Tag: Real Estate

On 11 January 2017, Dubai Decree No. 31/2016 On Mortgaging Granted Lands in Dubai was issued (Decree).

 

The Decree permits the holder of “granted land” to mortgage such land subject to certain conditions. It is expected that the Decree will stimulate growth in Dubai by enabling developers, who hold granted land, to obtain finance for their projects by mortgaging the granted land.

 

The Director General of the Dubai Land Department (DLD), Sultan Butti Bin Merjren, has said that the Decree is a key legislative initiative that will have a positive impact on the real estate market.

 

What Is “Granted Land”?

 

“Granted land” is land which has been gifted by the Ruler of Dubai to a UAE national, at no cost, for:

 

• commercial or industrial purposes; or

 

• residential purposes.

 

Granting land in this manner furthers Dubai’s leadership vision of ensuring a dignified life for its citizens by enabling commercial and industrial assets to be developed, as well as homes to be built.

 

Granted land is not freehold land and is subject to various restrictions. For example, granted land cannot be disposed of unless:

 

• the UAE national obtains special permission from the Ruler of Dubai; or

 

• in case of commercial and industrial land, the UAE national converts their granted title to freehold upon payment of a fee and in accordance with Decree No. 4 of 2010 on Regulating Ownership of Land Granted for Industrial and Commercial Purposes in Dubai.

 

Key Features of the New Decree

 

The Decree permits a holder of granted land to mortgage that land under the following conditions:

 

• if the granted land is residential, the monies arising from the mortgage must be invested in maintaining, expanding, constructing or replacing the building;

 

• if the granted land is commercial or industrial, the monies arising from the mortgage must be invested to achieve the purposes of the original grant; and

 

• the mortgage must be registered with the DLD.

 

The DLD can only register a mortgage over granted land if:

 

• the borrowed amount will be used to achieve the purpose for which the land was granted; and

 

• the mortgagor has a construction license issued by a competent authority.

 

If a mortgagor defaults, the Decree provides mortgagees with a legal right to sell the granted land at public auction (and under the supervision of the DLD) provided that 30 days’ notice is given to the mortgagor to rectify the default.

 

All disputes relating to mortgages over granted land are to be heard through the Civil Court.

 

What Changes Compared to the Old Rules?

 

The Decree follows previous Orders and Instructions in relation to mortgaging granted land as set out below.

 

• Instructions issued on 20 September 1994 from the Ruler of Dubai – By these instructions, all mortgages over granted land were strictly prohibited, and any mortgage made in violation of this instruction was considered absolutely null and void.

 

• Order issued on 14 May 1996 from the Ruler of Dubai – By this order, granted land (whether residential or commercial) could be validly mortgaged.

 

• Instructions issued on 5 June 1996 from the Ruler of Dubai – By these instructions, a mortgage over granted land could only be registered at the DLD if:

 

o the DLD had verified that:

 

 the amount of the mortgage was used for the construction of a building on the granted land; and

 

 payment of the mortgage funds had been made in such a way that ensured the mortgage was used for its intended purpose;

 

o the mortgagor had a building license for the commercial development; and

 

o the mortgagor had obtained a no-objection letter from the Ruler of Dubai permitting the mortgage of the granted land.

 

It is important to note that the Decree provides that all prior regulatory measures that are inconsistent with the Decree’s provisions will be repealed, including the above.

 

Why Is the Decree Important?

 

It is expected that the Decree will stimulate growth in Dubai by:

 

• enabling developers, who hold granted land, to obtain finance for their projects by mortgaging the granted land; and

 

• encouraging banks to lend against granted land by providing them with:

 

o a legal right to sell the granted land at public auction (and under the supervision of the DLD) if the mortgagor defaults; and

 

o a dispute resolution process.

 

However, it is likely that further regulations will need to be issued to govern the implementation of the new Decree. ■

The Dubai Land Department (“DLD”) recently announced the introduction of mandatory unified real estate contracts (the “Contracts”) to be used in property sale and purchase transactions. The Contracts become effective from May 1, 2014. The Contracts have been introduced to facilitate the sale and purchase process and are intended to protect the three main parties to any sale and purchase contract, namely the buyer, the seller and the broker.

 

The Contracts

 

There are currently three models of Contract: (i) a contract between seller and buyer, (ii) a contract between seller and broker and (iii) a contract between buyer and broker. The Contracts are available on the DLD’s smart property website EMART:

www.emart.gov.ae/UploadedFiles/Downloads/Docs/English/All_contracts.pdf.

 

The Contracts enable the parties to quickly populate the main terms of the sale and purchase transaction such as the parties, the property, the price and the completion date. It is intended that the Contracts will become valid when completed and documented at the DLD.

 

Is a Separate MOU Required?

 

Whilst the Contracts document the main terms of the sale and purchase transaction, they do not go into any greater detail. Moreover, contractual agreement on material issues such as warranties and representations, apportionments, deposits, dispute resolution, confidentiality and jurisdiction (which are ordinarily expected in any sale and purchase contract) is lacking. Given the absence of these material clauses which are intended to protect the parties to any sale and purchase agreement, the Contracts should be augmented (using a schedule, an attachment or incorporation by reference) by continuing the current practice of the parties entering into a separate sale and purchase contract (“SPA”) or Memorandum of Understanding (“MOU”).

 

Conclusion

 

Given the mandatory requirement for the Contracts, parties to a real estate transaction should ensure that the Contracts are properly completed and validated at the DLD. The introduction of the Contracts should not, however, displace the need for the further protection that is offered in the form of an SPA or MOU. The Contracts and the form of SPA or MOU should be linked together to enable the parties to the transaction to not only comply with the requirements of the DLD but also to ensure the contractual protection and certainty that an SPA or MOU affords. ■

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, recently issued Decree 26 of 2013 concerning the formation of the Dubai Rent Dispute Settlement Center (“the Center”).

 

The Decree comes at a time of increasing economic activity and rising rents. The main aim of the Decree is to implement a judicial system specialized in dealing with rental disputes quickly and simply.

 

Rental Disputes

 

The Center shall deal with and hear disputes related to all landlord-tenant disputes including in free zones (but not including: free zones with committees or courts that deal with rental disputes; finance lease contract disputes; or 99 year lease disputes). The Center is to be chaired by His Excellency Judge Abdul-Qader Mousa and staffed by lawyers and administrative staff.

 

Reconciliation

 

A Reconciliation Department shall attempt to amicably settle rental disputes within 15 days from the date of the parties’ appearance before the Reconciliation Department.

 

First Instance and Appeal Departments

 

If reconciliation is not successful, a rental dispute shall be determined by the First Instance Department which shall consist of committees each consisting of a chairman (who must be a judge or legal expert), and two members with sufficient experience and competence in law and real estate.

 

All members of a committee must be in attendance for a valid meeting and a decision by at least a majority (2/3) of the committee members is required. A committee shall decide a rental dispute within 30 days from the date of the file being referred to it.

 

Decisions of the First Instance Department may be appealed to the Appeal Department so long as the amount of the rental dispute is more than or equal to AED 100,000. Disputes regarding amounts of less than AED 100,000 generally cannot be appealed except in specific circumstances. An appeal must be filed within 15 days of the day following the issuance of the First Instance Department’s decision.

 

Execution

 

All final decisions of the Center shall be executed by the Execution Department that is affiliated with the Center, which can be the Execution Department of the Dubai Courts.

 

Cost and Charges

 

The costs and charges of the Center shall be determined by resolution of the Chairman of the Executive Council of the Emirate of Dubai. Until such resolution, the costs and charges of the Rent Committee of the Dubai Municipality shall apply.

 

The Center Replacing the Rent Committee

 

The Center shall hear and decide all claims that are presently before the Rent Committee unless such claims are set for judgment. The Rent Committee shall cease to exist and all employees of the Rent Committee shall be transferred to the Land Department. ■

 

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Afridi & Angell – Our Real Estate Services

 

Afridi & Angell is one of the most prominent law firms in the region, having been established almost 40 years ago. The firm provides comprehensive legal advice in corporate, commercial, real estate and banking law as well as dispute resolution. The firm’s real estate lawyers provide catered strategic advice, and innovative legal solutions and services for the sale, purchase, leasing and development of real estate (including jointly owned property (strata) matters), as well as any related litigation and arbitration.

 

For more information, feel free to contact us. We welcome the opportunity to be of service.

 

Shahram Safai is a partner in the Dubai office of Afridi & Angell. He practices real estate, corporate and venture capital law. He is active in lobbying for and providing constructive feedback to government organizations regarding regional laws and regulations pertaining to real estate, investments and corporate governance. Shahram is qualified as a solicitor in England and Wales and is a member of the California State Bar. 

 

The content, comments and opinions included in this document are intended solely for information purposes. They should not be regarded or relied upon as legal advice.

His Highness, Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice Presient, Prime Minister and Ruler of Dubai, recently issued Decree No. 21 of 2013 concerning the formation of a special judicial committee (the “Committee”) for the liquidation of cancelled real estate projects in the Emirate of Dubai and the settlement of relevant dues.

 

The Decree comes at a time of government activity to better protect the rights of investors and is one of a number or proposed changes to Dubai real estate law.

 

The main aim of the special Committee is to consolidate the process for investors to seek compensation against developers for cancelled real estate projects. It aims to further facilitate quicker proceedings, particularly since legal proceedings have not only been lengthy but also expensive.

 

Formation and Powers of the Committee

 

The Committee shall consist of one or more panels, provided that the members of each panel consist of at least three judges from the Dubai Courts, including the Chairman. The Committee has the power to:

 

• consider and decide any issues, demands and claims that may arise between developers and purchaser relating to cancelled real estate projects;

 

• liquidate real estate projects cancelled under a final resolution issued by the Dubai government’s Real Estate Regulatory Agency (“RERA”) in accordance with RERA’s powers under Law 13 of 2008;

 

• settle any debts with respect to such cancelled projects, after deduction of liquidation expenses; and

 

• consider all executive proceedings, complaints and grievances relating to cancelled real estate projects.

 

In exercising its powers, the Committee may seek the assistance of experts and legal consultants, in particular those from the Dubai Land Department. The Committee may appoint auditors (at the cost of the developer) to audit the financial position of the cancelled real estate project. Decisions of the Committee are final and binding and may not be appealed.

 

Court Cases Referred to Committee

 

One of the most ground breaking provisions of the Decree is that all courts in the Emirate of Dubai (including in the Dubai International Financial Centre) shall no longer consider any case or claim relating to cancelled real estate projects – all such claims must now be considered by the Committee. In addition, the courts are required to refer any current cases before them to the Committee. Cases or demands brought before the Committee shall eb exempt from court fees.

 

A Step in the Right Direction?

 

The Committee was established in an attempt to unravel the many cancelled real estate projects that exist in Dubai after the real estate crash of 2008. Moreover, the Committee would appear to give those unfortunate investors who have long since written off their investments a fast tracked and cost effective forum to recover, at least, some of their losses.

 

However, the Decree and establishment of the Committee raises some questions and practical issues.

 

Any prospect of recovery for investors relies upon there being sufficient assets to liquidate. One of the most valuable assets of any developer of a cancelled real estate project is the land on which the real estate project is constructed. However, in many cases the developer does not own the land until completion of the project. In such instances, the prospect of liquidating just the under-construction building to repay hundreds of off-plan investors who have invested hundreds of thousands of dirhams seems unrealistic.

 

Also, investors expect the Committee to repay them from funds in the escrow account, the bank account set up to specifically protect the investors in the event of failed construction. The reality is somewhat leak with escrow accounts. Many escrow accounts are fully depleted due to land payments, marketing costs and early development and construction works. In circumstances where the two main assets of any cancelled project (i.e., the land and funds in the escrow account) available for liquidation by the Committee are insufficient to repay an investor, the chance of an investor recovering his or her investment is unlikely.

 

The Decree specifically relates to “cancelled” projects rather than “on hold” projects. Investors seeking recovery of their money from developers in projects deemed “on hold” by RERA will still have to pursue developers through court action or arbitration, thereby protracting the process and increasing costs.

 

Going Forward

 

The Committee will need to deal with over two hundred cancelled real estate projects in Dubai as well as thousands of cases relating to cancelled real estate projects currently going through the Dubai courts. How quickly and effectively the Committee deals with such cases will go a long way in re-establishing confidence in a market which is still partially suffering from the wounds of the 2008 crash.

 

The Decree is a clear signal to international property investors that RERA is taking practical steps to deal with rogue developers of days gone by; introduce transparency and protection for investors; and in turn, propel Dubai from a market of short term speculators to a more established and stable real estate market.

 

Afridi & Angell – Our Real Estate Services

 

Afridi & Angell’s real estate lawyers provide strategic advice and legal services with respect to the sale, purchase, and development of real estate (including jointly owned property (i.e., strata) matters)), as well as any related litigation and arbitration. We offer innovative solutions to both developers and investors in relation to cancelled projects. Under the newly issued Decree No. 21 of 2013, we can liaise with and facilitate representation before the new Committee, the Dubai Land Department and RERA.

 

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For more information, feel free to contact any one of our lawyers. We welcome the opportunity to be of service.

 

Shahram Safai, partner – ssafai@afridi-angell.com

 

The content, comments and opinions included in this document are intended solely for information purposes. They should not be regarded or relied upon as legal advice.