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The New Dubai Property Law - Part I

The New Dubai Property Law  - Part I

The long awaited 'Property Law for Dubai' has now been passed and has been met with a great deal of interest and excitement amongst everybody involved in the real estate sector in Dubai - developers, investors, lawyers, bankers and brokers.

We can trace the roots of the property boom in Dubai back to 2002 with the announcement by His Highness Sheikh Mohammed bin Rashid Al Maktoum that freehold ownership of certain properties in Dubai was available to investors of all nationalities.

Since 2002, several projects have been launched and sold to foreigners. These projects include Dubai Marina, Emirates Hills, Jumeirah Islands, the 3 Palm Islands, Dubai Waterfront, Jumeirah Beach Residence, The Meadows, The Springs, Arabian Ranches, the list is endless. In some instances, properties have already been completed and handed over to buyers.

The question now on everybody's mind is whether this new Law provides legal confirmation of a foreign investor's right to own property in these projects and secure registration of their 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?

In this first part of four articles, we examine what the new Law achieves and we discuss in further detail some of the provisions of the new Law.

Force and effect of Law No. (7) of 2006:

Law No. (7) Of 2006 concerning Real Property Registration in the Emirate of Dubai was signed by Sheikh Mohammed on 13th March 2006. According to Article 29 of the Law, it will be published in the Official Gazette and will come into force as of the date of its publication. This is expected during May 2006.

Ownership by UAE and GCC Nationals

According to Article 4 of the Law, both UAE and GCC nationals have the right to own real property in Dubai. No distinction is made between UAE nationals and the nationals of the other GCC countries. They are afforded equal status under the provisions of this Law. UAE and GCC nationals can own any property right and seek registration of title at the Land Department. This includes freehold ownership, a long lease of up to 99 years, the right of usufruct and the right of musataha.

To explain more fully a couple of the above concepts:

The 'right of usufruct' is a concept that is found in our Federal Civil Code. It is the right to use and exploit property belonging to another person. It is a 'right in rem', in other words, it is a real property right. A lease is very similar. It also grants the right to use and exploit property belonging to another person. But according to our Civil Code, a tenant does not acquire a property right through a Lease; he just acquires a personal right, a right that is enforceable through a contract between himself and the landlord. The distinction between the 'right of usufruct' and a leasehold right is important in the context of foreigners' property rights in Dubai and will be discussed in further detail under the following heading. For UAE and GCC nationals, there is really very little practical distinction to be drawn between the 'right to usufruct' and a lease: both give a tenant the same rights the right to use and exploit a property - and both can be registered.

The 'right of mustaha' is similar to the 'right of usufruct' it is the right to use and exploit land belonging to another person but it is more than this. It is the right to build on the land belonging to another person. It is the right that we commonly see granted to the tenant through a 'Ground Development Lease'?. UAE & GCC nationals can own property rights in all areas of Dubai. This can be in the new projects that we have seen springing up and offered to all nationalities or in any other part of Dubai Sheikh Zayed Road, Bur Dubai, Deira, anywhere. UAE and GCC individuals can own property rights, and so can their companies. This means limited liability companies and private joint stock companies in which all the shareholders are UAE or GCC nationals. Just because a company is incorporated in the UAE or in any of the other GCC countries does not mean it can own property anywhere in Dubai. If the company has foreign shareholders, it will not be considered a UAE or GCC national for the purpose of owning property. The only exception to the companies ownership discussed above, is Public Joint Stock Companies, companies such as Emaar and Union Properties, which are listed on the Dubai Financial Market. These companies allow their shares to be bought by foreigners but are still considered to be UAE nationals and can own property anywhere in Dubai.

Ownership by Nationalities other than UAE or GCC Nationals

According to Article 4 of the new Law, all nationalities other than UAE or GCC nationals can own freehold title, a 99-year Lease or a Usufruct right in specific areas of Dubai, as determined by the Ruler's approval. The concept 'freehold' is a generally well understood concept. In summary, it is the most superior form of private property ownership. A freeholder is considered to be the absolute owner of the land and buildings comprised in his title. He has the right to occupy, use and enjoy his property forever in perpetuity or until he transfers his title to a new owner, and his heirs are entitled to inherit his title upon his death. As regards leasehold and usufruct rights, the new Law provides that the right shall not exceed 99 years. From our discussions with the Land Department, we understand that the minimum term is 10 years, i.e. that a lease or usufruct right for a term of between 10 to 99 years can be registered at the Land Department. This is to be confirmed by the Land Department in the Rules that it is authorized to publish pursuant to the new Law. All of the above is subject to the property in question being located in one of the specific areas of Dubai which the Ruler approves for foreign ownership. We are now awaiting the first of such Ruler's approvals. The current indications are that this will be issued shortly, and that it will include the expected projects within the portfolios of Dubai Properties, Nakheel and Emaar. Some other large projects may also be included, for example those at Dubailand. In areas that have the ruler's approval, both foreign individuals and companies can own property. The Land Department is imposing no restrictions on this and it will make no difference whether the company is registered in the Cayman Islands, England, Hong Kong or any other foreign jurisdiction provided that it can prove its lawful existence in its home country.

What will be the status of long leases executed by foreigners in areas that have not been approved by the Ruler?

Long leases are being sold to foreigners in projects all across Dubai, such as Dubai Investments Park and Dubai Silicon Oasis. In these projects, it would seem initially at least, that registration of long leases in favour of foreign investors may not be permitted. This does not make these long 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 for some purposes:
= > Unregistered leases remain personal rights, not rights in rem or property rights
= > Unregistered leases are still capable of being inherited
= > Disputes arising between a landlord and a tenant of an unregistered long lease will still be adjudicated by the Rents Committee.

In the second part on the new Property Law, the topics discussed will be:

Registration at the Land Department
Void Transactions
How does a Person prove his Ownership of a Property?
How does one inspect the Property Register?

Related Articles

The New Dubai Property Law - Part IV

The New Dubai Property Law - Part III

The New Dubai Property Law - Part II

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