Stalled projects in Bahrain – Resolution 1 of 2021


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Resolution No. (1) of 2021 regulating suspended and stalled real estate development projects ("Resolution 1") was gazetted on 7 July 2021 and came into effect on 8 July 2021.

Resolution 1 is another from a long list of resolutions issued by the Real Estate Regulatory Authority ("RERA") to govern the off plan sales market in the Kingdom of Bahrain in line with Law 27 of 2017.  

What is a Stalled Real Estate Development Project?

Resolution 1 will apply to a real estate project where: 

  1. The project is licensed by RERA;
  2. The units within the project must have been sold off-plan; and
  3. The developer has suspended or stopped with the development of the project and such cessation of activity has a detriment of the economy of the Kingdom of Bahrain.

Resolution 1 does elaborate further and provides additional criteria when judging if and when a project is consider as stalled which include:

  1. Where the developer is declared bankrupt or abandons the project;
  2. RERA suspend the developer's licence or restricts the activities of the developer;
  3. The developer is subject to a custodial sentence;
  4. The developer is unable to complete the project due to gross negligence; or
  5. The developer does not commence construction within 3 months of obtaining the necessary licences from RERA.

Once a project is deemed to have stalled, RERA can adopt several measures in order to minimise the damage and to revive the project which include: 

  1. Conducting a financial, administrative and technical investigation of the project;
  2. Referring the matter to the Public Prosecution in the event of criminal suspicion while continuing to revive the project; 
  3. Assigning an expert or auditor at the developer’s expense to prepare a comprehensive report on the project;
  4. Request all data, documents and documents related to the project from the developer or from any party related to the stalled project to decide on the subject matter;
  5. Inserting restrictions on the development of the licenses of the development or developer; 
  6. Temporary or permanent suspension of the licenses of the development or developer; or
  7. Take all necessary temporary and precautionary measures.

The priority of RERA will be safeguarding the various stakeholders' interests within a stalled project and it may utilize the several measures when attempting to safeguard such interests.

In most circumstances a developer will be given an opportunity to continue with the project with RERA granting the developer of the stalled project not more than one month to present a proposal for the settlement of the project and if such proposal is approved, RERA will allow the developer 3 months to implement the approved proposal and to reach an agreement with the majority of the project's stakeholders, such period may be extended for a further 3 month period if necessary. RERA also have the option of amending the developer's proposal and rejecting outright it if it deemed not functional. 

If a proposal has been approved and a developer has been unable to reach an amicable agreement with the stakeholders within the 6 month period available to it pursuant to Resolution 1, RERA have the power to make the final decision within 12 months of the project being deemed to have stalled and may:

  1. Introduce a new investor to the stalled project who will be required to provide sufficient guarantees to complete the stalled; or
  2. Request the Courts of Bahrain to sell the stalled project and distribute the proceeds to the stakeholders.

Conclusion

The establishment of RERA and the new real estate regulations continue to demonstrate the Government's continued commitment to restore confidence levels and maximise investor interest in the real estate market. 

RERA has successfully flexed its muscles and salvaged a significant development in the heart of Manama, evidencing to the market it will step in if required and providing investors with a level of security when investing in off plan developments.  It remains to be seen what will happen to existing projects which have stalled prior to the establishment of RERA, but stakeholders can now confidently enter the market which has the backing of a fully operational regulator.
  

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