New Property Law in Abu Dhabi

New Property Law in Abu Dhabi

Abu Dhabi has recently published its long-awaited new property law aimed at better regulating the real estate market in Abu Dhabi, which will take effect from January 2016. Al Tamimi & Company has had the privilege of working with the team responsible for drafting this new law, which has been through more than seven years of consultation, review and drafting. The new law is a positive step towards attracting increased real estate investment in Abu Dhabi, and across the UAE more broadly, as it tackles many of the concerns raised by investors and developers in the past, while also drawing on the real estate investment experience in the UAE, and especially in Dubai, over the last ten years.

The UAE’s real estate sector witnessed a period of controversial development over the past decade, and it suffered a severe shock during the global financial crisis. Lessons were certainly learnt from that experience, leading to greater stability and maturity in the real estate investment market we see today. This new law is the next important step forward and should be welcomed as a balanced approach to providing important protection for stakeholders and the wider public interest.

Responsible Authority

The law authorises Abu Dhabi’s Department of Municipal Affairs (the “DMA”) to organise and develop the real estate sector in Abu Dhabi, to supervise and control all aspects related to the sector and to coordinate with municipalities in this regard. Further, the DMA’s authority includes implementing the law, issuing licences, controlling escrow accounts and cancelling real estate projects. It seems that the DMA’s workload will be significantly increased given that the DMA also controls all matters related to municipal affairs including other property related issues; however, the law provides that a new structure will be developed to help the DMA in implementing the new law and practising its functions.

Licensing and Registration

The types of entities or persons that are allowed to obtain a licence to engage in development-related activities are master developers and sub-developers, brokers and their employees, owners’ association managers, appraisers and surveyors. The law stipulates that no one may engage in any real estate activities before obtaining a licence from the DMA. Further, no one is entitled to claim remuneration and fees if they are not licensed.

The law creates two new registers: the real estate development register and the interim real estate register, which will both be kept by the DMA. Developers will not be allowed to engage in real estate development unless they have been registered in the real estate development register. Also, all data and documents that relate to licensees, escrow accounts, banks and project marketing will be kept in this register.

The law also states that all disposals of off-plan units must be registered in the interim real estate register and any disposal will not be legally binding on the parties to the sale agreement or a third party unless it has been registered in the interim register.

Off-plan Sales

Regulation of off-plan sales is intended to be one of the cornerstones of the law. This is where a purchaser is granted real estate rights over a unit that is proposed to be built in accordance with floor or complex plans.

A developer is not allowed to sell units off-plan unless, among other things, it proves that it owns a real estate right over the project land and that it has opened an escrow account for the project. Furthermore, the law includes requirements for opening an escrow account and paying money from the escrow account, and terms and conditions for advertising and marketing an off-plan project. It is therefore essential that developers of off-plan projects take steps to ensure that they are in compliance with the new law as soon as practicable but in any event within 12 months from the date on which the law comes into force.

The law prohibits developers from collecting registration fees from investors, and only allows developers to charge administrative fees, which must first be approved by the DMA. This should result in lower costs for buyers. The law also protects investors by requiring developers to register units sold off-plan in the interim real estate register.

Real Estate Financing

The law allows units sold off-plan to be mortgaged provided that the loan amount is paid into the relevant escrow account and the loan is allocated for payment of the purchase price. Further, the developer is prohibited from mortgaging the project land or any related real estate right unless it is for the purpose of financing construction of the project and the loan amount is paid into the escrow account. The purchasers of the units must be notified of the mortgage by the developer, who must procure a release of the mortgage over the relevant unit once the purchaser has paid the full purchase price.

The mortgage provisions provide for enforcement if a debtor defaults in payment of their installments. A bank will be able to enforce a mortgage immediately through the summary court after giving notice to the debtor, without having to obtain a court judgment that the debtor owes the debt.

Owners Associations

The new law includes provisions for setting up owners’ associations comprising all the owners of units in multi-unit real estate developments. Owners’ associations will be independent legal entities that hold title to the common parts of developments and will be responsible for the management of those common parts.

Conclusion

It is important that all parties review and understand their obligations under the law, and that they start preparing for the changes that are about to sweep the Abu Dhabi real estate market. Al Tamimi will be providing a full update on the new property law in the next edition of Law Update and will be arranging a series of seminars and workshops in the coming weeks focusing on the issues for developers, banks, investors and users of property to assist them in understanding the law and to comply with the new law.

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