The real estate market in the UAE has boomed in the past couple of years and has become known for the developments of some of the largest projects in the world. Despite the property market boom, the laws have only slowly evolved protecting the interests of buyers and owners alike. Much of the UAE now permits foreigners to own real estate in certain designated areas throughout the UAE.
I. General Legal Framework of Property Rights
Property ownership rights are entrenched under the UAE Civil Code which provides different types of real property rights in the UAE. Property rights under the UAE Civil Code include “freehold”, “usufruct” and “musataha”. Long-term leases are generally governed by the laws of each respective emirate. Free hold is the most superior form of property right as it allows for full ownership; whereas usufruct and musataha are more restrictive in nature allowing ownership for a limited time with some restrictions. Each emirate thereafter has its own laws regulating property registration. Property registration is conducted at the Dubai Land Department (DLD) in the Emirate of Dubai, and with the Abu Dhabi municipality in the Emirate of Abu Dhabi. Title certificates are issued for all owners of property in order to prove ownership.
In this article we shall assess the various laws governing usufruct rights (which include leasehold), focusing on Dubai and Abu Dhabi. Thereafter we shall concentrate on musataha rights under the laws of the UAE, Dubai, Abu Dhabi as well as the freezones in Dubai.
II. Various Laws of the UAE Governing Property Rights
1. Usufruct Rights
1.1 UAE Civil Code
Articles 1333- 1362 of the UAE Civil Code govern real estate property. Section 1 governs usufruct rights. Article 1333 defines usufurct as a right in rem given to the usufructuary in order to use a real estate owned by another and exploit it as long as it remains as it is. Thus an owner of a building, unit or plot is eligible to enter into a usufruct agreement with a tenant permitting the tenant to use the leased property provided such property remains in its original condition – subject to wear and tear. Leaseholds therefore are a type of usufructuary use. Articles 1337-1348 deal with the rights and obligations of usufruct agreements. These rights are similar to the standard rights and obligations listed under lease agreements. Termination of a usufruct is dealt with under Article 1344 of the UAE Civil Code. A usufruct terminates upon the expiry of 50 years unless agreed by the parties. Other termination rights include misusing the property, or termination by court.
Each emirate in the UAE governs its own laws with regards to usufruct, leaseholds and free-holds for UAE citizens and foreign residents.
The Real Property Registration Law governs property registration in the emirate of Dubai. Article 4 of the Property Registration Law states that real property in Dubai shall be restricted to UAE and GCC nationals and to companies owned in full by them as well as joint stock companies.
Foreigners may be granted the right to freehold, usufruct rights or leasehold rights for a period not exceeding 99 years according to the Property Registration Law. Freehold title of property is the highest form of ownership and provides owners a full right to occupy and use the land. Foreigners are allowed to own freehold in “designated areas” approved by the Ruler of Dubai subject to the Regulation on Non-Locals Acquiring Property. Such property rights are registered under the real estate property register in accordance with the Property Registration Law. Title deeds are issued to owners of property and shall be considered as absolute power of evidence to establish a real property right.
Leasehold is another property right granted to all UAE/GCC citizens as well as foreign residents in Dubai. The Landlord and Tenant Law is the law regulating all foreigners, UAE and GCC citizens’ rights entering into short term leases. Either the landlord or the tenant may register the lease with Real Estate Regulatory Authority (RERA) for a small registration fee. The laws are unclear with regards to unregistered short term leases. However, it has become common for various authorities in Dubai to request the RERA registration; for example, the public notary requires RERA registration for any legal notices to be sent to the tenants by the landlord.
A differentiation however must be made between short-term and long-term leases. Long-term leases are governed via the Fees Pertaining to the Land Department Regulations which defines a long-term lease as a lease for a term of more than 10 years and up-to 99 years. UAE and GCC nationals, and companies wholly owned by them can enter into long term leases of properties located in all areas of Dubai. Foreign nationals are only permitted to enter into a long term lease of property located in designated areas as per the Regulation on Non-Locals Acquiring Property long-term leases cannot exceed 99 years and must be registered in the real property register as per the Property Registration Law. The fees for registering a long-term lease is 4% of the total property value in accordance with the schedule in the Fees Pertaining to the Land Department Regulations. It is important to note that long-term leases are a property right and the tenancy laws of Dubai are not applicable; furthermore, the Rental Dispute Settlement Centre which oversees disputes between landlords and tenants does not have jurisdiction over long term lease disputes.
Usfructurary registration is also mentioned in the Fees Pertaining to the Land Department Regulations. The DLD has confirmed that this is only applicable to two areas in Dubai, the Dubai Investment Park, and Nad Hessa. The registration fees for these “usufruct rights” are 2% of the total value of the contract, and is applicable for a period of 30 years for Dubai Investment Park and up to 99 years for Nad Hessa. Both foreigners and locals may acquire such usfructury rights in these areas. The DLD has confirmed that the decreased registration fees from long-term leaseholds is to encourage investors to invest in these areas.
1.3 Abu Dhabi
In Abu Dhabi, the Abu Dhabi Real Estate Ownership Law governs the property registration in Abu Dhabi.
Article 2 of the Abu Dhabi Real Estate Ownership Law states that the right to own real estate is restricted to nationals as well as persons, companies and certain entities. GCC citizens are only allowed to own real estate within specified investment zones. Article 3 of the Abu Dhabi Real Estate Ownership Law states that non-nationals shall have the right to own, purchase, sell, rent, mortgage and invest in floors and apartments, without the land in specified investment zones.
Similarly, in Abu Dhabi, the Abu Dhabi Landlord and Tenant’s Law governs short-term leases for foreigners, UAE and GCC citizens alike. The Tawtheeq system in Abu Dhabi is similar to the EJARI system in Dubai, where lease contracts for a period of 4 years or less may be registered under Tawtheeq in accordance with Executive Council Resolution No. 4 of 2011. Similar to Dubai, non-registration of the tenancy contracts in Abu Dhabi can lead to difficulties in governmental transactions for tenants, such as Etisalat.
Long-term leases and usufruct rights upto 99 years are identified as real property rights as per the Abu Dhabi Real Estate Ownership Law. Long-term lease are defined as leases with duration of 25 years or more. According to Article 4 of the Abu Dhabi Real Estate Ownership Law non-nationals, residents and non-residents shall be entitled to enjoy such property rights and the registrar shall register such owners in the real estate register. Foreigners and GCC residents may only enjoy such property rights in certain investment areas. All real property rights including usufruct, long-leases, and musataha rights (discussed in more detail below) are subject to registration in the real property register, although in practice, little registration has occurred in the investment areas open to foreigners and GCC residents.
2.1 UAE Civil Code
Musataha is a right in rem which provides an owner the right to build on a land. Although this right has been entrenched in the UAE Civil Code, it has only been recently recognized and implemented throughout the UAE. A musataha right is granted either to UAE nationals (and legal entities wholly owned by them) or to other non- UAE nationals (and legal entities wholly or partly owned by them) within investment zones. The musataha agreements may not exceed a period of 50 years at a time. This right is governed by the UAE Civil Code, articles 1353-1360 which provides a general framework of musataha rights. Each emirate within the UAE thereafter has its own laws and regulations in relation to the registration of musataha. Musataha differs from leasehold or usufruct rights since it specifically grants the user a right to construct or build on the land (as well as plant), whereas leasehold or usufruct rights are recognized as a real property rights for an extended period of time where the holder is entitled to use and occupy the property. Generally speaking however, under the UAE Civil Code, musataha can be acquired either by an agreement, or by the passage of time. The musataha agreement may be terminated either upon the end of the term or if the owner fails to pay for two consecutive years, unless otherwise agreed.
Although the laws of Dubai have not clearly dictated the regulations in relation to registration of such rights, the DLD has some shed some light on this matter and has specified the requirements for the registration of musataha in Dubai. In order to register and enforce a musataha agreement, the plan of the plot of land must be submitted to the DLD, along with the original title deed, three copies of the musataha agreement, and a no-objection certificate from the seller. The plot of land must be for a commercial use; plots of land that are leased for residential property cannot be registered as a musataha right. The DLD also requires that the start and end date of the agreement is clearly mentioned, and that both parties will present themselves at the DLD to register the agreement. Registration fees must be paid, which is 1% of the musataha contract, along with an application fee and a service charge fee. The DLD will review these documents and will ensure that the plot of land does indeed fall under the requirement to be registered as a musataha. The Fees Pertaining to the Land Department Regulations stipulates registration fees for musataha which are borne by the party wishing to enforce the musataha right. The Mortgage Laws of Dubai also refer to musataha but only states that the holder of a musataha right may mortgage his/her right, which is also in line with the UAE Civil Code.
Upon registration of the musataha right, the owner may build on the land. Upon termination of the musataha agreement, the owner may remove the construction, however, the removal of the construction prior to the end of the musataha term does not render the agreement terminated. Musataha agreements are increasing in popularity due to the low registration fees in comparison to registering long-term leases.
2.3 Abu Dhabi
In comparison to the Dubai laws, in Abu Dhabi, the real estate laws clearly mentions musataha and the effects of its registration. The Abu Dhabi Real Estate Ownership Law govern mustaha rights in Abu Dhabi. The Abu Dhabi Real Estate Ownership Law states that non-nationals, residents, and non-residents shall be entitled to attain, own and enjoy musataha rights for up-to 50 years, and shall have the right to develop, invest, mortgage, lease, sell and purchase such real rights that are located within the designated investment zones. Any transfer of ownership must be registered in the real estate register, otherwise it will not be binding on the parties. The musataha contract must also specify the duration of the agreement including the start and end date.
The laws in relation to musataha registration in the free zones is not as clear as the mainland’s. Since each free-zone authority has its own independent regulatory body, for the most part, each free-zone will have its own requirements regarding leasing plots of lands. Some free-zone authorities require registration of such a right, while others do not. Below you will find a brief description on how each free-zone authority applies the registration of lease agreements.
2.4 Musataha in the Dubai Free Zones
a) Jebel Ali Free Zone Authority (JAFZA)
The Jebel Ali Free Zone Authorities is one of the largest free zone authorities in Dubai. Musataha rights do not apply in JAFZA. JAFZA usually issues licenses to companies who wish to operate in an already-existing premise, or to lease a plot of land for the purposes of constructing on it their own premises. If the applicants for a license decide that they want to lease a plot of land, then additional approvals and licenses may be granted in order to start building. Long and short-term leases are available for companies who wish to construct their own facilities. There are various rules and regulations which are applicable to constructing and developing plots of land in JAFZA, which includes applying for various building permits to ensure the land is being properly constructed. Any tenant who has leased a plot of land in JAFZA and constructed facilities on such land may, pursuant to the Mortgage of Immovable Property Law in JAFZA, mortgage the premises as a security for a loan. A register is maintained by the JAFZA authorities to record all mortgages of immovable properties in JAFZA.
JAFZA only operates by issuing licenses to companies, and does not deal with the Dubai Land Department in this regard. Licenses issued are independent and are dealt with by JAFZA itself. Therefore, plots of lands leased by tenants in JAFZA are not registered as a mustaha right with any land department or authority, and the tenants’ protection for such a right is embedded in the license and lease agreement signed with JAFZA.
Tecom Investments is a member of Dubai Holdings and governs 11 free-zone and non-freezone business parks including Studio City, International Media Production Zone, Dubai Industrial City, DuBiotech, Knowledge Village, Academic City and the new Design District. Plots of land are available in some of these free-zones for residential as well as commercial use. The Dubai Technology & Media Free Zone Authority (DTMFZA) is responsible for the establishment and registration of companies in the Tecom Business Parks, with the exception of Dubai Industrial City (DIC), where the licensing is done by the Dubai Department of Economic Development. Tecom Investments has plots available in free-zones and non-free zone areas, and companies usually choose their place of business depending on their commercial activity.
Industrial plots of land are subject to either a long leasehold or an annual lease, and the lease period is between 30-50 years. These leases are treated as the property of the applicants, and as such, are registered with the DLD as a musataha right. There is no differentiation between leasing plots in free-zones and non-freezone areas. All leases are registered with the DLD. Musataha registration is crucial since it is usually required by the banks for financing, or in the event the plot will be sub-leased. The only difference between leasing in the free-zone and non-free-zone areas is that approvals for designs are obtained from the Dubai municipality for non-freezone areas, and from the Zoning Authority for the free-zone areas.
Companies with many different types of commercial activities such as manufacturing, logisitics, transporting and equipment are encouraged to apply within Dubai Industrial City. To apply for a plot of land in DIC, a completed application form must be submitted with details of the industrial project. DIC conducts a detailed technical impact review of the project and informs the applicant accordingly. The Project Development Agreement is then processed and the applicant becomes a tenant at DIC. The tenancy contract is registered with the DLD as musataha. Engineering reports are submitted for review and no-objection certificate is obtained from DIC. Construction commencement approval is then provided after the Dubai Municipality permits are obtained.
c) Dubai Silicon Oasis (DSO)
The DSO operates in a way that is similar to JAFZA. The Dubai Silicon Oasis free-zone caters to the high-tech modern industries. Industrial plots of land are available for lease, and may be granted for a 15-year period where companies may start construction on the land for industrial purposes. Applicants must apply for an approval with the DSO authorities. To obtain this approval, the companies must submit a proposal stating the activity of the company, along with other required documentation. The company will then start its registration processes in order to obtain the licenses. Only after it has been registered will it be able to start the construction process.
DSO operates by providing a license which enables applicants to construct on the land. Musataha rights do not apply as the leases do not have to be registered with the Dubai Land Department or any other governmental authority. DSO is an independent entity and does not require the registration of leases or plots of land with any other authority.
d) Dubai World Central
The Dubai World Central (DWC) is a relatively new logistics and aviation free-zone in Dubai which is comprised of eight districts: logistics, aviation, Al Maktoum International Airport, humanitarian, residential, commercial, leisure, exhibition and commercial. Currently, the only plots available for lease in the DWC are in Logistics City. The leasing periods for the plots are usually for 25 years, and may be renewed for an additional period of 25 years. Manufacturing and industrial activities are not allowed in Logistics City; the activities may only include logistics. Furthermore, only air cargo freight companies are allowed, sea freight companies many not set up in DWC. Sub-leasing plots is not allowed according to the DWC, and there is no requirement to register the lease agreements with the Dubai Land Department or any other authority within the UAE as a musataha right. However, some banks may require such a document for financing, and so the applicants may have to register the musataha with the DLD in order to comply with the bank’s financing conditions. Nevertheless, it is not a requirement from DWC and it is not mandatory for the applicants to register the lease as a musataha right with any other authority.
Property ownership rights are treated differently in Dubai and Abu Dhabi. Usufruct, musataha and long-term leases are all regarded as real property rights in Dubai and Abu Dhabi and must be registered in the real property register in the respective register of each emirate. Long-term leases are considered as a real property right, whereas short-term leases are regulated under the landlord and tenants’ laws in each emirate, and which must be registered under different regulations in order to protect both the landlords and tenants. The regulations in each free-zone differ as each free zone authority regulates its own matters. Nevertheless, musataha agreements are becoming more popular due its low registration fees, as well as it being a requirement from various banks for financing projects. The Dubai Land Department has clearly stipulated the requirements for registration, however, it remains unclear whether all the free-zones across Dubai will begin to implement and recognize musataha rights.