Skip to main content

Eversheds Global Estate Management

UAE

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - means that the buyer owns the property outright. The freeholder may choose to occupy the property or may grant a lease enabling someone else to occupy it. After the lease expires (subject to statutory security of tenure) the right to occupy will pass back to the freeholder. It is possible to sell freehold land either vacant or subject to one or more leases. Freehold ownership is unlimited in time.

Leasehold - leasehold ownership has a fixed time period between five and 99 years. Subject to the terms of the lease it can be transferred to third parties or else a sublease can be created out of it for a term shorter than the lease.

Commonhold/usufruct - not applicable.

Condominium ownership - not applicable.

Utilisation right - not applicable.

Joint/Co-ownership - a Strata Law exists setting out the rights and obligations of all parties to jointly owned property including sub-divided land or buildings and properties within master planned communities. The directions cover five main areas: (i) Jointly Owned Property Declarations, a new disclosure regime for developers; (ii) Association Constitution, the establishment of Owners' Associations to operate and manage common areas; (iii) General Regulation including consumer rights provisions, financial obligations for Owners' Associations and developers and an enforcement regime; (iv) Preparation of Survey Plans, qualification requirements, duties and standards required for registration as a surveyor; and (v) Direction for Surveyors, a comprehensive document aimed at standardising the way in which property should be measured and plans prepared in Dubai.

Registration - as below:

Completed or Existing Property - a lease or usufruct right can only be registered if it is for a minimum term of ten years. Originals of documents and judicial decisions in pursuance of which registration is made shall be kept at the Dubai Land Department. The Dubai Land Department is the sole competent official authority for registration of property and land owners or leaseholders. Interested parties, judicial authorities or experts appointed by them, as well as competent committees may have access to such originals and obtain certified copies but the originals are not to be moved from the Dubai Land Department. If the estate of a deceased contains rights over land then the certificate of inheritance shall be registered in the Land Register and disposals by any heir of any of these rights shall not be effective or recognized unless registered.

Off Plan Property Purchases - there is compulsory registration of off-plan sales in the Interim Real Estate Register. This provides clarity in a number of areas including developer remedies when purchasers default on payment instalments, developers and purchaser's termination rights, and controls on off-plan sales by developers and brokers through increased registration requirements. The Dubai Land Department acts as mediator in any disputes arising between the developer and purchaser.

Tenancy Agreements - in March 2010, registration became mandatory for all tenancy agreements in Dubai. An on-line portal requires landlords or their agents to register all leases, including renewals, cancellations, terminations and transfers, with a training requirement and fee payable prior to use. Manual Registration with the Real Estate Regulatory Authority is also possible.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

UAE and GCC Nationals can own any property anywhere throughout Dubai. All nationalities other than UAE or GCC nationals have the right to own freehold property, leases up to 99 years, or usufruct rights in designated areas of Dubai determined by the Ruler's approval.

 

Title to real estate

Title to real estate

Investigation of title – a potential purchaser of a property can make his own enquiries directly with the Dubai Land Department in relation to the ownership and any third party rights attaching to the property.

Transfer of title - for rights relating to real property to be transferred, the sale agreement should be registered at the Dubai Land Department in accordance with the laws and procedures.

Registration - as below:

Completed or Existing Property - a lease or usufruct right can only be registered if it is for a minimum term of ten years. Originals of documents and judicial decisions in pursuance of which registration is made shall be kept at the Dubai Land Department. The Dubai Land Department is the sole competent official authority for registration of property and land owners or leaseholders. Interested parties, judicial authorities or experts appointed by them, as well as competent committees may have access to such originals and obtain certified copies but the originals are not to be moved from the Dubai Land Department. If the estate of a deceased contains rights over land then the certificate of inheritance shall be registered in the Land Register and disposals by any heir of any of these rights shall not be effective or recognized unless registered.

Off Plan Property Purchases - there is compulsory registration of off-plan sales in the Interim Real Estate Register. This provides clarity in a number of areas including developer remedies when purchasers default on payment instalments, developers and purchaser's termination rights, and controls on off-plan sales by developers and brokers through increased registration requirements. The Dubai Land Department acts as mediator in any disputes arising between the developer and purchaser.

Tenancy Agreements - in March 2010, registration became mandatory for all tenancy agreements in Dubai. An on-line portal requires landlords or their agents to register all leases, including renewals, cancellations, terminations and transfers, with a training requirement and fee payable prior to use. Manual Registration with the Real Estate Regulatory Authority is also possible.

Information on register - the Dubai Land Department register is not public, but a third party may inspect the property register and obtain a certified copy of it, provided that the enquirer has a legitimate reason for that enquiry.

Commercial leases - not applicable.

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - commercial terms are usually negotiated between the parties or their representatives.

Investigation of title - a potential purchaser of a property can make his own enquiries directly with the Dubai Land Department in relation to the ownership and any third party rights attaching to the property.

Purchase deed - not applicable.

Contracts - different formalities apply as far as contractual requirements are concerned depending on whether the property is completed or off plan and where in Dubai the property is located. Advice should be sought on a case by case basis. Completion may sometimes be conditional on other events such as obtaining of a landlord's consent, obtaining of planning permission or completion of building works. Either party can withdraw from the transaction without penalty up to this point, unless express arrangements have been made otherwise.

Completion/closing - completion takes place when the parties have executed the transfer/lease and the balance of any monies due has been paid and the transaction has been registered with the Dubai Land Department.

Post completion - for all new property, the land registration fees are around 2%, to this fee a year's maintenance charges must also be paid in advance (this varies depending on the development). For the purchase of resale property, all the charges of a new-build apply, including a 1% to 2% transfer fee, depending on whether the property is complete. To these fees an additional 2% to 5% agents' fees is usual.

Leases - not applicable.

Transfer of ownership of leased property (alienation) - as below:

  1. (a) Holding on trust/dealing with part - this is not possible.
  2. (b) Assignment of whole - Dubai landlord and tenant Law prohibits tenants from assigning or subletting leased premises without the written approval of the landlord. Retail tenants may be able to insist that assignment or subletting of the leased premises is possible subject only to landlord's consent which is not to be unreasonably withheld, delayed or conditioned. Tenants may also be able to negotiate that assignment or subletting to group companies does not require landlord's consent.
  3. (c) Underlettings of whole - only with landlord's consent (subject to conditions).
  4. (d) Underlettings of part - this is less common and would also require landlord's consent.
  5. (e) Sharing with group companies - this would require the landlord's consent.
  6. (f) Charging of whole - this would require the landlord's consent.

 

Usual commercial lease terms

Usual commercial lease terms

Alterations/modifications - landlords are required to let property in a condition which makes it fit for its intended use. Any alteration which the tenant wishes to make requires the prior consent of the landlord.

Destruction/reinstatement - commonly the tenant must reinstate any alterations at the end of the term and return the premises to the landlord in accordance with the repairing covenants. The tenant is not normally compensated for improvements.

Insurance - landlords should carry property insurance against damage. The landlord may recover a contribution of the cost of insurance from the tenants. Rent is usually suspended if the premises are destroyed by an insured risk until expiry of the period of loss of rent insurance. It is normally the landlord's responsibility to reinstate following damage and often there may be rights to break if reinstatement is not carried out within a specified period. The lease must provide for this.

Rent review - if the current rental value of the property is 25% or less than the 'average market rent' there is to be no rental increase.

Where the existing rent is over 25% less than the 'average market rent' for the property, the following increases will apply:

  1. (a) if the rent value in the previous year was 26% to 35% less than the average similar rent; the maximum rent increase shall be equal to 5% of such value.
  2. (b) if the rent value in the previous year was 36% to 45% less than the average similar rent; the maximum rent increase shall be equal to 10% of such value.
  3. (c) if the rent value in the previous year was 46% to 55% less than the average similar rent; the maximum rent increase shall be equal to 15% of such value.
  4. (d) If the rent value in the previous year was less than 56% of the average similar rent; the maximum rent increase shall be equal to 20% of such value.

Repair/decoration/furnishing - lease of whole building - repair and decoration are usually the tenant's responsibility. Lease of part of a building – the tenant is usually liable for internal repairs and decoration. The landlord normally carries out structural repairs of the whole building and repair and decoration of the common parts, recovering the cost from the tenant through the operation of a service charge.

Service Charges - Dubai landlord and tenant legislation is generally silent on the subject of service charges, so they are usually paid in accordance with the lease provisions without restriction. Special provisions exist where jointly owned property owners have created an Owners' Association.

Termination/break clauses - it is possible to negotiate early termination rights and sometimes a landlord may require a break clause.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - tent deposits or security deposits are a common practice in the region, although there are no specific laws which require a tenant to place a sum to show financial stability in order to secure a property. The law provides that landlords may obtain a maintenance deposit amount from tenants to guarantee the maintenance of the property at the expiry of the tenancy contract, provided that the landlord undertakes to refund this deposit, or any remaining amount, upon expiry of the tenancy contract. Rent in Dubai is typically paid in advance for the full year in single or multiple instalments (not usually more than four). Instalment payments are by way of post dated cheques. Cheques in Dubai are non-cancellable save in limited circumstances and a bounced cheque amounts to a criminal offence.

Surety - because rental cheques are paid at least one year in advance and such cheques are not capable of being stopped save in limited circumstances, sureties are not common. On some occasions a parent company may be requested to act as guarantor, but this is not common and would be the subject of negotiation.

Warranty - bank guarantees are less common.

Rent deposit/bank guarantee - see above.

 

Security of tenure

Security of tenure

A landlord can only seek possession of a property at the end of the lease term in limited circumstances. These include if the premises is to be demolished, renovated or is required by the landlord or a member of his immediate family (usually in a residential context). The presumption is that the lease will renew automatically on the same terms unless new terms are mutually agreed. In the event of dispute, the Dubai Rent Committee has exclusive jurisdiction to adjudicate between the parties. At the end of the term of the lease if the tenant does not exercise any statutory right to renew the lease will expire at the end of the term. In the months leading up to expiry of the lease, the landlord will notify the tenant of any repairs (dilapidations) that need to be carried out at the premises for them to be returned in accordance with the terms of the lease.

 

Taxes

Taxes

On sale/acquisition of real estate - no stamp duty is payable on the sale and purchase of a property, though an amount is payable to the Dubai Land Department on registration of the transfer of 2% of the purchase price.

No tax is payable upon the sale of a property in Dubai. It is possible that both the Seller and the Purchaser will be required to pay the Land Department's fees at the time of title registration. These fees currently amount to 2% of the purchase price, which can be divided between the parties by agreement. However, developers commonly require the purchaser to pay the full 2%. These fees are currently under review and may possibly change in future.

Immovable property tax - not applicable.

Income tax - there is no personal or corporate income tax payable on rental income in Dubai.

Land tax - not applicable.

Lease tax - not applicable.

Local tax - no local rates are payable by the occupant of a building to any local authority.

Mortgage - not applicable.

Other taxes - not applicable.

Property lease tax - not applicable.

Value added tax - not applicable.