Force Majeure and Delays in Real Estate Project Handover

Force Majeure and Its Effect on Delays in Delivering Real Estate Projects: Between Exemption from Liability and the Requirement to Establish Causation

1. Legal Question Is the occurrence of an exceptional event, such as the COVID-19 pandemic, extraordinary governmental measures or wars, sufficient to exempt a contractor or real estate developer from liability for delays in handing over a project? Or must the party invoking force majeure prove that the event actually prevented the performance of its contractual obligations and caused the delay in question, rather than merely coinciding with other causes relating to project management, contractor performance, or delays in obtaining permits and approvals?

2. Introduction The completion of works and handover of projects within the agreed timeframes constitute fundamental obligations under construction and real estate development contracts, as delays may result in the imposition of contractual delay penalties or claims for damages. However, exceptional circumstances may arise that affect the progress of the works, prompting contractors or developers to invoke force majeure as a basis for exemption from liability. Nevertheless, the occurrence of an exceptional event does not necessarily mean that the delay resulted from that event. A project may already be behind schedule due to contractual breaches or delays in obtaining permits and approvals before the exceptional event occurs during the execution period. This highlights the importance of determining the actual impact of the event on the project and establishing a causal link between the event and the delay, particularly in real estate and construction disputes in the Emirate of Dubai.

3. Legal Framework A. The Concept of Force Majeure As a general principle, force majeure involves an event that satisfies the applicable legal requirements and renders the performance of an obligation impossible, having regard to the nature of the obligation and the governing law. It is not sufficient for an event merely to increase the cost of performance or make performance more difficult. A distinction must be drawn between impossibility, which prevents the obligation from being performed, and hardship, which makes performance more expensive without rendering it impossible.

B. Relevant UAE Legislation Federal Decree-Law No. (25) of 2025 promulgating the Civil Transactions Law entered into force on 1 June 2026. The new law regulates force majeure, exceptional circumstances and the consequences of breaches of contractual obligations, as set out below. First: The Effect of Force Majeure on Bilateral Contracts Article (236) of the new Civil Transactions Law provides as follows: “1. In bilateral contracts, where a force majeure event occurs that renders the performance of an obligation impossible, the corresponding obligations shall be extinguished, and the contract shall automatically be rescinded.

2. If the performance of an obligation becomes partially impossible, either contracting party may invoke the extinguishment of the corresponding obligation or request the court to rescind the contract.

3. If the impossibility is temporary in continuous contracts, either contracting party may invoke the extinguishment of the corresponding obligation, seek an amendment to the contract, or request the court to rescind the contract.”

Second: General Exceptional Circumstances and Excessively Burdensome Obligations Article (224) of the new law provides as follows: “If general exceptional circumstances that could not have been foreseen at the time of contracting arise, and the performance of the contractual obligation consequently becomes excessively burdensome for the debtor in a manner that threatens it with a substantial loss, the court may, depending on the circumstances and after balancing the interests of both parties, reduce the excessively burdensome obligation to a reasonable level or order the rescission of the contract. Any agreement to the contrary shall be null and void.”

This provision differs from the rules governing force majeure. Exceptional circumstances do not necessarily require performance to become impossible. Rather, they concern general exceptional circumstances that render performance excessively burdensome and threaten the debtor with a substantial loss, thereby permitting the court to intervene subject to the statutory requirements set out in the article.

Third: Compensation for Non-Performance or Delay Article (336) of the new law regulates the debtor’s liability for non-performance and delay, providing as follows: “If it becomes impossible for the debtor to perform the obligation specifically, the debtor shall be ordered to pay compensation for non-performance, unless it proves that the impossibility of performance arose from an external cause beyond its control. The same shall apply where the debtor delays performance of the obligation or performs it only partially.”

Under Article (339): “Where compensation is not determined by law or contract, the court shall assess it in an amount equivalent to the actual loss suffered.”

These provisions demonstrate the importance of distinguishing between the mere occurrence of a delay and the establishment of liability for that delay. They also highlight the need to examine the external cause relied upon, the extent of its impact on performance, and compliance with the applicable requirements for placing the debtor in default, where legally required.

Fourth: The Obligation to Complete Construction Works Within the Agreed Timeframe With regard to construction contracts, Article (818) of the new law provides as follows: “1. The contractor must complete the work in accordance with the terms of the contract and within the agreed period. If no terms have been stipulated or no period has been agreed upon, the contractor must complete the work in accordance with customary practice and within a reasonable period dictated by the nature of the work.”

The remainder of the article regulates cases in which the contractor fails to comply with the conditions governing performance, the requirement to notify the contractor to remedy defective work, and the measures that the employer may take in the circumstances specified by law.

Article (819) further provides: “The contractor shall be liable for any damage or loss arising from its acts or workmanship, whether resulting from its misconduct or negligence or otherwise, and such liability shall be excluded if the damage or loss results from an accident that could not have been guarded against.”

These two provisions are particularly relevant when assessing delays in the completion of real estate projects. Their application requires consideration of the nature of the obligation, the contractual terms, the cause of the delay, and whether the rules governing force majeure or external causes apply to the circumstances of the dispute.

C. Distinction Between Force Majeure and Exceptional Circumstances Force majeure and exceptional circumstances differ in their nature and legal consequences. Force majeure is associated with impossibility of performance, provided that the applicable legal requirements are satisfied. Exceptional circumstances, by contrast, presuppose that performance remains possible but has become excessively burdensome due to general exceptional circumstances. Accordingly, increases in the prices of construction materials or labour costs do not, in themselves, constitute force majeure. However, depending on the circumstances of the case, the contractual terms and the applicable law, such increases may warrant consideration under the doctrine of exceptional circumstances.

4. Legal Analysis A. Is the Occurrence of Force Majeure Sufficient to Exempt a Party from Liability? The mere occurrence of an exceptional event during the execution of a project is insufficient, in itself, to establish a valid defence of force majeure. It is necessary to determine whether the applicable legal requirements are satisfied and to what extent the event affected the performance of the specific obligation in dispute.

Certain works may continue despite the occurrence of the event, or alternative arrangements may be available to enable performance to proceed. Conversely, a binding governmental decision ordering the closure of a project site, or a prohibition on importing an essential material for which no substitute is available, may render specific works impossible to perform for a certain period. The nature, duration and scope of the event must therefore be assessed, and it must not be assumed that all contractual obligations have become impossible merely because an exceptional circumstance has occurred.

B. The Requirement to Establish a Causal Link The party invoking force majeure must explain how the event affected the works and the scheduled completion date. This requires identifying the affected activities, the period during which the disruption continued, and the extent to which those activities were connected to the project's critical path.

If the project was already delayed before the event occurred due to delays in obtaining permits, approving drawings or fulfilling the contractor's obligations, it cannot automatically be assumed that the entire subsequent delay is attributable to force majeure.

Instead, it is necessary to determine whether the event caused additional delay or whether the delay would have occurred in any event due to the pre-existing causes.

C. Multiple Causes of Delay Delays may result from several causes, including delays by the competent authorities in issuing permits, design changes, late approval of drawings, failure to provide labour or materials, and exceptional circumstances. The existence of multiple causes does not necessarily preclude reliance on force majeure. However, it requires a technical and legal assessment to determine the impact of each cause on the project's final completion date.

D. The Effect of Force Majeure on Delay Penalties and Compensation The effect of force majeure on delay penalties and compensation depends on the applicable law, the contractual terms, and proof that the event caused the delay in respect of which the claim is made.

Where an event giving rise to an exemption from liability is established, this may affect the entitlement to impose delay penalties or claim compensation for the affected period. However, independent breaches that fall outside the scope of the exemption do not cease to give rise to liability merely because an exceptional event has occurred.

A distinction must also be drawn between an extension of time for completion and an exemption from financial liability. The contract may permit an extension of time without extinguishing all other claims.

E. Burden of Proof The party invoking force majeure must submit evidence establishing the occurrence of the event and its actual impact on the relevant obligation. Such evidence may include the project schedule and its updates, progress reports, governmental decisions, correspondence concerning the suspension of works, applications for extensions of time, material procurement records, consultant reports, and critical-path analyses.

These documents assist in distinguishing delays caused by the exceptional event from those arising from poor planning, resource shortages or delays in obtaining approvals.

5. Practical Application A. Hypothetical Example: A Project Delayed Before the COVID-19 Pandemic If a real estate project was delayed for several months due to late approval of drawings and the failure to appoint a replacement contractor in a timely manner, and the COVID-19 pandemic subsequently restricted the movement of labour and the supply of materials, the entire delay cannot be attributed to the pandemic.

Instead, the pre-existing delay must be identified, the impact of the subsequent restrictions on the works must be analysed, and it must be determined whether the pandemic caused additional and distinct delay affecting the scheduled handover date.

B. Commercial Example: Delayed Supply of Construction Materials If a contractor argues that international trade restrictions prevented the importation of construction materials, it must establish that those restrictions actually affected the materials required for the project, that the materials were necessary to complete the works on time, and that suitable alternatives could not reasonably have been obtained.

However, if the delay resulted from the contractor's failure to order the materials in a timely manner or to pay the supplier's invoices, it may not be legally justified to attribute the entire delay to force majeure.

C. Example of the Effect of Delay on Compensation If a contractor establishes that an exceptional event caused specific works to be suspended for a defined period, this may affect its entitlement to an extension of time or its defence against delay penalties for the affected period, subject to the contract and applicable law. Conversely, if it is established that the project was already delayed for reasons independent of the event, those causes must be analysed separately, and liability must be determined accordingly.

6. Judicial and Comparative Perspective A. Position of the Dubai Court of Cassation The Dubai Court of Cassation, in Commercial Cassation Appeal No. 899 of 2023, issued on 4 October 2023, considered the reliance on the COVID-19 pandemic as an event of force majeure alleged to have prevented the performance of contractual obligations. The circumstances of the dispute involved multiple causes of delay, including delays in obtaining the permits required to commence the project, changes to the project, delays in carrying out the works and preparing and approving drawings, as well as changes to the consultant and the previous contractor.

According to the principle addressed in the judgment, the pandemic was not regarded as the principal cause of the delay in light of the facts and the other causes associated with the project. Consequently, the force majeure defence, as advanced in that dispute, was not accepted. The significance of this judgment lies in its emphasis on examining the actual causes of delay rather than relying solely on proof that an exceptional event occurred. Nevertheless, the judgment must be understood in the context of its specific facts, and its outcome should not be generalised to all construction disputes.

B. Comparison Between Force Majeure and Exceptional Circumstances Where performance becomes impossible and the applicable legal requirements are satisfied, the rules governing force majeure may apply. Where performance remains possible but becomes exceptionally burdensome, it may be more appropriate to consider the doctrine of exceptional circumstances.

This is particularly relevant to projects affected by increases in material prices, disruptions to supply chains or rising labour costs. Such circumstances do not necessarily render performance impossible, but they may raise issues concerning the economic balance of the contract and the allocation of risks between the parties.

7. Legal Issues and Challenges The principal challenges arise from the difficulty of identifying the actual cause of delay where the contractor's breaches overlap with delays in obtaining permits, project changes and exceptional circumstances.

The absence of updated project schedules and technical reports may also make it difficult to establish the causal link. Furthermore, ambiguity in force majeure clauses and in the procedures governing notification and extensions of time may give rise to disputes.

Additional challenges include confusion between force majeure and exceptional circumstances, as well as disagreements over the allocation of risks among the contractor, developer and employer, particularly where the responsibilities distinction of the competent authorities, suppliers and subcontractors overlap.

8. Possible Solutions and Recommendations Disputes may be reduced through the drafting of clear contractual provisions governing force majeure, notification procedures, extensions of time and delay penalties, together with clearly defined obligations to mitigate the effects of the relevant event.

The project schedule should also be updated regularly, while variations, causes of disruption and relevant correspondence should be properly documented. The other contracting party should be notified of the event within the contractual time limits, specifying the affected works and the anticipated duration of the delay.

Where multiple causes of delay exist, it is advisable to appoint a technical expert to analyse the effect of each cause on the final completion date. The parties should also review the provisions governing compensation and extensions of time, retain supporting evidence, and pursue early dispute-resolution mechanisms wherever practicable.

9. Conclusion The occurrence of force majeure does not automatically exempt a contractor or real estate developer from liability for delays in handing over projects. Rather, its legal effect depends on whether the applicable legal requirements are satisfied and whether the party invoking force majeure establishes its actual connection to the impossibility of performance or the delay in dispute, in accordance with the applicable law and contract.

Where multiple causes of delay exist, the impact of each cause on the completion date must be determined, without attributing the entire delay to an exceptional event merely because it occurred during the execution of the project.

The Dubai Court of Cassation's judgment in Commercial Cassation Appeal No. 899 of 2023 highlights the importance of analysing the actual causes of delay when assessing a force majeure defence.

Accordingly, the decisive factor is not merely the occurrence of force majeure, but proof of its actual impact on the performance of the contractual obligation and the extent to which the delay claimed is causally connected to that event, in accordance with the applicable evidence and legal and contractual requirements.