TRUST ACCOUNT REGULATIONS For the Law (8) of 2007 October, 2008 Second Version INDEX Page Descriptions Serial 1 Index 1 2 Introduction 2 2 Definitions 3 3 Basic Concepts 4 4 Opening Trust Account 5 4-11 Trust Account Operation 6 12-14 Trust Account Records 7 15-16 Trust Account Reports 8 17 Trust Account Auditing 9 18 Closing Trust Account 10 18 Mechanism Amendments 11 2- Introduction This Guide has been issued to assist trust agent and developer to establish, maintain and control the trust account and its recording system which should complies with the Law No. 8 of 2007.
These Regulations require setting the record of the trust account which shall shows the officers of the LAND DEPT and RERA the status of trust account. 3- Definitions Trust Account: a bank account designated for a property development in which the amounts paid by buyers of units off the plan or the project financing parties will be deposited. Developer: A natural or legal person licensed to carry on the activity of buying and selling properties for developing and that includes the master developer and sub-developer. Purchaser: A natural or legal person purchased unit(s) off plan from a registered developer.
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Trust Agent: A bank or financial institution certified by the Lands Department for the management of the Trust Account. Project Revenue & Cost statement: Financial statement shows project details including cash inflows and outflows. (R/T/01) & (R/T/02). Ongoing Project: Existing project where the selling of the units have already been done before opening trust account for this project. New Project: Selling of units has been commenced after opening the trust account. Trust Ledger: Standard form used to report the units sale prices and collections received from purchasers (R/T/04)
Order for payment form: Standard form used to release payments from the trust account. (R/T/03) Assigned Engineer: A technical inspector appointed to certify percentage % of completion of project to developer. 3- Basic Concept Money received from investor (Purchaser) by the registered developer or his representatives for sell-off plan for approved project will be considered as trust money under the law (8) of 2007 and these regulations. There are a number of duties and responsibilities imposed on trust agents for the management of the trust account.
Monies received from Investor (Purchaser) must be deposited in trust account shall be given “Deposit Reference”. Monies shall be released from the Trust account in accordance with these regulations. 4- Opining and Activation of Trust Account The developer must obtain a written approval from Trust Account Department at RERA before opening the trust account. Trust agent must obtain a written approval from the Trust Account Department at RERA before activation of the trust account. 5- Trust Account Operation 5. 1: Receiving Funds 5. 1. 1- Create the ledger 5. . 1. 1 The Trust Ledger (Form R/T/04) shall be opened in accordance with Approved forms of “Project Revenue & Cost “by RERA. 5. 1. 1. 2 Existing (ONGOING) projects (Form R/T/02): where sales commenced before the formation of the law, the developer shall direct the Purchasers to deposit the installments into the trust account. Currently, no ongoing project will be accepted for registration by RERA, and fines will be imposed on non complied developers. Trust Agent can accept any funds that have been transferred from the bank account of the developer. 5. 1. 1. New Projects (Form R/T/01): installments should be deposited directly into the trust account. 5. 1. 2- It is the Trust Agent responsibility to comply with the Central bank procedures concerning (AML) forms. 5. 1. 3-Reference No: the Trust Agent shall give a reference No. to all and every installment before deposit it into the Trust Account. Reference No: shall be the Project registration No. with RERA + the unit identification number as mentioned in Sales & Purchase Agreement between the developer and the purchaser. 5. 1. 4- Receiving money from Purchaser 5. 1. 4. The beneficiary of money received from purchasers on (e. g. Cheque, transfer…etc) must be the Trust Account and the project name NOT Developer. 5. 1. 4. 2 The following payment methods can be accepted by Trust Agents, in connection with receiving and depositing customers’ installments into trust account: Cash or Cheque. Electronic transfer. Credit Card payment. Any other payment methods Accepted by Trust Agent. 5. 1. 5-The Trust Agent has to retain (10%) of cash received from purchaser: 5. 1. 5. 1 The (50 %) of the retained money can be released to developer at the date of receiving the completion certificate of project. . 1. 5. 2 The other (50%) of the retained money will be released to developer after one year of the date of receiving the completion certificate of project. 5. 1. 6- Receiving money from financial institutes (bank, finance company) 5. 1. 6. 1 If the project was financed, the mortgage amount shall be recorded in the Trust Ledger (Form R/T/04) under the name of the (developer/financial institution) and disclosed as collection in the ‘Project Revenue & Cost statement (Form R/T/02), but without retaining (10%) from the loan amount. 5. 1. 6. If the Purchaser of the unit applies for any mortgage, the mortgage amount shall be recorded in the Trust ledger(R/T/04) under the name of the (Purchaser/financial institution) and disclosed as collection in the ‘Project Revenue & Cost statement (Form R/T/02), WITH retaining (10%) of the loan amount. 5. 1. 6. 3 Fund must be deposited into trust account. 5. 1. 7- Reservation amounts (booking money) received from purchasers can be collected by developer without deposit it into the trust account in the following three joint conditions: . 1. 7. 1 There is no signed “sales and purchase agreement” in place with purchaser; 5. 1. 7. 2 Fixed amount (not percentage of unit price); and, 5. 1. 7. 3 Less than 10% of estimated unit sales price. 5. 1. 8- Cancellation/Termination of sales and purchase agreement signed between developer and purchaser 5. 1. 8. 1 For the termination of sales and purchase agreement be legitimate, the unit subject to the termination should be registered in the Lands Department and the termination should be approved by RERA. 5. 1. 8. Trust agents can refund amounts which were paid by unit purchaser after getting RERA approval. 5. 1. 8. 3 For such refund to be effected, trust agent must confirm that It holds the relevant unit reservation form / unit sales and purchase agreement and passport copy of the unit purchaser. 5. 1. 8. 4 The trust agent, must ensure that the amounts to be refunded against the relevant unit have been paid into the trust account (for new projects) or the unit sales has been reported in the Trust ledger(for ongoing projects) at the date of approving Project Revenue and Cost sheet by RERA. 5. 1. . 5 The trust agent must check that the amount of refund being requested for by the developer conforms to the unit installment payment schedule in the reservation form / unit sales and purchase agreement. 5. 1. 8. 6 The refunded money must be made in the name / account of the unit purchaser and deducted from the received “sold amount” in the trust account. 5. 2: Releasing funds – Form used: Order for payment Form No. (R/T/03) – The following payments can be released from trust account: 5. 2. 1- Cost of the Land: 5. 2. 1. 1 Original Price: paid in accordance with plot SPA or Title Deed.
The trust agent can make land payments from the trust account once it has confirmed the installment due date and installment amount as per the SPA. Payments for the land installment must be made in the name / account of Master Developer only. 5. 2. 1. 2 Premium Price: should be paid under two conditions: In the same proportion as the land payments installments (payments schedule) due to the Master Developer. The transaction of the Sales of the land is not between sisters companies, one group of companies, and companies have the same owners or any kind of conflict of interests.
Furthermore, trust agent is fully responsible for these transaction. 5. 2. 1. 3 Registration and transfer fees The trust agent can pay from the trust account the land registration/transfer and processing fees enabling transfer of title to the developer. The payment is to be made out in a manager cheque to ‘Dubai Lands Department’. 5. 2. 2- Construction Cost: 5. 2. 2. 1 The following documents should be taken by the Trust Agent prior to approving construction related payments to contractors: Affection plan. Building permits (indication of commencement date). Contract agreement with contractor.
Contract agreement with consultant. Contract agreement with project manager (if any). Contract agreement with subcontractor (e. g. enabling works, Interior Designer). Original Trust Agent Guarantees (Performance & Advance payment) assigned to the trust account. Insurance policy assigned to the trust account. Trade license for contractor, subcontractors, consultant and project manager. Work program certified by consultant and developer. 5. 2. 2. 2 For each incoming Progress Payment Certificate (PPC), a site visit will be conducted to evaluate the work done based on the Bill of quantities. 5. 2. . 3 Advance payment to contractors: Advance payments can be made subject to the trust agent receiving an advance payment guarantee duly authenticated and assigned to the trust account. As part of this assignment the guarantee should mention that any claims under the guarantee will be paid directly into the project trust account. 5. 2. 3- Project management expenses up to (10%) of paid construction cost, 5. 2. 3. 1 Project management costs include: 1. Professional fees for consultants, architects and designers. 2. Project management fees. 3. Project office rent, project office utility charges. . 2. 3. 2 Management expenses shall be paid by the trust agent based on actual construction costs incurred by developer once contractor’s progress payments are approved by the Trust Agent. – Project Consultant Signature required for: Completion Certificate (% of comp. ) of the project. Order of payment (R/T/03). New project (R/T/01). In the event of any dispute of percentage of the completion (% of comp. ) between Trust Agent/assigned engineer and project consultant, the Trust Agent will release the payment on the approval of the engineer and in such case the developer shall reports to RERA. Trust Agent Engineers/Assigned Signature required for: Completion Certificate (% of completion) of the project. Certifying Project management expenses 5. 2. 4- Marketing Expenses up to (5%) of the sold value as per Trust Agent records. 5. 2. 4. 1 Marketing expenses may include, but not limited to, the following: 1. Commissions to agents and marketing specialists. 2. Cost of advertising, exhibitions and marketing 3. Brokers Commission. 4. Sales Expenses. 5. 2. 4. 2 For making Sales & Marketing related payments against particular unit(s), trust agent must have in its possession:
Copy of reservation form(s) / sales and purchase agreement(s) signed by the unit buyer and developer. Copy of the unit purchaser’s passport. 5. 2. 5- Loan settlement (if any) 5. 2. 5. 1 Developer can finance his project from any financial institution and subject to the following conditions: The mortgage amount shall be recorded in the Trust ledger (Form R/T/04) under the name of the (developer/financial institution) and disclosed as collection in the ‘Project’s Revenue & Cost statement, but without retain (5%) of the loan amount.
Pledging must be registered as a second pledge over the plot. Loan installments can be paid from trust account, excluding interests amounts, to financial institution, installment should be disclosed it in the cost categories of the project revenue and cost statement. 5. 2. 6- Project Revenue and Cost Overbalance/Deficit Disbursement 5. 2. 6. 1 Trust Agent can release any amount exceeded the project “revenue & cost ” balance to developer. The trust agent can disburse project Overbalance /deficits to the developer after receiving updated Project Revenue & Cost sheet (Form R/T/02). . 2. 6. 2 Any interest payments/ fines paid by the developer to the master developer covering delayed land payments will not be included in the Project Revenue & Cost figures. 5. 2. 6. 3 If the ‘project cost and revenue sheet has negative balance, the project deficit can be disbursed after trust agent deducts (10%) from collections amounts received by the developer. (10%) of collected sales revenue received is to be held as retention by the trust agent. 5. 2. 6. 4 In case the ‘project cost and revenue sheet’ shows a surplus (i. e. he developer has received more in unit sales than what he has spent on the project), this surplus must be deposited into the trust account. Again, the trust agent must deduct (10%) from the sales value received by the developer for holding as retention. 5. 2. 7 Trust agent can release Profit to developer under the five joint conditions: After completing (60%) of the project. After completing 100% of land payment. Plot and units are not subject to pledging. Performance bond (10%) of project value. RERA Approval 5. 2. 8 Trust agent fees: can be deducted from trust account. 6-Trust Account Records 6. 1- Trust Cash receipts Ledger, Form No. R/T/04) 6. 1. 1- Purpose of the form: to register the project sales value 6. 1. 2. Contents of the form: Unit No : flat, shop, villa, etc Type : Studio, One bedroom, two bedroom ,etc Estimated Sales value for the unit not yet sold at registration date with RERA Sold price: actual sales price as per unit sales and purchase agreement. Cash received from customer: as at the date of project registration With RERA. Owner balance : sold Price – cash received from owner 6. 2- Project Revenue & Cost / New project, form no. (R/T/01) 6. 2. 1 Purpose of the form: to register new project with RERA and open trust account. 6. 2. Contents of the form: For revenue: Refer to separate work sheet form (Trust Cash receipts Ledger (R/T/04. Cost of land at Original Price / paid (SPA or Total Deed). Construction Cost approved by project Independent consultant. Management expenses up to (10%) Professional fees for consultants, architects and designers, Professional fees for quantity surveyors, project manager’s exp. , and office rent. Marketing Expenses up to (5%): Cost of advertising, marketing Commissions to agents, cost of marketing specialists, exhibitions, and brokers’ fees. 6. 3- Project Revenue & Cost for Under Construction / Ongoing project, form (R/T/02) . 3. 1Purpose of the form: to register ongoing project with RERA and open trust account. 6. 3. 2. The form should be signed by a certified (As per approved list in appendix) Auditor and approved by RERA before open the trust account by the trust agent. 6. 3. 3. Contents of the form: Updated statement of actual sales value and cash received from the Purchasers. (Form R/T/04). Retention 10% of cash received from Purchasers. Cost of land at Original Price / paid (SPA or Title Deed) Completion Certificate of the project signed by Eng. consultant. Management expenses (10%) of approved construction cost.
Marketing Expenses (5%) of sold value Net Cash Formula: (Total revenue – total cost) if more than zero the balance amount must be deposited into trust account, in addition to retention amountNet Cash Formula: (Total revenue – total cost) if less than zero, retention must be deposited into trust account. 7-Trust Account Reports 7. 1 Reports by Trust Agent The following reports should be submitted by trust agents: 7. 1. 1- Reports to RERA: 7. 1. 1. 1 Statement of Trusts Accounts status (Form No. R/T/06) (monthly). 7. 1. 1. 2 Trail Balance of trust account (Form No. R/T/05) (quarterly): 7. 1. 1. Reconciliation report (quarterly). 7. 1. 1. 4 Bank’s Representatives (Form No. R/T/07) if there is any changes. 7. 1. 2 – Reports to Developers: 7. 1. 2. 1 Collection report for the period (quarterly report): to show all amount received from each purchaser, with the following details: Project details (name, number, location… ). Project dates (opining date, period, report date …). Collection data (Unit reference no. , buyer name, nationalty,Collected amount …etc). 7. 1. 2. 2 Payments report for the period: Payment for land and for construction. Payment due for marketing expenses equal to 5 % of soled value.
Payment due for project management fees equal to 10% of certified construction done. Trust Agent collected fees. Other approved payment 7. 1. 3 Report to Investors (Customers): 7. 1. 3. 1 Deposits report: Deposit date, amount, total Deposit. Source of deposit, 7. 2 Reports to Trust Agent: Trust Agent must, on quarterly basis, Receive updated statement of trust ledger report (R/T/04) from developer 8- Trust Account Auditing 8. 1- External Auditing: a qualified auditor under this act means who: 8. 1. 1 Registered as an auditor in Dubai 8. 1. 2 Member of AAA (Accountants & Auditors Association in UAE). 8. 1. Approved by RERA (Appendix xxxxxx). 8. 2- Government Auditing: 8. 2. 1 by internal auditor in Land Department – RERA. 8. 2. 2 By Financial audit Department in the Government of Dubai. 8. 3- Audit Process: 8. 3. 1 The trust agent (The Trust Agent) must submit the Project reconciliation report to RERA every three months “or as requested by the officials of RERA”. 8. 3. 2 External auditors must issue a professional audit report in accordance with International Standards on Auditing (ISA), and International financial Reporting Standards (IFRS). 8. 3. 3 Government auditors and financial department auditors must follow Law No. 1) For the year 2005 ” approved internal audit process”. 8. 3. 4 Government auditors- LAND DEPT and RERA officials must follow “approved internal audit process”. 8. 3. 5 The trust agent and the developer must, at all reasonable times keep all documents, record, relating to the trust account, available for inspection and auditing by the auditors and RERA officials. 9-Closing the Trust Account: Trust account shall be closed only after getting the approval of RERA 10-Mechanism Amendments: Amendments of these regulations shall be issued by RERA and shall be distributed in accordance with their internal procedures.