The Abu Dhabi Department of Municipal Affairs and the Executive Council are currently undertaking an extensive review and consultation process in relation to a new consolidated real estate law (the Real Estate Law) which will govern the introduction of an escrow law, strata titling and a mortgage law in Abu Dhabi.

The review forms part of the process of streamlining and enhancing the existing real estate laws in Abu Dhabi which in 2009 included the introduction of laws relating to the landlord and tenant relationship and car parking.

Developers, investors and financial institutions expect the Real Estate Law to reflect international best practice and enhance confidence in the Abu Dhabi real estate market as Abu Dhabi seeks to continue to implement the Abu Dhabi 2030 plan. It is hoped that the Real Estate Law will be enacted during the course of 2010.

We set out below a brief summary of the real estate laws which came into effect in 2009, followed by a short summary of the key matters expected to be covered by the Real Estate Law.

New laws in 2009

Rent cap law

Abu Dhabi Law No. 6 of 2009 (Law No. 6) amended Abu Dhabi Law No. 20 of 2006 Regulating the Landlord and Tenant Relationship and came into effect on 8 November 2009.

Under Law No. 6, the cap on annual rental increases in Abu Dhabi remains at 5%. Rents cannot be increased more than once in each year, and each increase must be for no more than 5% of the previous year’s rent.

Law No. 6 provides that the minimum tenure of a lease is five years. This amends Law No. 20 of 2006 and means that if a lease is for a term of five years or less, the tenant has the right to renew the lease on the same terms for an additional five-year term or shorter.

The Executive Council of Abu Dhabi also issued Resolution 76 of 2009, to establish a committee mandated to study the impact of government regulation of rent contracts. The committee’s recommendations are expected in early March 2010. It is anticipated that the committee will recommend further amendments to Abu Dhabi’s rent laws in due course.

Car parking

Abu Dhabi Law No.18 of 2009 Concerning the Organisation of Vehicles Parking in the Emirate of Abu Dhabi (Law No. 18) was issued on 20 October 2009. This new law is aimed at tackling the lack of parking spaces in Abu Dhabi and entrusts the Department of Transport (DOT) with the role of organising and solving parking space issues.

Law No.18 is particularly significant as it requires that consideration must be given to providing sufficient parking spaces for occupants and visitors as a prerequisite for the grant of planning permission.

There is also an obligation to provide parking spaces for existing buildings. It will be interesting to see how this will be applied in practice, particularly in the case of tower blocks in built up areas.

Expected legislation for 2010

The Real Estate Law will be extensive and is anticipated to cover a number of important issues such as strata titling, escrow accounts and mortgages. We summarise below the reasons why the Real Estate Law is needed and some of the areas that the Real Estate Law is expected to cover.

Strata

The Articles of the UAE Civil Code which relate to the ownership of floors and apartments and the management and powers of a co-owners association are unclear and difficult to apply to modern strata titled communities.

The existing legislation on common ownership (Article 31 of the Implementing Regulations passed by the Abu Dhabi Executive Council) only applies to very large-scale “complexes” and does not expressly deal with the titling of strata units.

As the Civil Code is unclear and Article 31 is limited in scope, some developers have chosen to deal with the strata titling of units and the management of the community more extensively on a contractual basis, although this will inevitably lead to a disparity in the way strata titling is dealt with between adjoining developments. Contractual provisions relating to strata titling may be an expedient way of dealing with the inadequacies of the current law, but any such provisions will need to be revised following the introduction of the Real Estate Law.

It is anticipated that the section of the Real Estate Law dealing with strata will clarify the position in relation to the strata titling of units and the management of common areas.

Escrow

Unlike Dubai, Abu Dhabi currently has no escrow law. Although there has not been the same level of “off-plan” selling in Abu Dhabi as there was at the height of the boom in Dubai, Abu Dhabi may echo Dubai’s escrow law (Dubai Law No. 8 of 2007) which provides that a developer wishing to sell “off-plan” units must apply to the Land Department to open a trust account. Monies from the sale of units at the project are paid into that trust account. The trust account is opened in the name of the project and is to be used only for the purposes of developing that project.

The introduction of an escrow law in Abu Dhabi would protect the interests of “off-plan” real estate investors and would affirm Abu Dhabi’s commitment to providing a safer and more reliable “off-plan” sales regime.

Mortgages

Mortgages in Abu Dhabi are based on the provisions in the UAE Civil Code which, in practice, are difficult to apply.

It is anticipated that the Real Estate Law will clarify the Civil Code position and protect financiers, whilst also giving greater clarity to borrowers.

It is likely that a similar concept to Dubai’s “Interim Real Estate Register” will be adopted, whereby sales “off-plan” are recognised as dispositions of real property rights and, as such, will be registrable and mortgageable.

Titles and permits

It is expected that the Real Estate Law will contain provisions to ensure that developers have acquired title to the land and the necessary permits for development before selling to the public, in order to protect the interests of real estate investors.

Laws regulating the Land Registration Department

The Executive Council has announced that the Real Estate Law will also cover the development of a property management database, the standardisation of building codes and the introduction of new building safety codes.

Conclusion

It is likely that 2010 will welcome a number of real estate laws which will introduce greater certainty to the legal regime governing real estate development, investment and financing in Abu Dhabi.

In the meantime, those involved in property transactions should ensure that they review their position in light of the existing laws and ensure that they maintain flexibility as the law evolves. In all circumstances, the necessary legal and technical advice should be obtained.