United Arab Emirates: Corporate Entities can now Register Freehold Title: DLD issues Formal Guidlines

In brief:

• Effective 1 January 2011, the DLD confirmed it will permit and accept registration of title to freehold property provided the corporate entities purchasing property are "offshore" entities registered in the "Jebel Ali Free Zone (JAFZ)".
• Purchasers who have previously incorporated entities within various local UAE free zones to purchase freehold property may now be required to incorporate offshore entities in JAFZ and register their freehold title at the DLD.
• Developers in Dubai will now need to assess their customer database and advise their purchasers in respect of registration of title, requirements and applicability of the DLD Guidelines. We recommend developers seek professional advice in respect of assessing their customer database and notifying their customers.

Effective 1 January 2011, the DLD confirmed it will permit and accept registration of title to freehold property provided the corporate entities purchasing property are "offshore" entities registered in the "Jebel Ali Free Zone (JAFZ)". These Guidelines only affect freehold properties registered at the DLD on or after 1 January 2011.

While these Guidelines are clear for purchasers seeking to purchase completed freehold properties in Dubai pursuant to 1 January 2011, it raises several other interesting issues that the DLD may need to consider moving forward.

On 1 February 2010, the DLD issued guidelines discontinuing registration of freehold titles in the name of foreign offshore companies. All local (UAE-owned) offshore companies were, however, permitted to register titles to freehold properties subject to the shareholders being individuals. In response, several purchasers incorporated entities within various local UAE free zones to purchase freehold property. Where corporate purchasers signed memorandums of understanding with completion dates in 2011, it is now unclear whether they shall be given the benefit of the guidelines issued by the DLD in February 2010. However, it is likely the DLD will insist on such purchasers incorporating offshore entities in JAFZ to register their freehold title at the DLD.

The Guidelines are also silent in respect of purchasers that have interests registered in the interim property register at the DLD, commonly known as Oqood. It is not clear whether such purchasers will need to incur further costs and incorporate a JAFZ offshore entity to hold their property or how the transfer of rights and obligations to such new entity will work in practice.
Following the release of the Guidelines, corporate purchasers who have incorporated entities in UAE local jurisdictions other than JAFZ need to incorporate offshore entities in JAFZ to purchase any additional freehold property. The Guidelines do not refer to any DLD or approved developer costs to effect such transfers of interests or change in purchasers which leaves a possibe loophole in respect of such transfers where purchasers may validly be able to transfer ownership in their freehold properties without having to pay the 2% fee to the DLD in a bid to effect compliance with the Guidelines. The Guidelines may also affect properties in the process of being mortgaged and purchasers who are in the process of incorporating other UAE local free zone entities with the intention of purchasing freehold property in Dubai.
The Guidelines will boost JAFZ as the preferred free zone however this may be to the detriment of other UAE free zones that have marketed their services to property investors. The DLD has not released any information why JAFZ was chosen as the preferred entity and it remains to be seen how these Guidelines will affect the other local UAE free zones and whether the DLD will consider adding other UAE free zones to their preferred list in due course, and on what criteria.

Developers in Dubai will now need to assess their customer database and advise their purchasers in respect of registration of title, requirements and applicability of the DLD Guidelines. Further, purchasers need to assess their own circumstances based on their position and future requirements and undertake steps required to comply with the Guidelines. These Guidelines may be of interest to purchasers seeking to transfer ownership from their personal names and into trusts or foundations located outside UAE. We recommend developers seek professional advice in respect of assessing their customer database and notifying their customers. We further recommend purchasers seek correct professional advice in respect of structuring their investment vehicles for purchasing freehold properties 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.