Dubai investor wins landmark Sharia mortgage case

  • Share via facebook
  • Tweet this
  • Bookmark and Share
(Getty Images)

(Getty Images)

A Dubai investor has won the right to cancel her Ijara agreement – a Sharia compliant mortgage – for an off-plan villa in Al Furjan after the developer, Nakheel, failed to register the property with the Land Department.

In a decision that could have wider implications, the Court of First Instance ordered Islamic financial institution Tamweel to return more than AED1.4m ($391,000) worth of undated cheques that had been signed by the investor and were to be used to pay 33 instalments under the agreement.

Unlike a standard mortgage, under an Ijara agreement the financial institution purchases the property from the developer and essentially rents it to the investor with a promise to transfer ownership after an agreed period.

The court found that while the wording of the Ijara agreement describes it as a lease, the intention was a contract of sale and Tamweel was obliged to provide the property for rent from October 31, 2010.

The investor, a Finnish woman, arranged the Ijara agreement for an AED2.92m villa in Nakheel’s Al Furjan development near Jebel Ali in June 2008.

The villas were due to be completed by October 2010 but the real estate market collapse caused the project to be delayed. Nakheel, owned by the Dubai government and famous for projects such as The Palm and The World, was one of the hardest hit developers in Dubai.

Construction still was yet to start when the woman initiated court proceedings in early 2012, seeking to have the Ijara agreement annulled due to the delays. Last month, Nakheel said it had handed over 95 percent of the villas.

However, on April 21, the court found Nakheel had failed to register the off-plan property at the centre of the case with the Interim Real Estate Register, a Dubai Land Department initiative introduced after the property market crash to make off-plan investments more secure.

The court ruled that because the property was not registered the Ijara contract was void, leaving Tamweel liable for the purchase of the property.

The plaintiff’s lawyer, Fareya Azfar, partner at The Legal Group, told Arabian Business the judgement could have wider implications for off-plan property purchases under an Ijara agreement.

Until now it was believed the end-user, who has no contract with the developer, had no legal avenue if the property was delayed or not registered.

Meanwhile, it could place extra burden on the financial institution.

“The judgement clarifies where each party in an Ijara form of financing would stand in the event that financed properties are not delivered,” Azfar said.

“It allows the investors a way forward [if the property is delayed or not completed]. The parties’ relationships would not be left open-ended; an event of non-delivery or non-registration could be grounds for cancellation of an Ijara agreement with the financial institution.”

The decision also leaves the door open for Tamweel to sue Nakheel over lost earnings from the cancelled contract.

A spokesperson for Tamweel said it intended to appeal the decision and would not comment further.

Nakheel did not respond to requests for comment.


Market Performance

Tamweel - UAE
0.0 0.0 (%)
Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

Posted by: Advocate. Adnan Ashraf

This verdict also specifies the liability of the financial institutions as guardian of the property.

Posted by: arshad

This shows how Islamic financing protects the clients and good eye opener for investors to use proper Islamic financing options.
But, a good lesson to Islamic Financing institutions to be more cautios on their products development. It would be great if someone can enlighten us, had the investor used a conventional financing option would benefit from this case.

Posted by: Cameron

Hopefully this will set the precedent and we will have lot of investors back who we lost due to lack of legal clarity with financial institutions and developers in case of project delays.

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Do celebrity branded projects ever work?

Do celebrity branded projects ever work?

The long list of celebrity-endorsed real estate developments...

Is this the end of the Gulf’s Indian cash dash?

Is this the end of the Gulf’s Indian cash dash?

From currency woes to taxation loopholes closing and a clampdown...

Mall talk

Mall talk

Plans for Dubai’s Mall of the World have made headlines all over...

Most Discussed
  • 24
    World's most pierced man refused entry to the UAE

    Tolerance has its limits everywhere including Dubai and those who considered Dubai a lawless circus were held thank you Dubai authorities... more

    Thursday, 21 August 2014 10:51 PM - Khalil
  • 23
    Baby NOT on board?

    Some of you cry babies need to get your own personal apartments on the plane ! You cry more then the babies I have seen in my travels. LOL more

    Thursday, 28 August 2014 9:10 AM - Jim
  • 21
    Israel “must be punished” over Gaza, says Dubai police chief

    This high moral ground that Mick is talking abt sound very familiar. May I remind Mick that the US & its British ally alone killed over 1 million innocent... more

    Thursday, 7 August 2014 4:12 PM - Mathew