By Saladin Al Jurf & Bianca Gracias
Key property terms explained simply.
Why was the Dubai Law No. 7 of 2006 ("Property Registration Law") enacted?
Five years ago, the Emirate of Dubai, via the master developers Emaar, Nakheel, and Dubai Properties, began offering property on a freehold basis to foreign purchasers. These purchasers entered into sale and purchase agreements for their Dubai properties, but were unable to obtain official title in their properties, and may were unaware of the scope of their rights regarding their properties. The Property Registration Law was introduced to address these concerns and provide foreign purchasers of real estate with the level of comfort and security that they were seeking.
Can a foreign company purchase real estate in Dubai?
Yes. Article 4 of the Property Registration Law states that foreign persons (both artificial and natural) are permitted a right to use and enjoy property without time restriction as to time ("freehold property ownership"), and/or the right to use and enjoy property for a period not to exceed 99-years, within designated areas in Dubai.
What is the status of agreements entered into between parties transacting for real estate located in non-designated areas?
Article 26 of the Property Registration Law states that "any agreement or disposition which contradicts the provisions of this Law shall be void; likewise, any ratified agreement or disposition which intends to circumvent such provision". Therefore, foreign nationals cannot legally own real estate in non-designated areas, but can enter into lease agreements for real estate in such areas.
The Dubai Land Department has, however, indicated that it will not register such leases but will register long-term leases in designated areas in favor of foreigners. Indeed, such long-term leasehold interests must be registered with the Dubai Land Department if they are to be enforced against third-parties.
Is it mandatory to register title to one's property in Dubai?
Yes. Under the Property Registration Law, registration of property serves as conclusive proof of ownership (unless invalidated in cases of fraud). Furthermore, the Property Registration Law requires registration if a property owner is to be subsequently assert any of his property rights against other parties.
When can a foreign national register title to their property in Dubai with the Dubai Land Department?
Several months ago, the major master developers were assisting their respective purchasers with registration by creating timetables for registration. Still, any purchaser of real estate within the designated areas of Dubai is permitted to go to the Transaction Division of the Dubai Land Department upon completion of all payments relating to the property. Upon payment of the required fees and submission of all the relevant documentation at the Transaction Division, title will be issued in the name of the purchaser.
What documents are required for registration of title at the Dubai Land Department?
The Dubai Land Department is registering title to properties purchased by foreign nationals in the designated freehold areas. The documents essentially required are as follows:
• Copy of the original title deed
• Copy of maps/affection plan and as-built drawings and completion certificates
• Copy sale and purchase agreement stating clearly the purchase price together with any subsequent sale and purchase agreements or assignments
• The original passport of the purchaser along with a clear copy
• NOC/clearance letter from the relevant bank/financial institution (in case the property has been mortgaged)
• NOC/clearance letter from the seller
Where the purchaser is a company, the company will have to provide all the company documentation (including memorandum and articles of association) duly notarized power of attorney in favor of the authorized representative of the company, along with a passport copy of the authorized representative.
Currently, the Dubai Land Department charges a fee of 2% of the value of the property as a title registration fee, to be (theoretically) split equally between the purchaser and the seller, although most sale and purchase agreements direct the purchaser to pay the entire title registration fee. Additionally, the purchaser will have to pay a small map issuance fee and a knowledge fee. The requirements, fees and procedures are subject to change at the discretion of the Dubai Land Department.
Where a purchaser has paid the developer a registration fee for registration of the transfer of the property, will and additional fee be payable to the Dubai Land Department at the time of registration of title?
In the absence of any formal property register, developers initially acted as interim registrars and registered the transfers of properties within their internal registries for a nominal fee. Further, developers may allow the transfer of properties prior to completion of the building, i.e. assignment of the sale and purchase agreement.
However, with the issuance of the Property Registration Law, only the Dubai Land Department is authorized to register property rights and issue official title to properties within Dubai. Such registration is however the only current available after completion of the property and therefore developers continue to act as ‘registrars' prior to building completion.
Therefore, all applicable fees as mandated by the Dubai Land Department must be paid by parties to a title registration or other disposition of property regardless of whether any fees have been charged by developers prior to registration becoming available at the DLD.
Can any third-party have access to the Property Register at the Dubai Land Department? An interested party may have access to the Property Register and obtain a certified copy (at a nominal fee as indicated by the Dubai Land Department), provided the enquirer can satisfy the Dubai Land Department that he has a legitimate reason to request access to the Property Register.
What protections are in place in Dubai to secure and safeguard a purchaser's funds during the construction i.e. development phase of a project?
Unlike other jurisdiction e.g. the United Kingdom, United States and Canada, Dubai currently does not have legislation in place regarding minimum disclosure requirements by developers to purchasers who purchase property 'off-plan', nor are there any statutory protection for purchasers whose houses or apartments do not conform to the initial plans of the developer or representations of the seller or the seller's agent.
However, many developers have included provisions in their agreements the seller is required to hold the purchaser's fund in an escrow account until certain construction milestones have been reached. In other agreements, the seller is required to post a bank guarantee. A review of the sale and purchase agreement will indicate whether this type of protection is made available.
The forthcoming Strata Title Law should include some minimum disclosure requirements which are targeted at securing the purchaser's interests in off-plan and purchasers should request to see evidence of such approval in order to secure their purchase. Dubai does not currently require mandatory escrow arrangements for sales ‘off-plan'; however, the forthcoming Escrow Law should address consumer protection in this respect. Any purchaser should be well aware that, in the absence of a comprehensive legislative scheme, there is always some element of risk when purchasing off-plan.
What are the developer's obligations to complete and handover property on time?
These obligations are dealt with contractually under the sale and purchase agreement (or, as applicable, the lease agreement). If the property is not yet constructed, the agreement will typically provide an estimated handover date and usually the agreement will allow the developer a fair bit of latitude in terms of extending the date.
Although there are some contracts in the market where the developer commits to paying interest if possession is delayed, and perhaps even the right to terminate in the case of substantial delay, these remedies are not always available. As in many other jurisdictions, purchasers must be prepared to anticipate possible delays when awaiting possession of a property under construction.
What warranties are available to cover defects in a property?
This is again dealt with contractually, but it is common in Dubai for developers to repair general defects for a one-year period. Under the Civil Code, building engineers and consultants are liable for structural defects to a building for a period of 10 years (decennial liability period). It is also proposed in the forthcoming Strata Title Law that a decennial liability period be imposed on the developer for defects in the property.
Does the Property Registration Law provide for specific performance of an agreement?
Article 10 of the Property Registration Law states that, where a seller defaults in his contractual obligation to transfer the property to the purchaser, the purchaser can only claim damages for losses suffered by the purchaser.
What remedies does a purchaser have against the developer if the developer fails to honor the warranty period?
A purchaser would need to pursue his remedies based on the terms of the sale and purchase agreement. Some agreements allow remedies to be sought through the courts of Dubai, while others call for arbitration, which can potentially offer a more cost-effective method for dispute resolution. It is important to note that the Dubai civil procedure and practice does not allow for class action lawsuits; therefore, purchasers who have claims against developers would need to bring those individually.
What are service charges and how are these calculated?
Service charges are charges levied in order to maintain the various common areas and facilities of the community or the building and to generally ensure these are properly managed and administered. In many of the new property developments and residential buildings throughout Dubai, service charges are levied on the owners by the co-owners associations, and collected by a manager appointed on behalf o the associations. In a lease situation, these charges will generally be paid to the landlord.
With the forthcoming Strata Title Law, provisions will be made for these charges to be budgeted annually and paid to the co-owners associations to ensure transparency and facilitate the regulation of the common areas and facilities and the building as a whole by the co-owners association. Some leases or sale and purchase agreements specifically set the service charges and provide for yearly increases although in many agreements, the service charges are based on actual expenditure.
The landlord, developer, or co-owners association (as the case may be) record all of costs in terms of maintenance, management and administration. Each owner is then required to pay a portion of those charges based on the proportion that the size of their property bears to the overall area that is being managed.
Service charges throughout Dubai vary widely, ranging from AED 4 to AED 20 per square foot, depending on the area and sophistication of the property in question. Larger community developments also charge their property owners an annual community charge, normally paid to the master developer of the project.
In many developments, a master community charge is paid to a master developer for the maintenance of common facilities that are available within the development as a whole. This may include, for example, lightning, pathways green spaces, roadways and leisure facilities. Such charges are akin to council taxes or rates levied in most Western jurisdictions. A master community declaration for the community project should detail payment of the community charge.
Can an owner transfer, sell or assign property?
This will depend on whatever or not title to the property has already been registered at the Dubai Land Department. If such registration has already taken place, there would be an outright sale or transfer that would involve changing the registration into the name of the new owner - in much the way that sales transactions are carried out in many jurisdictions throughout the world.
For many properties in Dubai, including properties purchased by non-UAE and non-GCC nationals, title registration of title at Dubai Land Department has not yet occurred. In such cases, an assignment is required. In other words, the current owner of he property ‘assigns' their right and interest in the sale and purchase agreement to the new owner. The developer's contractual promise to eventually register title to the property in the Dubai Lands Department is passed on to the new owner.
Developers usually record this assignment agreement and having the assignee recorded as the new owner in the developer's interim registry system. Developers will often levy an administration charge for doing this, which usually ranges between 1% and 2% of the total purchase price. When as assignment is contemplated, it is critical to review the terms of the sale and purchase agreement and/or seek legal advice in relation to the same. In some cases, the developer will freely allow assignment but in others assignment but in others assignment may be prohibited or strictly controlled. A breach of those terms and conditions could result in enforcement measures being taken by the developer.
Can a purchaser obtain bank financing for his property where titile has not yet been registered with the Dubai Land Department?
In most jurisdictions, banks require evidence that the purchaser has registered title with the relevant authorities and then seek to have theirs mortgage registered against the title. In Dubai, up until recently, banks and financial institutions were reluctant in the past to provide financing for home purchasers.
However, as a result of the rapid developments in the Dubai real state market over the last several years, and individuals (with the support of developers) obtaining mortgages for the purchase of their properties here, banks have aggressively expanded this market. They rely upon the reputations of the developers, enter into memoranda of understanding with the developers, and obtain contractual warranties from the purchaser and the developers stating that the developer will not register any third party interest in the property unless express approval/confirmation of discharge of mortgage has been obtained from the bank and the developer will have the mortgages on the property registered on title deeds as soon as such registration becomes available.
However, not all developers are able to offer mortgages and generally only those that have a relationship with the bank offer these.
What taxes, fees and charges are generally imposed on purchase of a property in Dubai?
During the period when the registration process with the Dubai Land Department had not been finalized, developers were assessing their own fees for the sale, purchase or transfer of properties.
Generally speaking, developers charged a fee of anywhere between 1% and 2% of the original or current purchase price of the property as an administration fee for registration of transfers in their books. The Dubai Land Department is currently accepting the registration of title to properties and purchaser have to pay the applicable pay for property registration and issuance of title deeds, I.e. 1% from the seller and 1% from the purchaser. Some developers have represented that they will pay 1% but others insist upon the purchaser bearing the entire 2% title registration fee.
The purchasers are required to pay a very nominal map issuance fee and a knowledge fee. Dubai has recently started charging an annual housing fee on non-UAE nationals and these are assessed at 0.5% of the most recent sale price of the respective properties. When such owners opt to rent their properties to tenants, the housing fee is assessed as 5% of such annual rent. These fees are collected through monthly Dubai electric and Water Authority bills.