The construction sector in the United Arab Emirates is a major contributor to the rapid expansion of the hospitality industry, particularly in the market for hotels. All parties involved in a hotel project, from the owner to the investor and the operator, have to work together effectively following high standards and the demanding operational requirements of the hotels. On the other hand, such a high pace of modernization brings with it the possibility of construction defects that may not be immediately visible but may lead to serious operational and financial losses. This article deals with the influence of construction faults on the hospitality sector in the UAE and discusses the legal consequences arising from these defects, especially the rule of decennial responsibility laid down in the UAE Civil Code.
Comprehension of Construction Defects in Hospitality Projects
As seen in different projects, construction defects in hospitality projects can appear in various manifestations. We classify the defects in such projects under the following headings:
- Patent Defects: The damage is visible and can be easily observed, like, for example, a cracked ceiling or a non-operating elevator.
- Latent Defects: These are issues that go undetected during the initial inspection of the project. Staff says they are due to faulty plumbing or mold in the walls, which are not detected until they create serious damage.
Some common instances of construction defects specifically occur in hospitality projects as follows:
- The Mechanical, Electrical, and Plumbing (MEP) Issues
- HVAC (heating, ventilation, and air conditioning) or fire protection problems.
- Waterproofing and soundproofing.
- There are structural issues, such as cracks in ceilings or facades.
- Problems with elevators and a lack of safety measures for guests could very well lead to disaster.
Such defects not only can have a significant impact on the hotel operation but also lead to unsatisfied guests, financial losses, and damage to the reputation of the hotel.
Decennial Liability: The Legal Framework Under UAE Law
The UAE Civil Code (under the Federal Law No. 5 of 1985) has established a detailed method for settling construction defects through the decennial liability (Article 880-883). Decennial liability refers to a concept that imposes accountability on contractors and architects for structural errors that occur within a decade (10 years) after the completion of the facility regardless of the user acceptance during the handover.
Key Provisions of Decennial Liability
- Article 880: During a period of ten years, contractors and architects are liable for the entire or a portion of the building collapse that arose from the construction defects.
- Article 881: It should be remembered here that the liability is imposed irrespective of the existence of any fault or the inclusion of any waiver in the contract.
- Article 882: The defect must relate to the work of primary importance (e.g., the foundations or load-bearing walls).
This law has a wider application not only among residential or commercial places but also includes the hospitality industry, such as hotels.
Practical Implications in Hospitality Projects: Who Can Claim and When?
All the time, it is not the developer of the hotel nor the owner thereof who first detects or raise building defects in hospitality projects. Most of the time, the developer constructs the hotel, and an international hotel operator later operates it under a Hotel Management Agreement (HMA). However, if any defects appear immediately after the handover, it is the operator who might be first to note down the problems that affect the guest experience.
Key Points for Stakeholders:
- Hotel Owner/Developer—The hotel owner is permitted to bring forth a defect claim under the decennial liability for a period not exceeding ten years from the handover date. To detect flaws at an early stage, it is advisable for owners to carry out technical audits on a frequent basis.
- Hotel Operator—Operators, despite being non-property owners, are critical in the management of hotel operations. They can be tasked under the HMA to be the mouthpiece or be the connecting point for repairs if defects slow or dampen hotel operations or the guest experience.
- Contractors/Architects—Contractors and architects are held liable for all defects that happen due to their work. All inquiries must confirm that building codes and standards compliance are achieved; thus, damage risk mitigation is ensured.
Case Study: Decennial Liability in Action
After an exquisite hotel in Dubai had three years of water leakage and mold issues, a thorough investigation was carried out. An impartial report in concert with the hotel indicated:
- The plumbing system was badly installed.
- The MEP systems didn’t comply with the industry standards.
- The defects took the form of a latent state, which remained undetected until they significantly disrupted operations.
The Dubai Court determined that the developer was right in its complaint and that the contractor and architect were both liable jointly according to Article 880 of the UAE Civil Code. Not only was the hotel operated by an international brand, but the contractor was also held by the court accountable for the defects, and the damages awarded by the court were meant to cover both repair costs and the business losses incurred.
Best Practices for Risk Management in Hospitality Projects
This article provides practical measures hotel developers, operators, and contractors can implement to manage risk in view of the possibility of expensive disputes and operational interruptions.
1. Include a Decennial Liability Clause in Contracts
It is known that the decennial liability principle is under the law of the UAE, but it would be better if the contractor's, the architect's, and the owner's obligations and responsibilities are clearly stated in the contract. This is a guarantee that a clear understanding is achieved, which will reduce future disputes.
2. Conduct a Thorough Technical Review Before Handover
One of the things that hotel developers can do is to engage independent structural and MEP engineers to perform a thorough inspection before handing over the property. This can prevent latent defects from being posted and provide a window to fix issues before the hotel opens its doors to guests.
3. Empower Operators to Act on Defects
Many hotel management agreements may not empower the operator to directly deal with construction defects. To help mitigate risks, owners should make sure the HMA has clear guidelines for the operator to express concerns, raise claims, and start repairs when operations are affected by defects.
4. Preserve Evidence and Appoint Experts Early
When finding construction defects, it's crucial to preserve the evidence of the defect and its cause. Courts in the UAE frequently depend on the assessment of technical experts regarding the impact of actual construction defects. By appointing an expert early on, whether for mediation or litigation, one can come to a swift and successful conclusion of disputes.
5. Ensure Decennial Insurance Coverage
Be sure to get decennial insurance that covers the construction project against long-term defects. Ensuring the construction project has this insurance is essentially the secret to cutting costs on very extensive repairs and, of course, the possible dip in revenues due to low hotel occupancy.
Conclusion
In the case of hospitality projects, construction defects may lead to serious legal, operational, and financial consequences in the UAE. Defects arising within ten years of project completion are now clearly defined under UAE Civil Code, and contractors and architects can be held liable for correcting them or for any damage they cause. Nevertheless, proactive risk management, such as technical reviews combined with unambiguous contractual terms, is a must to cater to the requirements of all developers, operators, and their investors.
Legal advisors with a wealth of experience in hospitality law, such as the team at Darwish Legal Consultants, are pivotal in assisting stakeholders in the identification and understanding of the type of decennial liability. Furthermore, we assist them in the rapid and effective resolution of construction defect issues.
Contact Darwish Legal Consultants
If you are a hotel owner, investor, or operator who is currently experiencing defects in construction or you are interested in protecting your rights during the development or operation phases of a hospitality project, please feel free to contact us. We will be glad to help you identify and manage the legal risks that your hotel might face and ensure the long-term success of your investment - m.darwish@darwishadvocates.com
