rescission by performing its obligation, or if the unperformed part of the obligation is of minor importance in relation to the obligation as a whole.

3. In all cases, the court may award compensation where justified.

The provision demonstrates that rescission is not an automatic consequence of every contractual breach. Rather, it is subject to the applicable legal requirements, including notice to the defaulting party, while allowing the court to consider the circumstances of the case, the seriousness of the breach, and the possibility of performance.

7. The Limits of the Court of Cassation’s Review of the Assessment of Evidence The Court of Cassation does not intervene merely because a party disagrees with the Court of Merits’ assessment of the facts and evidence, provided that the judgment is based on reasonable grounds supported by the case file.

In the dispute under consideration, the Court of Cassation found that the grounds of appeal did not establish a legal error warranting the setting aside of the judgment, but instead amounted to an attempt to relitigate the assessment of the evidence. This confirms that a cassation appeal must identify the legal error or material defect in the reasoning or inference and explain how it affected the outcome of the judgment.

VI. Legal Impact of the Judgment and the Principle Derived 1. The Legal Principle Derived from the Judgment

The following legal principle may be derived from the judgment: As a general rule, a sale contract is binding and final and may not be withdrawn from unilaterally, unless the parties have agreed, or custom provides, that either or both parties may withdraw subject to specified conditions. The Court of Merits has the authority to determine the true nature of the agreement, identify the party that withdrew from the contract, and establish whether the withdrawal resulted from that party’s own conduct or from a cause beyond its control, on the basis of the circumstances of the case and the available evidence. Where it is established that the failure to complete the sale resulted from the purchaser’s unjustified failure to pay the remaining purchase price, the resulting financial consequences shall be determined in accordance with the nature of the amount paid, the terms of the contract, and the legal rules governing earnest money.

This principle confirms that entitlement to retain or recover earnest money cannot be determined solely by reference to the fact that the sale was not completed. Rather, it requires an examination of the nature of the amount paid, the terms of the agreement, the party responsible for withdrawal, and whether the conditions for imposing the relevant legal consequences have been satisfied.

2. Significance of the Judgment in Real Estate Disputes The significance of the judgment lies in its confirmation that disputes concerning the termination of real estate sale agreements cannot be resolved merely by describing a party’s conduct as “withdrawal” or “rescission”. Instead, the true nature of the contractual relationship and the obligations arising from it must be examined.

The judgment also highlights the importance of distinguishing between earnest money and an advance payment of the purchase price, a distinction that may directly affect the parties’ financial rights when a transaction cannot be completed. Furthermore, the judgment confirms that determining which party is responsible for the failure to complete a sale falls within the authority of the Court of Merits, provided that its findings are supported by reasonable grounds. Accordingly, parties should submit their evidence and substantive objections at the appropriate stage of the proceedings and formulate their grounds of appeal in a manner that identifies the legal defect affecting the judgment.

3. Practical Implications for Purchasers and Sellers For purchasers, important preventive measures include reviewing the contractual payment terms, verifying the documents required to complete the transaction, and determining whether providing those documents is a condition precedent to payment or transfer of ownership. Purchasers should also document any breach by the other party and establish its direct connection to the inability to perform their own obligations.

For sellers, it is important to define their procedural obligations clearly in the contract, retain evidence demonstrating their readiness to perform, and regulate the agreement precisely with respect to payment deadlines, notices of delay, conditions for rescission or withdrawal, and the treatment of amounts already paid.

For legal practitioners, careful contractual drafting should distinguish between earnest money and an advance payment, and expressly specify whether the earnest money grants a right of withdrawal, which party holds that right, the period within which it may be exercised, and the financial consequences arising from its exercise. It should also not be assumed that an earnest-money clause invariably removes the need to examine the requirements for rescission, compensation, or the parties’ reciprocal obligations.

VII. Conclusion The Dubai Court of Cassation’s judgment in Real Estate Cassation Appeal No. 1183 of 2026 addresses an important issue concerning the determination of the party responsible for failing to complete a property sale agreement and the legal consequences of failing to pay the remaining purchase price by the agreed deadline.

The Court affirmed that, as a general rule, a sale contract is binding and final and may not be withdrawn from unilaterally, except to the extent permitted by the agreement, custom, or law. The judgment also highlighted the importance of distinguishing between earnest money and an advance payment of the purchase price, as the financial consequences of withdrawal differ according to the nature of the amount paid and the terms of the agreement.

The judgment further confirmed the authority of the Court of Merits to identify the party that withdrew from the contract, interpret agreements, and assess the evidence, provided that its conclusions are based on reasonable grounds supported by the case file. From a practical perspective, the principal lesson is the need to draft real estate sale agreements precisely, clearly specifying each party’s obligations, payment deadlines, documents required to complete the transaction, the legal nature of the earnest money, the conditions governing withdrawal, and the financial consequences of non-performance.

Ultimately, protecting rights in real estate disputes requires more than establishing that a sale was not completed. It requires identifying the actual reason for non-completion, correctly characterising the contractual relationship, establishing which party was responsible for non-performance, and applying the appropriate legal consequences in accordance with the contract and the applicable legislation.