Overview of the Real Property Laws of Dubai

MOST OBSERVERS would agree that Dubai has experienced phenomenal growth in its real estate industry, especially during the last 5 years. Everywhere one looks, the evidence of this growth can be seen--in the amazing display of glittering hotels, such as the Burj AI Arab, office buildings, such as the Burj Dubai, which will be the tallest building in the world when completed, and shopping centers, such as Mall of the Emirates with its indoor ski slope; in the development of free zones, such as the Jebel Ali Free Zone and the Dubai International Financial Centre (“DIFC”), where companies can be 100% owned by non-UAE nationals; in the passage by the DIFC of the Investment Trust Law and the Collective Investment Law No. (1) in 2006, and their related amendments and regulations, which prescribe the formation and operation of Real Estate Investment Trusts (“REITs”); and the list goes on. Especially exciting to lawyers who have chosen to practice in Dubai is the constantly developing legal and regulatory framework that is necessary to provide the legal protection and clarity that property ownership and investment require in order for the Dubai property industry to be successful. Much of this framework in the real property area has only been in place since 2006 in Dubai. This article provides a brief overview of the major laws of this legal framework, with emphasis on the laws of Dubai and references to the laws of Abu Dhabi and the DIFC, in which many foreign companies choose to operate.

REGISTRATION OF TITLE

Pursuant to Dubai Law No. (7) of 2006, only United Arab Emirates (“UAE”) and Gulf Cooperation Council (“GCC”) nationals and companies wholly owned by such nationals have the right to own property interests in all areas of Dubai and can register their rights. There is an exception for public joint stock companies and other companies that are listed on the Dubai Financial Market. Other nationalities and their companies are granted a right to own a freehold interest, a right of usufruct or a long-term lease of up to 99 years in designated areas of Dubai. These designated areas are set forth in Regulation No. (3) of 2006 and include the Palm Island projects, the World Islands, and the Dubai Marina, among others. Dubai Law No. (21) of 2006 sets forth the amended registration fees and provides that the purchaser shall pay a fee equal to 1% of the sales price and the seller 1% of the same. Dubai Law No. (7) of 2006 is liberal by local standards. Abu Dhabi Laws No. (3) of 2005 and No. (19) of 2005, as amended by Law No. (7) of 2007, do not permit non-GCC nationals or their companies to own freehold interests anywhere in Abu Dhabi, although they do have the right to own usufruct for a maximum term of 99 years and musataha (development) for a term of 50 years, which can be renewed, in designated areas, such as AI Reem Island. As a result, Abu Dhabi land development necessitates that sellers of real estate retain the freehold interest and transfer only the musataha right to joint ventures or companies in which non-GCC nationals own interests and agree to transfer the freehold interest to the non-GCC nationals at some time in the future when the law permits. DIFC Law No. (14) of 2007 creates a new registration system pursuant to which the DIFC will guarantee freehold and leasehold for a term of over 1 year to real property within the DIFC for all companies and individuals, including foreign companies and nationals.

OFF-PLAN LAWS

Dubai Law No. (8) of 2007 was enacted to provide legislative protection to purchasers in off-plan (Le., pre-construction) transactions. A developer who wishes to sell units off the plan must apply to the Dubai Land Department to open a Guarantee Account through which sums paid by buyers of units off the plan or paid by financing parties shall be deposited. Additional protection has been added through the issuance of Dubai Law No. (13) of 2008, which will become effective 60 days after it is published in the official gazette. It provides for the creation of an Interim Real Estate Register to record all transfers of real estate units off plan. Any sale or other disposition that transfers or restricts title or any ancillary rights shall be void if not recorded in that Register.

STRATA LAWS

Dubai Law No. (27) of 2007 provides for registration of jointly owned property, which covers 2 concepts of subdivision, namely (i) subdivision within buildings where common areas will be created, and (ii) subdivision within conventional methods of horizontal subdivision of land where common areas will be created. Earlier during 2007, the DIFC passed Law No. (5) of 2007, which recognizes that real property may be divided both vertically and horizontally and provides for registration of the strata plan.

TENANCY LAWS

Dubai Law No. (26) of 2007 requires tenancy contracts to be in writing and registered with the Real Estate Regulatory Agency. It applies to all property in Dubai, but certain tenancies are excluded, such as hotel tenancies. No increase in rent or other amendment to a tenancy may be made during the first 2 years of the tenancy. Decree No. (27) of 2007 provides for a cap of 5% of the annual rent; however, no rent increase is permitted if rent was increased in 2007, or if the tenancy contract was first entered into in 2007. Decree No. (30) of 2007 provides for the appointment of a special judicial committee for tenancy dispute resolution.

MORTGAGE LAW

On August 19, 2008, Dubai Law No. (14) of 2008 was issued and will become effective 60 days after it is published in the official gazette. It stipulates that mortgage contracts must be registered with the Land Department and must specify the size of the loan, the repayment period and the value of the property to which the loan is linked. It provides that mortgage lenders obtain priority over unsecured lenders in the case of enforcement and provides for a “court-assisted” process, rather than a “self-help” remedy which permits the lender to sell the property without having to go through a court process.

CONCLUSION

These laws are positive moves in protecting the players in the everexpanding real estate development in Dubai. It is hoped and expected that their passage should inspire increased confidence to further the Dubai government’s objectives as the real estate market continues to develop and mature. ?