What sort of security is typically created or entered into by an investor who is borrowing to acquire or develop real estate?
In Dubai, security is taken over real estate and real estate interests (such as usufruct or musataha) by way of mortgage that is registered at the Dubai Land Department (DLD). In order for the mortgage to be registerable, the mortgage document must be in the form prescribed by the DLD and must also fully and accurately describe the relevant property. The mortgage application process can be initiated through a "smart" online portal. Upon registration at the DLD, the DLD issues an updated title deed reflecting the mortgage (either in writing or in electronic form) and the mortgage becomes enforceable against third parties as a result. Following such registration, the relevant mortgagor cannot sell or otherwise dispose of the property without the consent of the financier (as mortgagee).
Only a financier licensed by the UAE Central Bank can have a real estate mortgage registered in its favour. Therefore if a foreign (unlicensed) financier wishes to take security over real property, it is generally-accepted market practice for such financier to appoint a locally licensed security agent to act on its behalf and to be the mortgagee of record for the purposes of any mortgage registration.
Security is also commonly taken over any relevant moveable property associated with the acquisition or development. Federal UAE Law No. 4 of 2020 on Guaranteeing Rights Related to Moveables (and its amendments and regulations, together the ‘Moveables Mortgage Law’) governs how security is taken over certain classes of moveable assets such as accounts, trade payables, equipment and tools, goods and raw materials and agricultural products. The Moveables Mortgage Law provides that security over such moveable property should be by way of written security agreement or mortgage and, contrary to the historical position in the UAE, allows security to be taken over property without demonstrating possession and also allows security to be taken over future property (including bank accounts with fluctuating balances). It is therefore possible to take security over moveable property which is similar in certain respects to an English law 'all assets' debenture (provided that the requirements of the Moveables Mortgage Law are adhered to). In terms of registration, the current applicable security register where such security over movable property is to be registered is held with the Emirates Integrated Registries Company.
We note, however, that the Moveables Mortgage Law does not govern security over all moveable assets, and so care should be taken when securing a particular asset class to ensure that the security is in the correct form. For example, security over ships, aircrafts and vehicles are subject to different laws and regulations in the UAE.
It is possible to take security over the shares in a company, including limited liability companies, public joint-stock companies and private joint-stock companies. The process for taking security over shares will differ depending on which Emirate or freezone the company in which the shares are held has been established, and so care should be taken to ensure that the proper process is complied with.
It is also common in the UAE to see guarantees (corporate and/or personal) provided in the context of real estate financing. Requirements governing guarantees are set out in the UAE Civil Code (i.e. Federal Law No. 5 of 1985, as amended).