Types of interest
In Abu Dhabi, a lease is a personal contract of hire, more akin to a licence and not an interest in land. Most non-owner occupiers in both the residential and commercial sectors are lessees under leases. Non-UAE nationals (and companies owned in whole or part by non-UAE nationals) may only be granted long leases (being leases for a term of 25 years or more) within one of the designated investment areas. Alternative rights of occupancy that do create rights in property are:
- Usufruct: A right in rem in favour of the usufructuary to use property of another and to exploit it provided that it remains in its original condition’. This right can however, only be held by non-UAE Nationals in one of the designated investment areas of Abu Dhabi (and is restricted to a maximum term of 99 years).
- Musataha: A right in rem conferring upon the owner thereof the right to build a building or to plant on the land of another’. Again, this can only be held by a non-UAE National in investment areas (restricted to a 50-year renewable term).
These rights are investment interests allowing exploitation or development as well as occupancy. Non UAE nationals may only hold these interests within one of the designated investment areas for the limited periods of time which apply.
Abu Dhabi law does not provide a clear distinction between a lease (a personal right) and a usufruct (a right in rem). The law does state that long leases (being those with a term of 25 years or more) are property rights, however, it does not clearly define the characteristics of leases with terms shorter than this. In practice, Abu Dhabi Municipality (ADM) have deemed leases for a term of more than four years granted in favour of a non-UAE national (or a company owned in whole or part by a non-UAE national) in relation to land outside an investment zone and which contain rights to sublet to be usufructuary rights (and therefore not capable of being granted to a non-UAE national outside an investment zone).
Within the Abu Dhabi Global Market free zone (which geographically covers the whole of Al Maryah Island), the following occupational interests are also recognized:
- Leasehold (which could include one or more sublease interests and excludes occupational (or otherwise) licence arrangements) – this gives the tenant the right to use and occupy the property for a specified period of time, and
- Strata interests – as a means of dividing real property into lots or sub-lots for strata ownership
Registration
(a) In relation to leasehold interests located within Abu Dhabi but outside the Abu Dhabi Global Market free zone:
There is an obligation to register all leases within Abu Dhabi. Failure to register a lease will result in the lease being considered to be not enforceable save for the personal obligations between the parties.
Leases of four years or less
All Abu Dhabi buildings and units within them being leased are required to be registered under a system known as Tawtheeq. The lessor is responsible for the registration process and for the fees. The lessor is not permitted to pass on the costs of registration to the lessee.
The Tawtheeq system requires a number of details to be provided during the first phase of the registration. Once the details are provided, the application is submitted to Abu Dhabi Municipality (ADM) who will approve or otherwise, the registration.
If the registration is approved during the first phase, the fees are payable and completion occurs.
The associated registration fees are as follows:
- AED 1,000 per building registration (plus AED 5 for registration of each leasable unit)
- AED 100 per registration of each new lease
- AED 100 for renewal of a lease
- AED 50 for termination of a lease
- AED 50 for any further administration
- For leases over 4 years but less than 25 years – Registration fees are 1% of the first year’s rent.
- For leases over 25 years – Registration fees are 4% of the value of the consideration.
Responsibility for the registration fees can be provided for in the lease.
The Tawtheeq online system will request a number of fields to be populated for the registration of a lease unit, including (but not limited to):
- The trade licence number
- The lessee’s trade licence issue and expiry date
- The company activity of the lessee
- The issuance authority
- The chamber of commerce and industry unified ID
- The address and contact number of the lessee
- The passport number and expiry date of the individual representing the lessee
- The visa type and expiry date of the individual representing the lessee
- The nationality of the individual representing the lessee
- The Emirates ID number of the individual representing the lessee
- The term commencement date of the lease
- The expiration date of the lease
- The rental value of the lease
The ADM has clarified that the lessor may attach special terms and conditions to the contract during the account opening process, which are then referred to the Legal Affairs Section at the ADM of Abu Dhabi City. If the ADM considers that the special terms and conditions are inconsistent with the general terms of the lease and other applicable rules, the ADM may notify its rejection of those terms to the property owner. Renewal, surrender and termination are all carried out by way of the online Tawtheeq system.
- For leases over four years but less than 25 years – Registration fees are 1% of the first year’s rent.
- For leases over 25 years – Registration fees are 4% of the value of the consideration.
Responsibility for the registration fees can be provided for in the lease.
Leases of over four years
All Abu Dhabi buildings and units within them being leased on terms of more than four years are required to be registered under a system known as Tamleeq. There are two different registration fees payable depending on the term of the lease:
- For leases over four years but less than 25 years – Registration fees are 1% of the first year’s rent
- For leases over 25 years – Registration fees are 4% of the value of the consideration.
Responsibility for the registration fees can be provided for in the lease.
(b) In relation to leasehold interests located within the Abu Dhabi Global Market free zone:
The ADGM maintains its own land registration system (ADGM Land Register). It provides that:
- A defined list of conveyances (which includes leasehold interests or a short-form thereof (which omit commercially sensitive details)) and subsequent variations must be registered on the ADGM Land Register.
- Agreements to create such conveyances must also be registered on the ADGM Land Register.
- The obligation is on the grantor of the contract to register it.
- Conveyances should be executed in the English language and, if not, a translation into English language, should be provided.
- The ADGM Land Register shall be publicly searchable and the ADGM shall issue certificates of title to interested parties and also priority searches (which can be used by lenders when taking security interests) – these are very useful features than are not currently available through the Abu Dhabi land registration system.
- Registration of a conveyance is evidence that such conveyance was in a form approved by the ADGM.
- A registered owner holds the registered interest free from all other interests except for:
- interests that are already registered
- easements or public rights of way
- rights in favour of the relevant authority
- implied easements, and
- statutory charges
- There is no compensation available to registered owners for errors in the registered title maintained by the ADGM Land Register or fraudulently registered conveyances for example – this is unfortunate, as the Dubai International Financial Centre, a similar free zone, maintains a compensation fund to allow it to pay compensation to affected parties in such instances.
- The lessor is responsible for the registration of a lease, which must be done within 28 days of the parties signing.
- In order to be registered, the lease should contain key details such as the parties, length of term, the commencement date, any renewal rights and sufficient detail to identify the premises.
- A memorandum (short-form) lease can be registered in lieu of a full lease.
- Leases and also agreements to lease (a pre-lease contract often signed when a development is under construction/not quite ready for occupation and use) can both be registered with the ADGM Land Register.
- Registration fees are payable as follows:
- Lease with a term of less than 10 years (including any renewals) is AED 100 per year.
- Lease with term of 10 years or more (including any renewals) is 2% of total value of contract (subject to no maximum).
