Cancelling a deal in UAE? You may lose advance paid

The advance payment money shall be considered evidence.

Question: I was expecting to sell my personal car to a buyer, who said she wanted to buy it on behalf of her company. We mutually agreed on the price of Dh126,500 and she gave me Dh2,000 as token money/guarantee for the deal. She said she would pay up the rest within three days and I signed a paper stating that I had received Dh2,000. I rejected many potential buyers after this. However, seven days later she called and informed that she wouldn't be able to purchase the car as her company needed about a month to arrange for the funds. She requested that I give her Dh2,000 back. Legally speaking, am I bound to return that amount to her? Can I keep it as a penalty for cancelling the deal as I had lost potential customers during this period? I am willing to wait for a month to seal the deal.
Answer: Pursuant to your queries, we assume the deal related to the selling of car by you were agreed verbally. It may be noted that you are not obliged to return the advance payment paid as token advance (earnest money) as the buyer is in breach of her contractual obligation to purchase your car. This is in accordance with Article 148 of the Federal Law No. 5 of 1985 on the issuance of Civil Transactions Law, which states:
"1. Payment of advance money shall be considered evidence that the contract has become finally binding, and no one can withdraw from it unless the agreement or custom requires otherwise.
2. If two contracting parties agree that the earnest money be considered a penalty against the party who withdraws from the contract, either one of them shall be entitled to withdraw, and whoever pays the earnest money shall lose if he withdraws, and whoever receives it, shall make restitution thereof plus an equivalent amount if he withdraws."
As you are willing to wait for a month to conclude the deal, you may withhold the advance money and wait for the buyer's final willingness. In the event the buyer does not turn up and complete the terms of the verbally agreed agreement related to the sale of the car then she cannot seek the refund from your end. You may explain to her regarding the aforementioned provision of law and further may inform her due to the verbal agreement between you and her to purchase the car within a certain period of time you have also lost potential customers who were willing to purchase the said car.
Know the law:
You are not obliged to return the advance payment paid as token advance (earnest money) if the buyer breaches the contractual obligation. 

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom, Singapore and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

• UAE