Government of Dubai has issued Decree No. 23 of 2022 (the “Decree”) to control the granting of Musataha rights in the Emirate of Dubai in July 2022.
Purpose of the Decree
The objective of the Decree is to regulate & control the use of commercial and industrial land in the Emirate and to enhance investments in its real estate sector with promising returns for investors.
The Decree applies to all commercial and industrial land owned by the Government of Dubai as well as any entities wholly or partially owned by Government of Dubai. The Decree sets out legal rights in addition to the rights granted under existing provisions of the UAE Civil Code.
What is Musataha ?
A musataha right is a specific type of investment partnership between the public and the private sectors, in which the design, build, finance, operations, along with market risks are transferred to the private sector.
A Musataha right allows its holder also known as ‘’musatahee’’ to develop upon and make use of land belonging to the other party. It permits the holder of the property right to own the assets, operate a project, as well as maintain it for a definite period. After the agreed period, the ownership of the project assets and land is transferred back to the Government.
Article (1) of the Decree defines the right of Musataha as a right in rem granted by the owner of the Commercial land to the Musatih (i.e. the party to whom the right in rem is granted). Musataha right is created through Musataha agreement in accordance with the Decree.
According to Article (13) of the Decree, Musataha right shall transfer to the legal heirs of the Musatih subject to any regulation by the Dubai Land Department and may also be acquired through a Will.
According to the Decree, the Musatih shall have the right to exploit, build and own the buildings on the commercial land during the period of the Musataha agreement, sell or otherwise execute any legal transactions in respect of the constructions and buildings on the commercial land upon the issuance of final completion certificate by the competent authority. The Musatih, subject to the requirements of the Decree, may mortgage the Musataha right and carry out off-plan sales.
Key Developments under the Decree:
Among a number of other provisions, the Decree stipulates the following:
- DLD role: the Dubai Land Department (“DLD”) shall be the competent authority for implementing the Decree and shall assume the duties and powers including issuing standardized rules related to proper and optimal use of said lands
- developing a specified form of musataha agreement;
- monitoring compliance by the musateh/tenant with its musataha agreement; and
- establishing a register for musataha agreements granted pursuant to the new decree.
- Compliance: Failure to register the musataha agreement or acting in a way contrary to the new decree may render that agreement or act legally ineffective.
- Term: The maximum initial term is 35 years. This can be extended (by agreement) up to a maximum term of 50 years.
- Renewal: If the musateh/tenant wishes to renew, it must submit its application at least two years before the term expiry date (unless the parties agree otherwise)
- Registration: The registration fees are payable by the musateh/tenant (100%). The specified rate for musataha is 1% of the contract value.
- Alienation: Prior to obtaining the building completion certificate, the musateh/tenant cannot dispose of its interest. The only exception is granting a mortgage.
- Change of control: The landowner and DLD must pre-approve any disposal of shares (i.e. sale, transfer or mortgage) in the musateh/tenant (for corporate entities).
- Ownership: Ownership of any buildings/facilities passes to the landowner at the end of the term (unless the parties agree otherwise).
The Decree comes into force on the date of its publication in the Official Gazette on 22 July 2022.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)
Ahmad Alagbari Chartered Accountants