You Sold the Financed Project but the Lender Still Wants Payment: Was the Debt Novated?

If you transferred a financed project to a buyer and the lender is still demanding repayment from you, the question that decides the matter is whether the lender agreed to accept the buyer in your place. A DIFC financed project transfer does not move the debt by itself: debt novation needs the agreement of all three parties, the original borrower, the new borrower and the lender. Handing over the asset, or obtaining the buyer's promise to you that it will service the loan, leaves your liability to the lender where it was. The published DIFC Contract Law says so in terms, and the Sky Gardens litigation shows how the DIFC Courts decided who owed more than AED 200 million when the three-party agreement was never reduced to a signed deed.

Start with a three-party evidence matrix. Each row is a separate question with its own evidence, and these disputes usually arise because one row was assumed rather than documented.

What does a DIFC financed project transfer debt novation actually require?

The lender has to accept the buyer in your place. The current published text of the DIFC Contract Law No. 6 of 2004, in its March 2024 consolidation, sets that out in Part 9. Article 92 treats an assignment of a contractual obligation as a delegation of that obligation to the assignee. Article 94(3) then states the rule that catches most sellers: neither delegation of performance nor a contract to assume the duty made between the original obligor and the person delegated discharges any obligation or liability of the delegating obligor. In plain terms, the buyer's agreement with you to take over the loan binds the buyer to you. It does not release you from the lender. These are default rules, though: Article 48 makes only Part 4 mandatory, and under Article 11 the parties may exclude or vary any provision of the Law except where the Law provides otherwise, so read your finance document before relying on them.

Release comes from the lender's side of the triangle. Article 101 describes a substituted contract as one that the obligee itself accepts in satisfaction of the existing obligation, and provides that the substituted contract discharges the original one. Article 102 defines a novation as a substituted contract that includes as a party someone who was neither the original obligor nor the original obligee. That is the legal shape of a project transfer in which the lender accepts the buyer as its borrower: a new bargain, accepted by the lender, with the buyer as the new party.

Form is not the obstacle. Article 9 provides that nothing in the Law requires a contract to be concluded in or evidenced by writing, and that it may be proved by any means, including witnesses, and Article 35 provides that a contract is concluded, modified or terminated by the mere agreement of the parties. A novation can therefore exist without a signed deed.

One caution about the sources. The Sky Gardens courts did not decide the case by working through Part 9. They asked whether a binding three-party agreement had been formed, applying the formation and interpretation provisions of the Contract Law to events in 2008 and 2009, and described the result as a novation of the existing finance structure. The Part 9 provisions above are the present statutory frame, cited from the published consolidation. They are not the reasoning of the judgments.

Has a court ever released a seller without a signed novation deed?

Yes, in the Sky Gardens litigation, and the case cuts both ways for a seller in your position. The original borrower was released without any signed novation deed, because the court found the three-party agreement by reading its own liability judgment as a whole, on the premium, the buyer's further payments and its audit and balance confirmations, and on the inference that the transfer had no commercial value to the seller unless the buyer owed the lender. Reaching that point took more than six years of litigation and two Court of Appeal judgments.

Taaleem held a one-third beneficial interest in the bulk of the residential units in Sky Gardens, a tower in the DIFC, under a tripartite agreement of July 2008 with Amlak Finance and DIFC Investments. National Bonds Corporation (NBC) financed that interest, advancing AED 216,529,698.75 in two payments, and the two companies signed a Murabaha agreement in October 2008 that was back-dated to 6 July 2008 and covered the advances made up to the end of August 2008. Taaleem wanted a short-term gain for its accounts and negotiated to sell the whole interest to Deyaar. NBC's email of 20 October 2008 set out the structure: Deyaar would acquire the stake as at 31 August 2008 and, having replaced Taaleem after that date, would owe NBC the financing cost on the September 2008 instalment through a new Murabaha agreement.

On 4 December 2008 Deyaar paid Taaleem a premium of AED 72,141,913 by two cheques. In the following months it paid about AED 114 million more to NBC and the other project parties, signed audit and balance confirmations accepting Taaleem's obligations, and initialled a sale and purchase agreement that was placed in escrow in May 2009 but never signed. The property market had fallen, and Deyaar then said that no contract had been concluded, that the premium was a refundable deposit, and that the arrangement had been conditional on due diligence and board approval. NBC demanded repayment from Taaleem, and Taaleem issued DIFC proceedings in May 2010 for declarations that it owed NBC nothing because the financing had been novated to Deyaar.

In the liability judgment of 19 February 2014, the Court of First Instance held that a contract for the transfer of Taaleem's interest was concluded on 4 December 2008, that it had no conditions and that it was accepted to be irreversible. Deyaar's application for leave to appeal on fifteen grounds was dismissed on 16 April 2014. In the second judgment of 23 March 2015, the Court declared that Taaleem's interest and its obligation to repay NBC the principal, Murabaha profit and late payment charges had been transferred to Deyaar on 4 December 2008, that Taaleem was not liable to NBC for that finance at all, and that Deyaar must pay NBC AED 227,379,430.68 within 14 days. The Court of Appeal dismissed Deyaar's remaining appeal on 18 August 2016.

Three points from the judgments frame everything that follows.

Which law did the court apply, and does it govern your transfer?

The liability judgment applied DIFC law to the question whether a binding agreement had been formed, recording that no party suggested the application of UAE law would produce a different result. The separate question whether the transaction should be set aside for a conflict of interest was decided under UAE law, as the parties had agreed, with expert evidence from three UAE law scholars. The Court held, on the experts' agreed position and citing Article 187 of the UAE Civil Code then in force, that knowledge of a director's breach of duty was not enough to set aside a contract: fraud or dishonesty by the director and dishonest collusion by the counterparty had to be established, and Deyaar had expressly disclaimed any allegation of dishonesty. The judge added, on a point he said it was unnecessary to decide, that even if the transaction had been avoidable Deyaar had ratified it by treating the property as its own in 2009.

The governing law had already been contested at the jurisdiction stage. In National Bonds Corporation v Taaleem and Deyaar [2011] DIFC CA 001, the Court of Appeal held that the Murabaha agreement was governed by DIFC law, and that the putative proper law of the novation agreement was also DIFC law, because the novation substituted Deyaar for Taaleem under the tripartite agreement, which itself regulated a trust over DIFC property and was therefore governed by DIFC law. The same judgment also upheld the DIFC Courts' jurisdiction over the dispute, under the jurisdiction statute then in force, Dubai Law No. 12 of 2004, because the transaction had been concluded in part within the DIFC. Those are findings about particular 2008 documents and about the statute of the day, read in their transactional setting.

None of this means that every project transfer in Dubai is governed by DIFC law. Your finance document, your project or co-ownership agreement and your transfer document may each carry a governing law clause, and they may not match. Identify the law of each before anyone forms a view on whether a novation occurred.

Can a novation exist when the formal documents were never signed?

Yes, under the Contract Law as the court applied it. The liability judgment adopted a summary of the formation principles that no party challenged, built on Articles 14 to 35 of the Contract Law: an offer must be sufficiently definite and indicate an intention to be bound under Article 15, conduct indicating assent is an acceptance under Article 19, terms left for later agreement do not prevent a contract from coming into existence if the parties intend to be bound under Article 27, and a contract is concluded by the mere agreement of the parties under Article 35. The judgment also recorded that continued negotiation after agreement does not undo the agreement, that payment is a very relevant factor, and that under Article 51 the court has regard to preliminary negotiations and to the parties' conduct after the contract was concluded.

On that footing the court listed what established the 4 December 2008 agreement: a final draft amendment to the tripartite agreement had been prepared, the price and other essential terms had been agreed, nobody challenged the authority of the people involved, Deyaar's investment committee had approved the acquisition, the premium was paid as a non-returnable proportion of the price and was recorded in Deyaar's own accounts as a payment for acquisition, Deyaar then made a series of further payments, there were no conditions, and the transaction was accepted to be irreversible.

The same Law contains the counterweight. Article 26 provides that where a party insists during negotiations that the contract is not concluded until agreement on specific matters or in a specific form, no contract is concluded before that point. Deyaar lost in part because it had taken no contemporaneous point that the deal was subject to board approval or to satisfactory due diligence. A seller who wants to be bound only on signature should say so at the time, in writing, and a seller who wants an early binding transfer should make sure the buyer has said nothing of the kind.

How do you prove that the lender agreed to accept the buyer?

This is the row of the matrix that decides whether you are released, and the Sky Gardens file shows the kind of material a lender generates. NBC's email of 20 October 2008 described Deyaar as replacing Taaleem after 31 August 2008 and owing NBC the financing cost on the September instalment. On 31 October 2008 an NBC journal voucher recorded the transfer of the AED 136 million of pre-August payments from Taaleem to Deyaar. On 9 November 2008 NBC sent Deyaar draft Murabaha agreements to roll over the instalments, and at a meeting the same day Deyaar agreed to enter into three such agreements covering Taaleem's liabilities to August, the September instalment and the November instalment.

The lender's conduct continued into 2009. On 12 April 2009 NBC confirmed in writing that it had no objection to Taaleem assigning its obligations to Deyaar. In April 2009 Deyaar paid NBC AED 50 million, which Deyaar itself described as partial repayment of the funding NBC had provided to Taaleem, and issued a balance confirmation of AED 218,022,396.22. On 30 April 2009 Deyaar countersigned an audit confirmation stating that all of Taaleem's rights, obligations and liabilities under its Murabaha agreements with NBC would be Deyaar's responsibility from the effective date. The second judgment concluded that no fair reading of the liability judgment as a whole allowed any conclusion other than that the three companies had agreed the transfer of all Taaleem's rights and obligations, including the obligation to repay NBC, achieved by a novation of the existing finance structure, and the judge added that if any residual doubt remained he so found. One limit on the case: when Deyaar finally contended that NBC had never consented, the point was shut out as an abuse of process and the judge said that this made it unnecessary to consider the merits, so the lender's consent was never tried.

For your own file, the lender's records matter more than your correspondence with the buyer: the finance document, ledger entries and statements listed in the matrix above, and the lender's treatment of the buyer's payments, which is why the written and accounting evidence of the substitution carries the weight.

Common mistake. Treating the lender's no-objection letter to an assignment as a release. In the published Contract Law a delegation of the obligation does not discharge the original obligor, and a no-objection letter says nothing about who the lender will look to if the buyer stops paying. What ends your liability is a release, whether given in a separate document or already provided for in the facility, or a finding that the lender accepted a substituted contract.

Is the lender's consent to an assignment the same as releasing you?

No. Article 92 of the published Contract Law separates the assignment of rights from the assignment of an obligation, which is only a delegation, and Article 96, unless the language or the circumstances indicate the contrary, treats an assignment of a whole contract as including a delegation of the assignor's unperformed duties, with the assignee's acceptance operating as a promise to the assignor to perform them. Those provisions describe the buyer's promise to you. Article 96(2) adds that the obligor of the assigned rights is an intended beneficiary of that promise, so a lender that still owes something under the facility may gain a claim against the buyer, but nothing in those provisions releases you: Article 94(3) leaves your liability where it was unless the lender accepts a substituted contract.

The Sky Gardens documents used the word assignment loosely. Deyaar's audit confirmation said that Deyaar would consent to an assignment of Taaleem's Murabaha agreements, and NBC's letter spoke of no objection to Taaleem assigning its obligations. The courts did not stop at the labels. They looked at the whole course of dealing between the three companies and characterised it as a novation, and the order of 23 March 2015 declared that Taaleem was not liable to NBC for the finance whether under the Murabaha agreement or at all. The label the parties use is evidence of what they meant. It is not the answer.

A seller who gave a personal or corporate guarantee for the facility has a further layer: the guarantee is a separate promise, and the transfer of the underlying debt does not itself release it. Ask for the guarantee and any security to be released or reissued as part of the same transaction.

What if the buyer later says the deal was conditional or reversible?

Expect the buyer to re-characterise the arrangement if the asset falls in value. Deyaar's case rested on a memorandum of understanding signed on 19 May 2009 but dated 9 December 2008, which described the premium as a refundable deposit, made due diligence and board approval conditions precedent to any agreement, and provided for automatic termination if no sale agreement was signed within six months. The court found the memorandum's express terms in large part wholly inconsistent with the position it claimed to record: it recited an intention to negotiate when negotiations had run for months, said the premium was to be paid when it had already been paid, called the premium refundable when nothing at the time of payment suggested that, and introduced conditions never mentioned when the deal was done.

The court found that the memorandum was created during an investigation by a government financial audit department into Deyaar's involvement in the project, and that Taaleem's chief executive had signed it to help Deyaar explain the premium to the investigators. The judge accepted the seller's submission that the memorandum was enacted "not to record history but to re-write it". The lesson for a seller is uncomfortable but clear. Never sign a back-dated or inaccurate document to assist a counterparty with its auditors or regulators, whatever the goodwill at the time. That document became the buyer's main weapon in six years of litigation, and the seller's own signature was on it.

Having found there were no conditions, the judge said it was unnecessary to decide whether any conditions were met, but gave his view briefly. Deyaar's board minutes of 23 December 2008 recorded approval of the investment subject to due diligence, approval had been granted on the basis that management would complete the exercise, and Deyaar itself confirmed in May and June 2009 that it had been done. Among the decided findings, Deyaar's later conduct pointed the same way: it negotiated a reduction of the project to half its original scale, then tried to cut the premium in proportion, without reference to Taaleem's management, which the judge held was consistent only with a completed transfer.

Can the buyer attack the transfer because co-owners or the lender never signed a consent?

In Sky Gardens the buyer tried and lost on timing rather than on the merits. The tripartite agreement contained a clause requiring the prior written consent of all parties to any transfer of an interest. Deyaar did not run that point at the liability trial. After the judgment, and after a change of legal team, it argued at the November 2014 hearing that the transfer was invalid because it was not recorded in writing, because the written consent of the other tripartite parties had not been obtained, and because NBC had not consented or agreed to make advances to Deyaar. The judge held that raising those points at a hearing intended to settle the consequential orders was an abuse of process, because the case management order had directed that the trial determine all issues save the assessment of damages requiring expert evidence. He added that he remained wholly unpersuaded that the points would have been sound if taken earlier.

That ruling was then locked in. Deyaar sought permission to appeal the second judgment on four grounds, including the abuse of process ruling, but permission was granted in November 2015 on two grounds only, and on 25 November 2015 Taaleem and Deyaar agreed a consent order dismissing Deyaar's appeal against the transfer declarations, leaving only the amount of the recurring finance charge for the Court of Appeal.

Two lessons follow. First, deal with consent clauses at the time of the transfer. In Sky Gardens one co-owner gave written consent in May 2009, a deed of accession for the others was in draft, and the court never had to decide whether a missing signed consent, from the co-owners or from the lender, mattered. Your own co-ownership, joint venture or developer documents may make consent a condition of a valid transfer, and a buyer who later regrets the deal will read them closely. Second, every argument about validity must be pleaded and run at the trial, because a point held back may never be heard.

Does the buyer take over finance charges and default charges as well as principal?

In Sky Gardens it did, and the figures show why the definition of the transferred debt matters. The AED 227,379,430.68 that Deyaar was ordered to pay NBC comprised principal of AED 173,715,963.25, being the advances less the part of the April 2009 payment credited to principal, Murabaha profit of AED 50,926,992.43 calculated at 5.5 per cent a year on the outstanding balance, and a late payment charge of AED 2,736,475, the parties having agreed during the hearing that the charge was 2 per cent of the amount payable and not 2 per cent a year. The sum then carried interest at 3 per cent above EIBOR from 19 February 2014 until payment.

The recurring profit was the contested item, because the signed Murabaha agreement stated a fixed profit figure for the period to August 2008 and no Murabaha agreement was ever signed for the later period. The second judgment found the 5.5 per cent rate in the promise to purchase between Taaleem and NBC and in a consistent course of dealing on both sides of the effective date. The Court of Appeal agreed. It held that NBC had given sufficient notice of the recurring profit claim in its pleadings and submissions, that under Articles 49 to 51 of the Contract Law the parties' later conduct was relevant to their common intention, and that through the novation Deyaar had assumed all of Taaleem's liabilities and obligations to NBC, including the recurring 5.5 per cent profit.

One further point from the appeal matters if the facility is Islamic finance. The Murabaha agreement made the laws of Dubai subject to the principles of Sharia as set out in identified published Sharia Standards. The Court of Appeal said that this specific reference had incorporated those standards as contractual terms, distinguishing English authority on general references to Sharia, but it treated the whole discussion as academic because Deyaar's counsel had conceded at the 2013 trial that no defect in the Murabaha mattered and had never been allowed to withdraw that concession. If your finance document carries compliance wording of that kind, the argument exists, but it must be pleaded, supported by expert evidence and run at the right stage.

For a transfer being documented now, define the transferred debt in full: the principal outstanding at the effective date, accrued profit or interest to that date, the basis on which profit or interest continues to accrue, default charges, fees and costs.

What about advances the lender made after the agreed effective date?

Yes, in Sky Gardens the buyer took them. NBC advanced a further instalment of AED 81,198,637 on 11 September 2008, after an effective date the record gives as 30 or 31 August 2008, and Deyaar argued at the quantum stage that the September instalment fell outside what it had assumed. The judge doubted that this was a quantum point at all, since it went to the scope of liability and should have been explored at trial, but answered it anyway. The purpose of the transaction, recorded in NBC's email of 20 October 2008, was to eliminate Taaleem's exposure to NBC for the September and subsequent instalments, and Deyaar's letter of 21 April 2009 recognised as much. Even without a formal financing agreement, NBC would have been entitled to restitution against Deyaar for unjust enrichment, because Deyaar and NBC had agreed to treat the transfer as fully effective from 31 August 2008. Deyaar sought permission to appeal this ruling and permission was refused, so it has never been reviewed.

The drafting lesson is specific. Where a transfer is agreed with an effective date earlier than signing, the documents must say which advances, instalments and charges arising in between belong to the buyer, and who reimburses whom.

These three controls follow from the figures and dates in the judgments.

What should you do when the lender's demand arrives?

The demand is a claim, not a determination that you remain liable. It still needs a prompt and careful response, because the way you answer it can itself become evidence of what was agreed. Work through the following steps before any payment or acknowledgment.

1. Do not acknowledge the balance, make a payment or sign a fresh undertaking until the transfer documents have been reviewed.
2. Assemble the three sets of documents, transfer, assumption and finance, marking which versions were signed, initialled or left in draft.
3. Build a dated chronology of every payment made to the lender after the transfer, showing who paid, from which account and how the lender's statements described it.
4. Collect the lender's own words: facility letters addressed to the buyer, ledger entries moving the balance, no-objection letters and statements of account.
5. Check the consent clauses in the project or co-ownership documents and whether each guarantee and security document was released or reissued.
6. Identify the governing law and forum clause in each document, including any Sharia compliance wording and any clause referring to the courts of Dubai.
7. Respond in writing with a reservation of rights, set out the substitution case and ask the lender to confirm whether it treats the buyer as its borrower.
8. Take advice on whether to seek a declaration that you are not liable, as Taaleem did, and on preserving your claims against the buyer under any assumption or indemnity.

Keep the question of what is owed separate from the question of who owes it. In Sky Gardens the lender's entitlement to repayment of its advances was never seriously disputed, and the argument was about which company must pay, whether the September 2008 instalment was included and how much profit had accrued. A seller who disputes the balance as well should run that argument on its own evidence, without letting it blur the substitution case.

How should a project transfer be documented so this dispute never arises?

The Sky Gardens record is, in effect, a list of the documents that should have existed. A single deed of novation signed by seller, buyer and lender, with an express release of the seller and of any guarantor, replaces the inference from emails and ledger entries. A new finance agreement between buyer and lender, or a formal accession of the buyer to the existing one, states the profit or interest basis after the effective date. A schedule of the transferred debt at that date, and of advances and payments up to completion, replaces the restitution argument. Written consents obtained under the consent clause before completion close the validity point, and security is released or re-taken at the same closing.

The Contract Law adds two further drafting reminders. Under Article 30, a merger clause prevents the written contract being contradicted by earlier statements, which protects whichever position the signed document records. Under Article 31, a finance document containing a written modification clause cannot be modified except in writing, although a party may be precluded by its conduct from relying on the clause where the other party has relied on that conduct. Those provisions explain why a lender's informal emails can matter, and why a careful lender will route any substitution through a signed amendment.

On the Sky Gardens record the weakest side of the triangle was the lender's. Seller and buyer negotiate their own bargain with care, while the lender's acceptance of the substitution lives in a no-objection letter, a few account entries and the absence of complaint while the buyer pays. That can be enough, as Sky Gardens shows, where the lender itself supported the substitution case and kept only an alternative claim against the seller, which was dismissed. A lender that actually contests the substitution is a harder opponent, and in Sky Gardens that contest never happened. The safer course is to treat the lender's signed release as a condition of completion rather than as paperwork to be collected afterwards, and to resist any back-dated or accommodating side document, however reasonable the counterparty's request seems at the time.

Key takeaway. A project transfer moves the asset. Only the lender's acceptance of the buyer as its new borrower moves the debt and releases you. That acceptance can be proved from conduct and records, as it was in Sky Gardens, but a signed three-party novation with an express release is the document that prevents the dispute.

Selected official sources were checked on 2 October 2026. The bounded later-history search traced the refusal of leave to appeal the liability judgment in April 2014, the refusal of a stay in April 2015, the grant of permission on two grounds in November 2015, the consent order of 25 November 2015, the settlement agreement between Deyaar and NBC recorded in the Court of Appeal's judgment, the dismissal of the appeal in August 2016, and a separate 2015 claim by Taaleem's former chief executive concerning parallel proceedings in the Dubai Courts. No later reversal of the novation findings was identified. That search is not a certification of the court file. The Contract Law text used is the March 2024 consolidation served by the DIFC legal database. The database's detail page for the Law shows a status label inconsistent with that listing, a presentation inconsistency on the site that is not treated here as a finding about the Law's status. The DIFC Laws Amendment Law No. 1 of 2025 contains no amendment to the Contract Law, and the only 2026 amendment law listed in the database concerns the Real Property Law.

Frequently Asked Questions

Does transferring the project to a buyer transfer the loan? No. Under the published DIFC Contract Law, the buyer's agreement to assume the debt does not discharge the original borrower. The lender must accept the buyer in your place.

Can a novation be made without a signed deed? Yes. The Contract Law requires no writing and a contract is concluded by mere agreement. In Sky Gardens the three-party agreement was proved from the premium, the further payments and the confirmations the buyer itself signed, but it took years of litigation.

Is the lender's no-objection letter to an assignment a release? Not by itself. Delegation of an obligation does not discharge the delegating obligor. Obtain an express release or, failing that, a court declaration.

The buyer has been paying the lender for months. Am I released? Payments reduce the balance. They do not show on their own that the lender accepted the buyer as its only debtor. Look for the lender's finance document, ledger entries and statements addressed to the buyer.

Does the buyer take over profit or interest as well as principal? In Sky Gardens the transferred debt included recurring profit at 5.5 per cent a year and a late payment charge. Define the transferred debt in full in your own documents.

Can the buyer say the deal was conditional on due diligence or board approval? Only if that was the position when the deal was made. Conditions introduced in a later, back-dated memorandum did not survive comparison with the contemporaneous documents in Sky Gardens.

Can the buyer raise missing consents after the liability trial? In Sky Gardens that was held to be an abuse of process, and the appeal against the transfer declarations was dismissed by consent. Validity points must be pleaded and argued at trial.

Does the Sky Gardens decision state current DIFC law for every transfer? No. It applied DIFC contract law to 2008 and 2009 events because the parties accepted that law, and it decided the set-aside question under UAE law. Check the governing law of each of your documents.

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

See the Dubai and DIFC commercial-contracts section and these related guides.

• Competing payment demands from a contractor and its bank
• A bank demanding the company's debt from you personally
• Whether a Dubai bank dispute belongs in the DIFC Courts

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