22 Apr 2022
There was a time when owning a property in the United Arab Emirates (UAE) by the expats (residents or non-residents) was impossible until the year 2002, when the Dubai government paved a way for foreign nationals to own freehold properties within the designated areas. Subsequently, the government of Abu Dhabi has also taken initiation to introduce Law Number 19 of 2005, as amended by Law Number 2 of 2007 on the Real Estate Ownership (the Real Estate Ownership Law), granting the non-nationals a right to invest, own, sell, purchase, rent and mortgage in floors and apartments in specified investment areas. Ever since this move by the Dubai and Abu Dhabi governments, UAE has experienced an exceptional growth in its real estate market. Federal Law Number 5 of 1985 on the Civil Transactions Law (the Civil Code), incorporates the ownership rights and tenure governing the properties in UAE.
The Civil Code provides for the following types of tenure:
Freehold or Ownership rights:
Freehold property is the highest type of property rights as it confers absolute and perpetual ownership on the person having a title deed issued by the respective Emirate’s Land Department.
Leasehold Rights:
Leasehold property grants the tenant with the ownership rights to the extent of even mortgaging the leased property, for the period of time as agreed in the lease agreement with the freehold owner of that property. Real Estate Law of each Emirates mandates the registration of lease agreements. However, the absence of registration of the lease will not end the contractual obligations between the parties.
Usufructuary Rights:
The property owner sanctions the property right on to another person, to use, occupy, exploit and enjoy the property, for a fixed period of time, which shall not exceed beyond ninety-nine (99) years. However, despite the rights to exploit, the usufructuary owner is not allowed to destroy the original condition of the property. Thereby, they are restricted from making any changes to property and are only limited to occupy and use the property in its original form, excluding the general damages which could have occurred during the use of the property. Generally, the usufruct right is terminated upon the expiry of fifty (50) years, except if agreed by the parties. The usufruct right can also be terminated on the events, if the person misuses the property or by the order of the court. The tenancy rights are also covered under usufructuary rights.
Easement Rights:
Easement right can be explained as a right to use or enter into someone’s property by paying a certain fee to the owner of the property, without actually possessing it. It is commonly purchased by the public utility companies for the purposes of fixing pipes beneath or above the property or for planting telephone poles.
Musataha Rights:
Articles 1353 to 1360 of the Civil Code lays down the general framework of the musataha rights. Article 1353 of the Civil Code defines a musataha agreement as, “an ownership right conferred upon a person allowing him to construct a building, alter the property, or to plant on the land which is owned by another person, by the virtue of an agreement entered between and duly signed by them, for a maximum period of fifty (50) years.” The Musataha rights work on the same lines like that of an usufructuary rights, except that it allows the owner to modify the property.
As per article 1357 of the Civil Code, the owner of the musataha right enjoys ownership over all the newly constructed buildings and newly planted trees and can even assign or transfer such buildings to another person in accordance with the rules governing the rights of musataha agreements.
The musataha right ends under three circumstances:
(i) on the expiry of the maximum period,
(ii) by transferring both the ownership of the land and the ownership of the musataha right into the same person,
(iii) on failure to pay the consideration fee for a period of two (2) years by the musataha right owner.
As per article 785, the lessor may require the holder of the musataha right to pull down the buildings constructed and the trees planted by him even if it was done with the consent of the lessor. If the removal of the constructed buildings or planted trees could turn out to destroy the property, then lessor could take over the ownership of the constructed buildings and of the trees planted for the same value that would have cost in removal of such constructions. Therefore, it is important to clearly specify as to who will bear the costs of removal, in what state shall the musataha holder return the land to the lessor, etc in the musataha agreement. Musataha agreements give rise to rights in rem (real property rights).
Although, the Civil Code defines the types of property rights and gives a general outline of what such rights include, but has not covered all the aspects and specifics of the real estate transactions in detail. Thus, each Emirate has its own set of provisions governing the real estate property rights in detail. In this article, we shall focus on obtaining a fair idea of the rules and regulations governing the musataha rights and its registration in Dubai and Abu Dhabi.
Musataha Agreements in Dubai:
Law Number 7 of 2006 on the Land Registration in Dubai (the Land Registration Law) is the governing legislation on the registration of the real estate properties in Dubai. Regulation Number 3 of 2006 provides with the list of the designated areas in Dubai, where the foreign nationals can own real estate properties.
Law Number 7 of 2013 has acknowledged the Dubai Land Department (DLD) officially, which was initially established by a Declaration in 1960. The DLD is the central land register for Dubai, therefore, all the real estate transactions must be registered with the DLD. Registration of the
Musataha Agreements with DLD:
The musataha right can be registered with the DLD by submitting the plan of the piece of the land, original title deed of the land, three copies of the musataha agreement and a no-objection letter from the lessor. It is pertinent to note that such plot must be used only for commercial purposes, as any plot which is being leased for residential purpose will fail to obtain a registration under musataha right. The agreement shall clearly specify the duration period of the musataha rights over the property. Thereupon, the DLD shall review the documents submitted to ensure that they are in line with musataha registration requirements. The party intending to register the musataha rights shall pay a registration fee as set by the Land Department Regulations, along with an application and service charge fee.
On successful registration of the musataha rights, the owner of the musataha right is entitled to enjoy the benefits conferred upon him/her by the virtue of the musataha agreement. The musataha right owner may mortgage the building constructed, but is not allowed to mortgage the land upon which such building is constructed. Real estate owners who do not possess any right to conduct business, opt to enter into an agreement with a licensed developer on the same principles as that of the musataha agreement. Thereby, granting the developer the right to develop on the property and the rights to sell the projects developed within the leased piece of plot of land, but the ownership of that plot remains with him. Registration of the musataha agreement with the DLD is required for a legal claim to stand successfully.
Musataha Agreement in Abu Dhabi:
In Abu Dhabi the Real Estate Ownership Law deals with all the rights and registration process concerning the musataha rights. The person intending to enter into musataha agreement shall register with the Abu Dhabi Municipality. In order to ensure a successful enforcement of the musataha agreements, it is necessary that such agreements have been duly registered with the Land Department incorporated within the Abu Dhabi Municipality.
As per the changes made to the Abu Dhabi Real Estate Law, the owner of the musataha right can now dispose of the property and has a right to mortgage without the consent of the landlord, if the period of such musataha right is for more than ten (10) years. However, the landlord is not allowed to mortgage the property without the prior consent of the owner of the musataha right. The Abu Dhabi Executive Council introduced a standard form of musataha agreements to be used by the Government Entities in its Circular Number 11 of 2004.
Failure to comply to the terms specified in the musataha agreement can give rise to the right to terminate the agreement by the actual owner of the land. Thus, musataha agreements have turned out to play a vital role in the expeditious growth of the real estate market in UAE. The musataha agreements shall be deemed valid and be enforceable only when such agreements have been duly registered with the respective land departments. Musataha and usufructuary rights are a form of lease rights. However, it is pertinent to note that musataha agreements can be entered into only for commercial purposes. Which implies that, the specific plot of land owned by the musataha right holder should be used for commercial activities.