In this article, Walter Robinson explains the difficulties posed by the absence of certain laws pertaining to real estate in Abu Dhabi and in particular the inability of foreign nationals to acquire freehold ownership of land within the investment zones as well as the dilemma which is faced as regards the implementation of an effective strata title regime.

In brief:

  • Non-UAE property investors and mortgagee lenders (foreigners) cannot secure their property rights under the present regime by way of registration. This is due to the absence of implementation regulations to give effect to this, as well as the fact that a strata system does not yet exist in the Emirate of Abu Dhabi.
  • The Abu Dhabi dilemma is how to introduce an effective system of strata title given this restriction on freehold ownership in the case of foreign investors. A foreign investor cannot, by virtue of this restriction, own an undivided share in the land.
  • The Abu Dhabi authorities have not yet committed to any form of strata title ownership. It is anticipated that this will be incorporated in the revised property laws along with the much needed escrow law and other laws.

Law No. (3) of 2005 and its implementation regulations deal with the Registration of Real Property and Land Registration Department in Abu Dhabi, Al Ain and the Western Region (the Registration Law). Abu Dhabi has also introduced laws which make provision for ownership of real property by other nationalities and which differentiate between the rights of UAE Nationals, GCC Nationals (or companies wholly owned by them) and Foreign Nationals. (Law No. (19) of 2007 and Law No. (2) of 2007).

In summary, property rights in Abu Dhabi are divided into the following categories:

  • UAE nationals are entitled to freehold ownership anywhere in the Emirate of Abu Dhabi.
  • GCC nationals are entitled to freehold ownership, Musataha rights and Usufruct rights only in investment zones.
  • Foreign nationals are entitled to own apartments or floors without any ownership of underlying land (surface rights or airspace) as well as Musataha and Usufruct rights only in investment zones.

Non-registration of property rights and difficulty in the creation and enforcement of security

Notwithstanding the introduction of the Registration Law and regulations mentioned earlier, in practice, apart from UAE nationals, non-UAE property investors and mortgagee lenders cannot secure their rights under the present regime by way of registration. This is due to the absence of implementation regulations to give effect to this, as well as the fact that a strata system does not yet exist in the Emirate of Abu Dhabi.

The effect of non –registration is simply that an investor is left with only a contractual right and not a real property right. This right is ineffective as against third parties.

Banks cannot register mortgages over Musataha and leasehold or Usufruct rights, or mortgages over units within investment zones. Until recently the concept of Musataha, whilst firmly entrenched in the Civil Code, was not commonly employed in practice These concepts are accordingly not widely understood and this coupled with the inability to register these rights, is in our view one of the inhibiting factors in the recovery of the Abu Dhabi real estate market.

The Abu Dhabi strata dilemma

Dubai has adopted a strata title law otherwise known as the Law Concerning Ownership of Jointly Owned Properties in the Emirate of Dubai, Law No. (27) of 2007.

Rules and regulations pursuant to this law have now been published which will enable Dubai to implement the law which is designed to provide a comprehensive ownership scheme in relation to multi-level apartment blocks, buildings and developments in Dubai. The regulations also go a long way to addressing the obligations of developers to disclose material information prior to selling units off-plan and also deals with the establishment of owners associations which will have the power to ensure that service charges are collected and that community rules are enforced.

Abu Dhabi on the other hand, has not yet introduced a similar law to deal with the ownership of units within a multi-level building or master community. This is particularly significant when one bears in mind that the developments on Reem Island and elsewhere are nearing completion and investors should be expecting to receive a secure form of title. In order to understand the dilemma which faces Abu Dhabi relating to the establishment of strata law, it is necessary to understand the legal concepts of freehold, leasehold, surface rights or airspace and strata title.

  • The term Freehold, by definition means the tenure of property in "perpetuity" and which includes ownership of the land and all fixed installations erected thereon. Freehold is a term which has been commonly, and loosely, used in Abu Dhabi to describe the sale of a unit or apartment in a multi-level building, but with respect, in many cases incorrectly so, due to the fact that the term is not understood by agents, developers and members of the public alike.
  • Leasehold or Usufruct as it is commonly referred to in the UAE is, in common law jurisdictions, recognised as a real property right for an extended period of time (normally 99 years) in terms of which the holder of the right is entitled to the use and occupation of the property for the period stated in the leasehold agreement but that upon termination of the leasehold agreement all rights in and to the property revert to the registered owner of the property.
  • Strata Title is a system of ownership devised for multi-level apartment blocks and horizontal subdivisions of land with shared areas. Strata Title envisages individual ownership of a unit along with joint ownership of common property and membership of a body corporate (Owners' Association). Essentially, Strata Title enables freehold ownership of an individual apartment, unit or freestanding villa, the dimensions of which are recorded on a strata diagram prepared by an authorised surveyor. With regard to an apartment in a multi-level building, the Strata Title unit consists of the cubic airspace, usually measured from the median lines of the floor, walls and roof as well as an undivided share in the common property usually apportioned, in the case of residential units, according to a Participation Quota or Lot Entitlement.
  • Airspace or surface rights are the terms given to describe the cubic airspace within a building but excluding any form of ownership in the underlying land.

Let us now consider the current state of affairs in Abu Dhabi

There are currently no provisions within the laws of Abu Dhabi to provide for freehold ownership by a non-Emirati or non-GCC national investor (foreign investor) anywhere within the Emirate of Abu Dhabi whether this be within an investment zone or not. Within the parameters of the law at present, it is possible for a foreign investor to own a surface right or airspace but this presupposes that the underlying land is still held by the developer. Most developments constructed within investment areas have been sold to foreign investors as well as to UAE nationals and GCC nationals who are entitled to freehold ownership within investment zones.

Most if not all developments within investment zones are therefore comprised of these two categories of owners, one of which is entitled to a share in ownership of the land and common property, the other not. The Abu Dhabi dilemma is accordingly how to introduce an effective system of strata title given this restriction on freehold ownership in the case of foreign investors. A foreign investor cannot, by virtue of this restriction, own an undivided share in the land.

Strata Title ownership gives an owner an undivided share in the land. Upon destruction of the building, or upon a unanimous decision of the Owners' Association to demolish the building (for example if the land became more valuable than the building, or if the owners decide that it is in their best interests to sell the entire development, or to redevelop, as the case may be) each owner is assured of his share. In the case of leasehold or a contractual arrangement with the developer which recognises ownership of surface rights, the lessee/owner does not have this latitude and his claim on destruction would be limited to what he can recover from the insurers of the building.

Conclusion

The Abu Dhabi authorities have not yet committed to any form of strata title ownership. It is anticipated that this will be incorporated in the revised property laws along with the much needed escrow law and other laws. The development model employed in the UAE thus far, in our view, demands strict regulation of the disbursement of investor funds and protection by way of an interim real estate register, pending completion of a development.

It is hoped and highly recommended that the freehold issue is addressed and that serious consideration is given to the implementation of a strata title system that would afford indisputable freehold ownership of units and undivided share in the common property including the land as well as a system that would facilitate the exclusive use by owners of certain areas such as parking areas, gardens, courtyards etc.

Fortunately Abu Dhabi is in the position where it can observe the practical effects of the implementation of the Dubai laws and thereby guard against some of the problems which have occurred in Dubai.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.