Dubai property law targets ‘sham arrangements’

Dubai property law targets ‘sham arrangements’

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Dubai’s new property law includes provisions that target real estate ventures known as ‘sham arrangements’ where, through UAE or Gulf Cooperation Council (GCC) nationals, foreigners assume ownership of land in areas where they are not permitted under the law.Under the law however, these arrangements are illegal since no foreigner can register property rights in these areas, and the rightful owner in the eyes of the law would be the individual who has a deed registered at the Lands Department, or the UAE national.’The best advice to any foreigner wishing to ‘own’ property in a location which is not approved for foreign ownership is to take a long lease of the property. Whilst the lease cannot be registered, the foreigner would at least have contractual rights pursuant to the lease which can be enforced and a lease arrangement is not illegal or invalid,’ said Lisa Dale, Head of the property division at Al-Tamimi & Company, Advocates and Legal Consultants. ‘Under the new law, UAE and GCC nationals who gain freehold ownership in Dubai also get the right of ‘usufruct’ and the right of ‘musataha’.Very similar to a lease, the ‘right of usufruct’ is a concept that is found in the UAE Federal Civil Code that extends the right to use and enjoy the profits and advantages of something belonging to another, in this case land, as long as the property is not damaged or altered in any way and over a specified period of time up to 99 years.

The idea of ‘musataha’ goes further and allows a third party interest to build or plant on the land in question and can therefore avail more flexibility than the right to usufruct. It is the right that we commonly see granted to the tenant through a ‘Ground Development Lease’. At the end of the agreed period, the property ownership reverts to the landowner registered at the Land Department.

Dale’s comments came at the first in a series of seminars organized by Al-Tamimi & Company aimed at increasing awareness with regard to Dubai’s Law Number (7) of 2006 concerning Real Property Registration in the Emirate of Dubai. Husam Hourani, Partner and Head of the Banking Division at Al-Tamimi & Company along with Fadi Hammadeh, Head of Legal at Dubai Properties and member of the drafting committee of the Law, were also on the panel to answer questions.

This first seminar was targeted at real estate sector organizations where present at the event were ranking executives from Better Homes, Cluttons, Deyaar, Emaar, Nakheel, IFA Hotels and Resorts and Union Properties among others.

The primary focus of the seminars is to answer the main question in the minds of most foreign investors: ‘Does the new Law provide legal confirmation of a foreign investor’s right to own property in freehold projects and secure registration of title at the Dubai Land Department? Will the confidence and patience of these investors be rewarded and will it instill confidence in the many more circumspect investors waiting in the wings for a robust Property Law before they decide to invest?

Dale continued: ‘I believe that this Law does provide the appropriate legal framework that we have been waiting for – there are no surprises and it does what we need it to do for now. But as this Law itself acknowledges, it is just a starting point and more regulation and legislation is required to meet the needs of a market that is rapidly growing in both size and complexity.’

What then of the long leases that have been sold to foreigners by some of the other large developers in areas outside of the zones approved by the Ruler for foreign ownership?

‘Well, in these projects, it would seem initially at least that registration of leases in favour of foreign investors will not be permitted. This does not make these leases illegal in any way. They do not offend this Law or any Federal Law. It just means that they are treated in a different way so that unregistered leases remain personal rights, not property rights, they are still capable of being inherited and disputes arising between a Landlord and a Tenant of an unregistered Lease will still be heard by the Rents Committee,’ she concluded.

Source: AMEInfo