By David Sanson
Senior consultant David Sanson of legal services group DLA Piper shares his views on property matters in Dubai.
The Middle East property market will increasingly be influenced by Western real estate legal processes, says David Sanson, senior legal consultant at DLA Piper.
"There have been a number of significant laws introduced in Dubai over the last six to 12 months, and the market is adjusting accordingly. The key challenges within the UAE property market are being met. The market had expanded at such a rate, both the actual expansion and the period of time that it expanded over, that property laws couldn't keep pace."
Sanson believes that over the last 12 months, property laws have started to catch up with the fast growth and address the concerns of potential investors.
"This is a welcome development since it gives clients a firm framework, and reassurance that regulations are in place. These new regulations demonstrate the willingness of the Government to increase the regulation of the real estate industry. I understand there has been an element of industry dissent to the new laws and not everyone will embrace them.
"I realise that things were working before the regulations but these new laws demonstrate the seriousness of Dubai's position in global real estate markets. They were inevitable and improve global perception of Dubai's property markets."
While it is too early to assess the impact of new regulations on local real estate markets, Sanson expected a true reaction to the implementations, and the new Real Estate Regulatory Authority would be evident by the end of 2007.
According to Sanson, the current market rumors include talk of Strata condominium legislation, which address legal relationships for apartment owners.
"There is discussion about introducing a new law, regulating the interests of apartment homeowners. It's been rumored for some time and it's difficult for me to comment on until it's published, possibly this year. It's probably a good thing though as it will set out further regulation in this area.
"These aspects can only be positive for the economy going forward, alongside the establishment of designated areas for foreign investors to purchase property."
The UK currently has well-established real estate laws which are constantly developing, and some of the new UAE laws can be compared to the UK, he said.
"This includes the introduction of compulsory registration of interest in land. This is the 2006 Law No.7, which you could argue is akin to the UK law. Similarly, the Escrow account law is like the UK process of paying a deposit to a stakeholder.
"Under Escrow, when the buyer is purchasing off-plan, the deposit cannot be used and under the UK law, the deposit is paid to a solicitor as a stakeholder and the money cannot be used until the purchase is complete. So there are parallels there."
The increasing transparency in the UK between landlords and lease-holders in commercial leasing markets is likely to be adopted in the Middle East region,
"I expect to see this level of legal documentation become common in this part of the world. This would include Western style documentation in the form of robust forms of leases. The introduction of these codes in the UK should see the influence spread across to the Middle East, which could have a positive effect on landlord and tenant relationships here."
In the past, a lease of commercial premises in the UK would invariably involve long periods of negotiation, he said.
However, lease terms have become considerably shorter, and landlords and tenants are working in tandem in agreeing lease provisions. Commercial lease negotiations look set to become simplified further by the recent introduction of new guidelines in England and Wales, he added.
New UK commercial property codes of practice, designed to encourage greater transparency and better lines of communication between owners and occupiers, have been implemented, according to Sanson.
For example, tenants have sometimes been concerned in the past that service charge regimes, particularly in large shopping centre developments, have been a means of generating additional income for landlords. The code makes it clear that service charge will be on a ‘not for profit, not for loss' basis.
This doesn't mean suppliers cannot make a profit on services they provide nor that service charge managers cannot make a profit on their management services. But costs have to be transparent.
"These developments will be observed with interest by owners, occupiers, professional advisors and financiers in the Middle East. It may not be long before commercial lease practice here goes the way of the West."
DLA Piper is a legal services group, with 3400 lawyers operating in 25 countries. Real estate forms a key part of the group's business.
In Dubai, the firm deals mainly with mixed development schemes, hospitality and hotel property, asset management, and property investors.