Real Estate in Dubai
The Property market has been on the commercial forefront of the United Arab Emirates for the past several years. In particular, Dubai has witnessed investments from around the world and high appreciation. While most sellers and purchasers of real estate here are focused on the investment potential of their properties and rate of return, there are numerous legal issues of which sellers and purchasers should be aware. Oftentimes, parties are uninterested in the legal aspects of their transactions until things go awry. The following will focus on: real estate regulation in Dubai; ownership of real estate in Dubai by foreign persons; leaseholds under the UAE Civil Code; and disposition of Dubai real estate under applicable inheritance and probate laws.
Issuance of the Property Registration Law and Foreign Ownership of Land in Dubai
In March of 2006, Dubai Law No. 7 of 2006 (the "Property Registration Law") granted foreign nationals rights to freehold or long-term leasehold (up to 99 years) within designated areas. Additionally, the Property Registration Law permits freehold ownership anywhere within the Emirate to the following persons: UAE and GCC nationals; companies wholly owned by UAE and GCC nationals; and public joint stock companies.
The Property market has been on the commercial forefront of the United Arab Emirates for the past several years. In particular, Dubai has witnessed investments from around the world and high appreciation. While most sellers and purchasers of real estate here are focused on the investment potential of their properties and rate of return, there are numerous legal issues of which sellers and purchasers should be aware. Oftentimes, parties are uninterested in the legal aspects of their transactions until things go awry. The following will focus on: real estate regulation in Dubai; ownership of real estate in Dubai by foreign persons; leaseholds under the UAE Civil Code; and disposition of Dubai real estate under applicable inheritance and probate laws.
Issuance of the Property Registration Law and Foreign Ownership of Land in Dubai
In March of 2006, Dubai Law No. 7 of 2006 (the "Property Registration Law") granted foreign nationals rights to freehold or long-term leasehold (up to 99 years) within designated areas. Additionally, the Property Registration Law permits freehold ownership anywhere within the Emirate to the following persons: UAE and GCC nationals; companies wholly owned by UAE and GCC nationals; and public joint stock companies.
Dubai Regulation No. 3 of 2006 (the "Regulation") followed with plot details of the designated areas in Dubai where foreign nationals could own freehold title or enjoy long-term leases. However, without corresponding maps, the areas designated for freehold or long-term leasehold to foreigners were not easily identifiable. Copies of the maps of the designated freehold areas were eventually circulated to the local press. As expected, the real estate projects of the three major master developers have been designated as freehold areas for foreign purchasers. These projects include The Palm, Emirates Hills, Arabian Ranches, and Dubai Land. Many owners in these projects - and other projects of major developers - have already obtained official title deeds in the past year from the Dubai Land Department (the "DLD").
Foreign companies who purchase commercial or residential property within the designated freehold areas in Dubai are permitted to enter into lease agreements with any lessee, and to stipulate the length of such leases as they determine.
The DLD confirmed to us that it has begun the registration of 99-year leases for the designated areas within its Property Registry and will issue title deeds for long-term leaseholds relating to these properties. The reasoning behind this is that long-term leases have all the same rights as freehold properties (e.g.), the right to mortgage, lien, or transfer interests to a third-party) and are limited only with respect to time. While the maximum limit of long-term lease in the designated areas is 99 years, as stated in the Property Registration Law, theDLD speculated that a minimum registration threshold for a long-term lease is 10 years. However, the DLD stated that the parameters for registration of long term leases would be clarified via future legislation.
Foreigners who acquire freehold property in Dubai must obtain a residency visa with the Department of Naturalization and Residency ("DNR") if they seek to live in their Dubai property - provided that they do not already have residency visas by virtue of their employment in Dubai. Foreign companies can nominate their directors or other employees to obtain residency visas for properties purchased by such companies.
Residency visas are usually valid for renewable terms of three years. although foreign corporations in good standing and foreign natural persons without criminal records have generally acquired residency visas for their properties in the past few years with relative ease, the
Residency visas are usually valid for renewable terms of three years. although foreign corporations in good standing and foreign natural persons without criminal records have generally acquired residency visas for their properties in the past few years with relative ease, the
DNR does not have any guidelines in place regarding the issuance of residency visas and the approval or rejection of residency visa applications are at the sole discretion of the DNR. Additionally, holders of residency visas for their freehold or long-term leasehold properties are not permitted to undertake employment by virtue of such visas, and such persons would need to obtain separate employment visas to work in Dubai.
The Civil Code and Leasehold Interests Outside of the Designated Areas
Before the issuance of the Property Registration Law, the UAE Civil Code (UAE Federal Law No. 5 for 1985) governed interests in real estate in Dubai, particularly the leasehold rights of usufruct and musatahah. The right of usufruct is a right to use and enjoy developed property, provided that the property is not altered or damaged by the tenant. The UAE Civil Code does not specify a maximum term for usufruct leases; however Article 1344 of the Civil Code states that a lease will expire at 50 years if no term is contained in the lease agreement. Based on the general practice of the three major developers (i.e., Emaar, Nakheel and Dubai Properties) as a guideline, we are not advising clients to enter into usufruct leases with terms greater than 99 years at this time. Musatahah leases contemplate the development, use and enjoyment of the fruits of a land of a lessor by the lessee. Pursuant to Article 1356 of the Civil Code, terms for musatahah leases are up to 50 years.
Before the issuance of the Property Registration Law, the UAE Civil Code (UAE Federal Law No. 5 for 1985) governed interests in real estate in Dubai, particularly the leasehold rights of usufruct and musatahah. The right of usufruct is a right to use and enjoy developed property, provided that the property is not altered or damaged by the tenant. The UAE Civil Code does not specify a maximum term for usufruct leases; however Article 1344 of the Civil Code states that a lease will expire at 50 years if no term is contained in the lease agreement. Based on the general practice of the three major developers (i.e., Emaar, Nakheel and Dubai Properties) as a guideline, we are not advising clients to enter into usufruct leases with terms greater than 99 years at this time. Musatahah leases contemplate the development, use and enjoyment of the fruits of a land of a lessor by the lessee. Pursuant to Article 1356 of the Civil Code, terms for musatahah leases are up to 50 years.
The Civil Code is silent as to the registration of these leases, and there no specific regulations relating to the registration of these leases with the Dubai Land Department (the "DLD") or any other governmental entities in Dubai. registration of leases with applicable government authorities affords tenants certain protections, including the ability to seek recourse with the Rent Committee of the Dubai Municipality before pursuing matters with the Dubai Courts. According to recent discussions with the DLD, usufruct and musatahah leases concerning property outside of the designated freehold areas can only be registered in Dubai UAE nationals, and the DLD will not register any leasehold rights greater than 50 years. However, leases which are not subject to registration still allow the parties to pursue their contractual rights before the Dubai courts. The DLD verbally represented to us that it eventually seeks to register significant commercial, residential, and industrial lease interests outside of the designated freehold areas.
Foreign companies are allowed to enter into commercial leases anywhere within Dubai, provided they have appropriate commercial licenses to undertake their respective commercial activities. Normally, commercial tenants can lease, or renew leases for, real estate with few impediments, and for lengthy terms in Dubai.
The Civil Code directs the UAE courts to impose UAE or shari'ah law regarding the disposition of UAE real property of a decedent. This could create difficulties for both Muslim and Non-Muslims who seek to devise their estates in manners that may be contrary to the shari'ah.
The UAE recently introduced the Personal Status Law (Federal Law No. 28 of 2005), which further elaborated upon the inheritance rights of foreigners who leave estates in the UAE. The Personal Status Law states that the devisable estates of foreigners may be subject to: (1) the laws of their respective countries of citizenship; (2) the laws of their last domicile; (3) the laws of the country where the property is located; or (4) the laws of the place of decedent as void all other UAE laws which conflict with the provisions of the Personal Status Law. It is important to note that the event of the death of any purchaser of a property, the property would not necessarily pass entirely to the spouse (if any) since shari'ah courts would govern the dissemination of the estate.
Recent Legislation Regarding Developers
Although the sudden surge of property investment has certainly distinguished Dubai as a world leader in this sector, it has also called attention to the lack of breadth in real estate legislation. News reports in the past few years have revealed incidences of purchasers who became victims of the fraudulent practices of unauthorized developers and unprincipled real estate brokers and agents - and the lack of legal recourse available to such purchasers.
This July, Dubai issued Law No. 8 of 2007 (the "Escrow Account Law"). The Escrow Account Law mandates that the developers who opt to sell properties to buyers of off-plan open escrow accounts for such projects, with trustees endorsed by the DLD to oversee such accounts. The protections afforded to purchasers depositing funds into such escrow accounts will be subject to the specific terms and conditions of the individual escrow agreements negotiated between the parties. Developers must register with the DLD. Developers or trustees who violate the Escrow Account Law face stiff penalties - including possible imprisonment or fines no less than AED 100,000.
Foreign companies are allowed to enter into commercial leases anywhere within Dubai, provided they have appropriate commercial licenses to undertake their respective commercial activities. Normally, commercial tenants can lease, or renew leases for, real estate with few impediments, and for lengthy terms in Dubai.
Inheritance
Inheritance is a legal topic garnering a great deal of questions, but still seems shrouded in mystery. Currently , there are questions regarding inheritance of property in the UAE and the application of shari'ah (Islamic) law. Until last year, the only significant UAE law focusing on inheritance issues was the Civil Code.The Civil Code directs the UAE courts to impose UAE or shari'ah law regarding the disposition of UAE real property of a decedent. This could create difficulties for both Muslim and Non-Muslims who seek to devise their estates in manners that may be contrary to the shari'ah.
The UAE recently introduced the Personal Status Law (Federal Law No. 28 of 2005), which further elaborated upon the inheritance rights of foreigners who leave estates in the UAE. The Personal Status Law states that the devisable estates of foreigners may be subject to: (1) the laws of their respective countries of citizenship; (2) the laws of their last domicile; (3) the laws of the country where the property is located; or (4) the laws of the place of decedent as void all other UAE laws which conflict with the provisions of the Personal Status Law. It is important to note that the event of the death of any purchaser of a property, the property would not necessarily pass entirely to the spouse (if any) since shari'ah courts would govern the dissemination of the estate.
Recent Legislation Regarding Developers
Although the sudden surge of property investment has certainly distinguished Dubai as a world leader in this sector, it has also called attention to the lack of breadth in real estate legislation. News reports in the past few years have revealed incidences of purchasers who became victims of the fraudulent practices of unauthorized developers and unprincipled real estate brokers and agents - and the lack of legal recourse available to such purchasers.
This July, Dubai issued Law No. 8 of 2007 (the "Escrow Account Law"). The Escrow Account Law mandates that the developers who opt to sell properties to buyers of off-plan open escrow accounts for such projects, with trustees endorsed by the DLD to oversee such accounts. The protections afforded to purchasers depositing funds into such escrow accounts will be subject to the specific terms and conditions of the individual escrow agreements negotiated between the parties. Developers must register with the DLD. Developers or trustees who violate the Escrow Account Law face stiff penalties - including possible imprisonment or fines no less than AED 100,000.
- Where does Dubai head from here?
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