Dream Carefully - What You Don’t Know About Freehold, Leasing and Off-Plan Units Could Hurt You

Possession and Use

Please explain the common terminology and legal classifications used to describe different types of real estate ownership, leasehold, and occupancy interests in your jurisdiction.

Among the many tenures outlined in the Civil Code (Federal Law 5/1985) are:

• Freehold: The unrestricted, perpetual right to use, enjoy, and occupy real estate.
• Musataha: The right to construct on land for a set period of time, usually no more than fifty years, during which the owner of the land is legally considered to own all structures constructed on it.
• Usufruct: Analogous to the English legal concept of "leasehold," it grants the right to utilize, enjoy, and occupy someone else's land or property for a set period of time that cannot exceed 99 years.
• Granted Land: Land in Dubai can be freely given by the ruler to UAE nationals for residential, commercial, or industrial use. There are limitations because it is not freehold:
• Volumetric Subdivision: Volumetric subdivision, as defined in Article 8 of the Dubai Direction for General Regulation (2010) and Article 61 of Abu Dhabi Law 3/2015, is the process of dividing land or buildings into distinct, three-dimensional spaces that are legally recognized as independent units. For instance, the ground floor of a mixed-use skyscraper may be designated as retail units, the middle floors as office spaces, and the upper floors as residential apartments. Each of these spaces is defined volumetrically, which means that their boundaries are not only specified horizontally but also vertically, resulting in the formation of independent legal entities. This enables each unit to possess distinct ownership, leasing, or mortgage rights, despite the fact that they are housed within the same physical structure. This method facilitates the integration of malls, offices, and apartments in a single structure while simultaneously guaranteeing that each component has clear and distinct ownership or usage rights.
• Registration of Property Rights: In Dubai, the Dubai Land Department (DLD) is mandated to register all actions that create, transfer, modify, or terminate real property rights, as well as final court rulings that confirm such actions, in accordance with Article 9 of Law 7/2006 (as amended by Law 7 of 2019). For instance, in order to guarantee their legal validity, it is necessary to register transactions such as the acquisition of an apartment in Downtown Dubai, the leasing of a commercial property in Business Bay for a period exceeding ten years, or the mortgage of a villa in Palm Jumeirah. In the same vein, the transfer of ownership must be finalized by registering the property in Jumeirah if a court ruling confirms its inheritance.

Prior to Entering into a Contract

What are the usual procedures before a contract is signed?

• A reservation form or short memorandum of understanding is often signed by the buyer and seller to confirm the basic elements of the deal.
• In most cases, until a sale contract is signed, the parties are bound by this reservation form or memorandum of understanding.

Before signing a legally binding sale contract, it is highly recommended that you conduct thorough due diligence. At the very least, the purchaser needs to:

• Solicit an attested copy of the seller's title certificate from the Dubai Land Department.
• Conduct an inspection of the property.
• Stipulate in the contract any representations or warranties regarding title or property defects.
• Since the Property Register is not available to the public, it is wise for the buyer to get the seller's permission before inspecting it. However, this is not the norm.

With regard to off-plan units, the buyer should check that

• the real estate project is registered with the Real Estate Regulatory Agency (RERA);
• there is an escrow account for the real estate project;
• the percentage of completion of the real estate project and the expected date of completion;
• the developer is registered with RERA;
• the developer owns the land or there is a development agreement between the owner and the developer; and
• the developer has the required permits and approvals from the Dubai Land Department and RERA to sell units off-plan in that particular real estate project.

Real estate brokers must be licensed in Dubai and Abu Dhabi, and comply with the relevant professional and ethical standards set out in Dubai By-law 85/2006 and Abu Dhabi Law 3/2015.

A seller or a property developer must appoint a broker by written agreement.

There is no cap on a broker’s commission, but it normally ranges from 2 to 5 per cent of the purchase price.

All companies operating in Dubai and Abu Dhabi that wish to market real estate inside or outside the country must first obtain a permit from the Department of Municipal Affairs in the case of Abu Dhabi and through the Trakheesi system in the case of Dubai (see Real Estate Regulatory Agency Circular No. 11-2016 and Abu Dhabi Law 3/2015).

(See Real Estate Regulatory Agency Circular No. 11-2016 and Abu Dhabi Law 3/2015 for the relevant regulations.)

Legal Disclaimer

The information provided herein regarding possession, use, ownership, leasehold and real estate classifications in the UAE, including procedures prior to entering into a contract, registration requirements, and broker-related regulations, is intended for general informational purposes only. This content does not constitute legal advice, nor does it create any attorney-client relationship.

While efforts have been made to ensure the accuracy and completeness of the information, Darwish Legal Consultants does not guarantee its applicability or suitability to your specific circumstances. Real estate laws and regulations in the UAE, including but not limited to Federal Law 5/1985, Dubai By-law 85/2006, Abu Dhabi Law 3/2015, and RERA Circular No. 11-2016, are subject to amendments, interpretations and jurisdictional variations.

You are strongly advised to seek professional legal counsel before entering into any real estate transaction or relying on the details outlined above. Failure to conduct thorough due diligence or comply with local laws may result in financial loss, contractual disputes, or legal liabilities.