Latest News

Cannonway Awarded Contract On Major LNG Project in Malaysia....

Read More

A New Property Law for Dubai

Introduction

On 14 March 2006, His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai passed the muchanticipated property law for Dubai. The new law has recently been published in the Official Gazette and is now in force. The law is to be known as “Law No. (7) of 2006 concerning Real Property Registration in the Emirate of Dubai”. Amongst other things, it permits foreign ownership of property within designated areas of Dubai - the areas however are yet to be confirmed. This supplement provides an overview of the new property law. The supplement is divided into three sections, namely:

• Main features of the new law
• Comparison of the Dubai property law with property laws in other GCC countries
• Areas where further legislation is required

Main features of the new law

The new property law is primarily an enabling law that creates a framework within which a complete property ownership law for Dubai can be built. It is a good first step in providing foreign purchasers (and lenders) with the key surety they seek in relation to property ownership in Dubai, namely the ability for foreigners to register their interest and obtain title to their property.

The main features of the new law are:

• Foreign ownership: Foreigner purchaser’s are now able to own land or a leasehold interest in land (not exceeding 99 years) in specified areas in Dubai, provided the “Ruler’s approval” is obtained - though the law itself does not specify these areas. It is also unclear at what point and how the Ruler’s approval is to be obtained, although in practical terms, it is likely this will take the form of a decree designating areas or developments within which foreign ownership is permitted (as is already the case in other GCC countries). In addition, GCC and UAE nationals will have an unfettered ability to purchase land anywhere in Dubai.
• Registration of title: The new law allows foreigners, for the first time, to register their property rights at the Dubai Lands Department. Prior to the law coming into force, ownership rights for foreigners were essentially a series of contractual rights contained within the purchase agreement with the applicable developer.
• Guarantee of title: A “guarantee” of title is provided for in the new law. The register of real property to be established by the Dubai Lands Department will be paramount and is deemed to be conclusive evidence of ownership. There is no need to “look behind” the register. The guarantee does not however go as far as some other countries (e.g. UK, New Zealand) where registration serves not only as a guarantee of title but is also coupled with a statutory right of compensation in the event that an error has been made which results in competing claims against the property in question.
• Registration and enforcement of securities (i.e. mortgages): While not providing a statutory right of enforcement or a power of sale on default (refer to our comments later in this supplement), the new law does provide lenders with some comfort. It provides that mortgages can be brought down on to all titles if land is subdivided or merged.
• Empowerment of Dubai Lands Department: The Dubai Lands Department is empowered by the new law to pass regulations governing several areas of property related transactions, including regulating land brokers, specifying the standard form property contracts, regulations for conducting public auctions of real estate and surveying rules and regulations. The law gives the Dubai Lands Department a very powerful voice in creating and shaping the property law for Dubai in these key areas.

Comparison of the Dubai property law with property laws in other GCC Countries

In a number of ways, the Dubai property law is similar to property laws in other Emirates within the UAE and other GCC countries, particularly in relation to foreign ownership.

In particular, several other Emirates and GCC countries also allow foreign ownership and as with Dubai it is only in designated areas. The noteable exception is Abu Dhabi, which only permits foreign ownership of buildings erected on land (but not of the underlying land itself), and then still only in designated areas.

Areas where further legislation is required

Whilst the new property law deals with the concern of foreign investors in relation to ownership, it does not (and could not fairly be expected to) provide a holistic solution to all property ownership and security related issues.

The new law is a first step in creating a legal framework for property ownership in Dubai. Therefore, while further regulations and laws are contemplated, they are yet to be passed. To ensure that the confidence and momentum that has been achieved by Law No. (7) is retained the new regulations need to follow as soon as possible. There are several areas where further laws or regulations are required in order to create certainty for foreign owners and lenders. We have already mentioned some of these areas, but others include:

• Inheritance: When a foreigner who owns real estate in Dubai passes away, there are conflicting opinions as to which law applies - either the law from the country or state of which the deceased is a national or the Sharia based inheritance laws of Dubai. The new law does not cure this uncertainty and is an issue that will need to be clarified in due course. The new law does however specify that any legal notice of inheritance shall be entered into the register, if such inheritance includes real property rights. No act by any heir in connection with such rights shall be valid or effective against any third parties unless such registration is made.
• Statutory “self-help” remedies for mortgagees: Statutory “self-help” remedies, such as foreclosure and power of sale, would provide mortgagees with a greater level of comfort in relation to enforcement. Such remedies do not currently exist, and are not introduced by the new law. The current practical difficulties of enforcement through the courts in Dubai have been a major factor in the rates for secured lending being almost as high as those for unsecured lending. If “self-help” remedies are not provided to lenders at law, then the higher rates may continue despite the new property law allowing foreign ownership (which was the principal factor for high interest rates). The result may be that the property market, in particularly the secondary property market, does not respond as positively as expected to the new law.
• Sectional or Commonhold title: The new law does refer to owners of apartments and floors being noted on a supplementary page to the underlying title. However, the law does not expressly provide for sectional or commonhold titles. We understand a separate law is being prepared enabling commonhold ownership and the provision of separate title for owners of those interests. We hope that any such law will specify the rights and obligations of the respective owners in relation to the common areas of any such development. We believe that a minimum set of essential rules of conduct for each owner to observe to ensure harmony within the development should be provided by way of legislation. This, together with ensuring that successors in title are bound by such rules, are areas of the law that have been left for the developer to set up and police contractually. It is a role better suited to an association of the owners who have legislative power to enforce such rules.
• Registration: Although the new law provides a framework enabling foreigners to register their interests in real property at the Dubai Lands Department, it provides no specifics as to the time frame within which such registration must occur, fees payable upon registration, or the consequences of failure to register an existing interest in land. It is unclear for example, how the law will treat existing interests in land which are not registered prior to the time of disposal, and whether there will be a separate body of regulation in respect of the protection and compulsory registration of such interests. In addition, we note that there is not more comfort provided in the new law for beneficiaries of easements over a freehold property, which pursuant to the Federal Civil Code can currently be withdrawn by the owner of such property, effectively at will. We would hope however, that additional consideration will be given to such matters by the Dubai Lands Department in due course.
• Marketing and selling property: The new law enables the Dubai Lands Department to prescribe regulations relating to the conduct of real estate agents and the form of sale contracts. Such regulations will be welcomed by purchasers and ideally would provide greater protection for “off the plan” purchasers (i.e. maximum deposits payable, deposits to be held in a trust account, prohibition on developer’s charging purchaser’s to transfer the property prior to completion, etc).
• Timeshares: The Federal Civil Code already allows for joint ownership of property according to time. However, no further legislation or regulation is provided at either federal or individual Emirate level in Dubai. Given it has been permitted, this is an area where regulation by the Dubai government (and other Emirates for that matter) should be implemented.

Law No. (7) creates the legal framework for further property laws and regulations in Dubai. We will provide further updates, as significant new property laws and regulations are passed.

Practice Notes

A dedicated Real Estate team, consisting of 1 partner and 4 lawyers, all with considerable local and international legal experience has recently been established in Dubai.

The team advises on all aspects of real estate transactions including acquisition/disposal, development, construction, hotels and leisure, infrastructure (including PFI/PPP), real estate investment funds, real estate financing, commercial leasing/licensing and retail.