Country focus: Property prospects in Dubai

Law firm Holman Fenwick and Willan provides an overview of commercial property considerations in the emirate of Dubai.

By Nick Clayson, real estate solicitor, Dubai office, Holman Fenwick and Willan

Those familiar with the geography of Dubai will know that the distance between the Emirates Towers and Business Bay is no more than 2km. The Dubai International Financial Centre (DIFC) lies between them. These are three of a number of locations that companies looking to locate their regional HQ in Dubai may be considering. No doubt in terms of price, location, specification and curb appeal, each has something to offer. The same can be said for the legal position.

The new law and designated areas

Earlier this year, the long awaited Dubai property law was announced by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai and welcomed by the multitude of people who had bought properties in Dubai on the basis of a contractual relationship with their developers (whether state or private). The guarantee of ‘ownership’ was another catalyst to the seemingly never ending release of impressive mega projects that Dubai has become renowned for. The new law allows non-UAE and GCC Nationals property rights (freehold ownership, 99 years leasehold and Musataha, which is the right to build on the land owned by another person) in areas of Dubai designated by the ruler’s office.

This right to own property in the designated areas and obtain a registered title extends to both foreign individuals and foreign companies. However, any company that wishes to purchase property in such areas must be able to prove its lawful existence in its home country. These designated areas include Business Bay, Jumeirah Lake Towers and Burj Dubai, all of which contain commercial space and are popular business locations. The key locations for residential development and investment, such as the Palm Jumeirah and the Palm Jebel Ali, are also included. It is likely that more areas may be designated in the future.

The law provides that the land department shall solely, to the exclusion of others, be authorised to register the real property rights and long-term leases. Databases maintained by developers will not be recognised under the law, although the contractual arrangement between the parties will continue to exist.

The register will be available for inspection by third parties, provided that the enquirer has a legitimate reason for making an enquiry. Where property is registered the forum for settling disputes under the law will be the Dubai Courts. There is also the possibility of the land department establishing its own arbitration and conciliation service, although this is yet to be confirmed.

The law takes an important step forward in providing a legal framework for foreign ownership of real estate in Dubai. Further legislation is hoped for in order to protect the position of mortgagees. Self-help remedies are not available and the process of repossession is complicated and potentially costly.

Non-designated areas

Long leases in areas other than those designated by the ruler are not registerable at the land department by foreigners under the new law. Such areas include the dazzling mile of offices along Sheikh Zayed Road (including the Emirates Towers mentioned above). These leases
remain as personal rights and are enforceable in contract only. Occupiers looking to take premises in such areas should note that UAE law does not normally grant specific performance as a remedy. Furthermore, the UAE Civil Code contains provisions allowing the ‘hirer’ to break a lease contract in some circumstances. The Rent Committee of Dubai Municipality will adjudicate any dispute arising from such an arrangement. This committee does not follow precedent and its awards are final and by no means certain.

Dubai International Financial Centre (DIFC)

Those locating or investing in DIFC will be bound by a different set of rules to either of the above. DIFC’s aim is to develop a financial center of the same stature as London, New York and Hong Kong. The DIFC is a financial free zone that has been granted authority to self-legislate in civil and commercial areas. An amendment to the UAE constitution and a resulting federal law concerning financial-free zones has allowed the government of Dubai to create a separate legal framework to govern activities within the DIFC.

Although there are a number of freezones in Dubai where foreign companies may operate, DIFC is unique in that it can make its own laws. DIFC laws are considered at the level of local legislation and are enacted by the ruler. The draft property laws for DIFC are currently being reviewed following a consultation process (in which the writer was involved) and are likely to be finalised shortly. The real property law is modelled on the UK system whereas the commonhold/condominium law is modelled on the Australian system.

Those looking to locate or invest in the Dubai market should seek local expertise, especially as laws and regulations relating to property are evolving almost as quickly as the skyline.