Is leasehold better than freehold in Dubai property sector?
Is leasehold better than freehold in Dubai property sector?
The objective of this article is to provide a deep insight into the leasehold property in Dubai. So, what exactly is a lease? A lease is a legal document, but can be a verbal arrangement, as well, which confers right upon one person called a tenant or lessee to possess property belonging to another person called a landlord or lessor to the exclusion of the owner or landlord.
Leasehold is a property period when one party buys the right to occupy land or a building for a given time. At the end of the lease period, the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner. Terms of the agreement are contained in a lease, which has elements of contract and property law intertwined.
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Real estate laws in the emirates of the UAE are potent enough to safeguard investments and buyers' interests, and are in line with global standards. Earlier, buying a property in Dubai meant forgoing the privilege of absolute tenure. Currently, there is a federal legislation governing property matters and also the choices of freehold or leasehold ownership. In high-rise apartments of overseas, leasehold is a familiar term whereas freehold, a non-existent one. By contrast, various freehold arrangements exist for high-rise buildings and none of them is nearly as clear as leasehold. Problems arise, for example, when some owners refuse to pay for common service. What do the other tenants do then; leave half the building without power and water? This could be a particular problem in Dubai where certain owners may visit once in a blue moon and 'forget' to pay their maintenance bills. Under leasehold tenure the landlord could apply for an eviction order after a long period of non-payment, therefore safeguarding the integrity of the whole property. Where leasehold is perhaps less desirable is for villa ownership. There is something nice about owning a plot of land in perpetuity. |
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Yet in practice leasehold confers the same rights to buy and sell a piece of land and leases can almost always be extended.
Some people feel less secure under a leasehold system - with the landlord or freeholder as he is generally termed, more in control. But this is also an answer to those who worry about how villa compounds will be maintained once the title has passed to freeholders and the developer has moved on.
Property Laws of Other Emirates
Below are the current legal status and common practices in the other emirates in relation to property ownership laws:
Sharjah
The emirate applies local laws regarding real estate, streamlining rent, ownership or the use of a Property as debt insurance. These laws are very important.
Law no (10) of 1972 regarding real estate registration, incorporated in decree no (1) of 1972
The law on using property as a debt insurance of 1973, modified with law no (2) of 1989
Implementation procedures on the auction sale of property in accordance with the law on using property as a debt insurance
Amiri Decree no (1) of 1981, on joint ownership
Law no (6) of 2001 on owner-tenant relations in Sharjah
Law no (4) of 1980 on multi-storey building ownership
It is worth mentioning that real estate registration law no (4) states that ownership is restricted to UAE nationals. Exceptions to the rule are granted with the approval of the emirate's Ruler and with the conditions that he deems appropriate.
Law No. (10) Of 1972 and Decision No. (1) Of 1972 regulate real estate registration. Law No. (4) Of 1980 and Amiri Decree No. (1) Of 1981 regulate the ownership of flats and common ownership (strata law). Decision No's. (32) and (38) of 2005 regulate the sale of property in the Emirate of Sharjah that provides that UAE and GCC nationals are permitted to own property in all areas of Sharjah.
All other nationalities are not generally permitted to own property, but the Ruler's approval may be obtained under special circumstances. However, foreigners are capable of owning a leasehold right, which can be registered at the Sharjah Municipality, so long as the term of the lease is for a maximum of 25 years.
Ajman
The Emirate of Ajman is considered to be the most liberal among the emirates in relation to foreign ownership of property. An Amiri Decree may be issued to a foreigner applying to own real estate. Restrictions will apply, however, as there are certain areas where non-nationals are not permitted ownership, and this policy has been long standing in the emirate.
The grant of long term leases to foreigners is not prohibited, according to Amiri Decree No (6) of 2005.12. The Member of Supreme Council and Ruler of Ajman, H.H. Sheikh Humaid Bin Rashid al Nuaimi, issued Amiri Decree No.7 and 8, 2008, to regulate the land and property sector in the emirate.
The 34 articles in the decree legalize freehold ownership of property and land for UAE and GCC citizens and the companies wholly-owned by them, as well as to the public stock companies.
GCC buyers and developers also have the right to own land and properties on freehold basis or on 50-year leasehold basis, renewable in designated areas to be determined and approved by the Ajman Ruler.
The law designates the Department of Land and Property to regulate the sector and the department is entirely responsible for registration of property rights and long-term leasing contracts.
The bank guarantees need to be deposited for those wishing to invest in Ajman and that amount should be used only for the project. An amount of 5 per cent of project value will be frozen and will not be released until completion of construction of the project.
Fujairah
Currently, there are no real estate laws or decrees issued. The provisions of the Civil Code and the instructions of the Ruler regulate the real estate sector in the Emirate.
Fujairah has the drawback of a shortage of land that can be developed, since two- third of the land in this emirate is mountainous and too rocky for development. Fujairah does not currently allow foreign ownership of property. Fujairah, in an initiative to follow Dubai, plans to pass laws that permit foreigners to purchase homes for the first time. Salem Abdo Khali, Technical Advisor to the government, said: "When it comes into effect, is likely to trigger the development of a 4-km land reclamation project, on the south of Fujairah's port."
Ras Al Khaimah
According to Decision No (20) of 2005, UAE nationals can own property in all areas of Ras Al Khaimah. GCC nationals are not specifically provided for in this decision, but it is understood that they will be treated in the same way as UAE nationals. All other nationalities can own property in specific investment projects by establishing a company in the Ras Al Khaimah Free Zone. Decision No. (18) of 2005 grants some lands to RAK Properties to be developed and units can then be sold on a freehold basis. In 2003, a local law regulating flat ownership in Ras Al Khaimah was issued to regulate the ownership of units in the emirate. The grant of long leases to foreigners would not violate any local laws in Ras Al Khaimah.
Umm Al Quwain
H.H. Sheikh Rashid bin Ahmed Al Mualla, Supreme Council Member and Ruler of Umm Al Quwain, has issued a law, regulating property ownership in the emirate.
The 13-article of Law No. 3 for 2006, states that property ownership in the emirate shall be restricted to UAE and GCC nationals or corporate bodies owned by them. According to law, expatriates and non-GCC nationals can own property in the emirate but not the land in designated investment areas. They are also entitled to benefit from their ownership of surface property on the basis of 99-year lease contract.
