- Key Real Estate Issues in the UAE
- November 22, 2011
- Law Firm: Norton Rose Canada LLP - Montreal Office
There are significant differences in real estate law throughout the United Arab Emirates (UAE) and in this article we look at some of the key real estate issues in the two Emirates with the most developed legislative frameworks in the UAE - Dubai and Abu Dhabi.
The legislation governing who may and may not own property in Dubai is Law No. 7 of 2006 Concerning Land Registration in the Emirate of Dubai.
- UAE and other Gulf Cooperation Council (GCC) nationals (and companies wholly owned by such nationals) have the right to own any property interest anywhere in the Emirate of Dubai and to have such rights registered at the Dubai Land Department (DLD).
- Private companies incorporated in the UAE, or any other GCC countries, will not be considered UAE or GCC nationals for the purpose of owning property if they have any foreign shareholders. However, public joint stock companies whose shares can be bought by foreign investors are considered UAE nationals for the purposes of property ownership.
- Other nationalities may acquire a freehold interest, a right of usufruct (see “interests in property” below) or a long lease of up to 99 years in “designated areas”, as approved by the Ruler of Dubai.
- Foreigners may not register long leases in areas other than those designated by the Ruler of Dubai. Such leases are considered to grant personal rights and are enforceable in contract only, but may not be enforceable if they attempt to violate the registration law.
Interests in property
As discussed above, certain categories of persons are entitled to own freehold properties in Dubai and the areas in which freehold property can be owned depends on the nationality of the owner.
A lease in Dubai is a contractual right rather than a property right. Although a tenant is granted the right to use property, this is a personal right enforceable through the lease contract rather than a right connected with the land itself.
A usufruct, however, is a real property right, and grants the right to use and exploit property belonging to another person.
A right of Musataha is similar to a usufruct. It is the right to use and exploit land belonging to another person, along with the right to build on that land, and is commonly granted to real estate developers.
Regulations and guidelines have recently been implemented in Dubai in relation to jointly owned property (the Strata Regulations). The Strata Regulations seek to balance the rights of all participants (owners, co-owners’ associations, and the board and management of those associations) in relation to the management and operation of communities and multi-owned buildings in Dubai. The new ownership structure is underpinned by a survey and measurement regime.
The Strata Regulations set out in detail the information that must be included in mandatory documents such as the Master Community Declaration and the Constitution of the Co-owners’ Association, together with the rules and internal procedures for appointing board members, approving budgets, passing resolutions and the role of managers.
The intention is to clarify each participant’s rights and responsibilities so that physical boundaries and ownership responsibilities are clear. The Strata Regulations also restrict the ability of developers to impose their own rules and conditions, so, for example, there are particular provisions to restrict developers from entering into supply agreements on behalf of Co-owners’ Associations. They also include details of the measures that the Real Estate Regulatory Agency (RERA) may take where there has been a breach of compliance.
Protection of interests in property
Dubai has established a system of land registration which is managed by the DLD through the Real Estate Register, which is the conclusive source of information regarding a property right. The register can be amended if circumstances change, or if a mistake is subsequently identified.
- Evidence of ownership of completed properties is provided through the title certificate, which confirms registration of the property right on the Real Estate Register.
- Third party rights may be entered on the Real Estate Register (e.g. the covenants and easements contained in a Master Community Declaration).
- Off-plan property must be entered on the Interim Real Estate Register (article 3, Law No. 13 of 2008 Regulating the Interim Real Estate Register in the Emirate of Dubai).
- As soon as a completion certificate is obtained for off-plan property, the developer must register the property in the main Real Estate Register. The DLD is also able to effect this transfer.
Security may be granted over property. Law No. 14 of 2008 Concerning Mortgages in the Emirate of Dubai (Mortgage Law) regulates the mortgaging of “off-plan” and existing properties - mortgages are not valid unless registered in the Interim Real Estate Register or Real Estate Register, and any agreement to the contrary is void.
Where a lender is not licensed with the UAE Central Bank to provide finance for property in the UAE, it will need to make arrangements with a local bank to act as security agent if it wishes to provide such financing.
Priority is governed by the serial number with which the mortgage is registered at the DLD. Where several applications are registered at the same time, against the same borrower and the same property, the mortgages are registered with the same number and, in these circumstances, the lenders rank equally in terms of priority, subject to an agreement otherwise.
Under the Mortgage Law, if a borrower defaults under a mortgage agreement in the UAE, the lender does not have the right to repossess the property immediately. Any clause purporting to give the lender title to the property as a result of the borrower’s failure to pay is void. Instead, the lender must give the borrower 30 days’ notice and - if the borrower does not settle its arrears during this time - the court may order a public auction of the property. This 30-day period may be increased to 60 days if the borrower would suffer “substantial damage” as a result of the sale.
According to the Mortgage Law, the claims of secured lenders are paid out of the sale price of the property in order of priority. If the sale proceeds are insufficient to cover a secured lender’s claim, that secured lender may claim the difference from the borrower (and ranks equally with all unsecured creditors).
As in Dubai, UAE nationals, and legal entities wholly owned by UAE nationals, have the right to own freehold property anywhere in the Emirate of Abu Dhabi. However, unlike Dubai, non-UAE GCC nationals only have the right to own freehold land within designated areas known as Investment Zones.
Foreign nationals have the right to own apartment units or entire floors in buildings in Investment Zones, but this right does not include an associated right to a share in ownership of the underlying land on which the building is situated.
Foreign nationals may also acquire a right of usufruct for a period of up to 99 years and a right of Musataha for a period of up to 50 years, renewable on one occasion by mutual consent in Investment Zones. These rights are discussed further below.
There is no general ownership exemption for public joint stock companies in Abu Dhabi, as there is in Dubai. This has meant that Abu Dhabi listed companies owning freehold land in the UAE have had to obtain bespoke exemptions (e.g. each of Sorouh Real Estate Company PJSC and ALDAR Properties PJSC has obtained specific exemptions personal to those companies).
Interests in property
As discussed above, certain categories of persons are entitled to own freehold properties in Abu Dhabi and the areas in which freehold property can be owned depends on the nationality of the owner.
A lease in Abu Dhabi is a contractual right rather than a property right. Although a tenant is granted the right to use property, this is a personal right enforceable through the lease contract rather than a right connected with the land itself.
As in Dubai:
- a usufruct is a real property right and grants the right to use property belonging to another person
- a right of Musataha is the right to use and exploit land belonging to another person, along with the right to build on that land, and is commonly granted to real estate developers.
Protection of interests in property
Abu Dhabi has established a Land Registration Department (LRD) as part of the Abu Dhabi Municipality and any document creating, transferring or extinguishing real property rights is considered ineffective unless evidenced by registration. Registration creates a real property right or interest in the land and ensures that the registered interest is enforceable through specific performance (at the discretion of the Abu Dhabi courts).
A lease cannot be registered if it has a term of less than four years, but the leasehold interest can be noted on the relevant title. This would protect the tenant against any dispute regarding execution of the lease and would also serve as notice to third parties of the existence of the lease. Leases with a term of more than four years are capable of registration at the LRD. Unregistered leases for a term of four years or more have no effect other than to create personal obligations of those concerned towards each other.
If a document capable of registration is not registered, it may be considered to be maukoof - in a state of suspension and unenforceable. However, any subsequent registration would bring it into effect as a valid registered document, creating a legal title in the land and being adducible in evidence.
Security may be granted over property, such as a mortgage over freehold property or a mortgage over a Musataha right.
It is not clear whether the leasehold rights of a tenant can be validly mortgaged under UAE law, but assignment of a lease to a lender is permissible (under a tripartite agreement between the assignor, the assignee and the landlord) and would result in the lender acquiring the rights of the assignor/tenant.
Investment initiatives in Abu Dhabi
The Abu Dhabi Government has supported international investment by designating certain significant areas of land as Investment Zones. The rules regulating foreign ownership of property have been relaxed in these Investment Zones.
The legal regime relating to real estate ownership is under review and we understand that a number of new regulations are being considered by the authorities. This is likely to have a positive impact on development and investment in Abu Dhabi.