Entering Dubai’s Property Market: Dispute Management, Deferred Ownership, and Cross-Border Drivers (Part II)

Strategic Market Entry in Dubai’s Property Sector: Dispute Strategies, Deferred Ownership (Part II of II)

July 2025

Introduction

Dubai's real estate market presents a compelling platform for strategic investors, from institutional funds to corporate entities, seeking to deploy capital through innovative ownership and financing models. This Part II discusses key strategies for navigating deferred ownership, managing dispute risks, and leveraging cross-jurisdictional legal and commercial frameworks. Regulated by the Dubai Land Department (DLD) and the Real Estate Regulatory Agency (RERA), the market's legal infrastructure offers a structured environment for investment.  

I. Lease-to-Own and Deferred Ownership Models

1.1 Regulatory Status and Legal Classification

Lease-to-own and other deferred ownership structures are increasingly prevalent mechanisms for both developers seeking diversified revenue streams and investors seeking flexible entry points. While no single, standalone law specifically governs these hybrid arrangements, they are legally permissible and interpreted under a combination of the UAE Civil Code (Federal Law Number 5 of 1985), the Dubai Real Property Registration Law (Law Number 7 of 2006), and relevant Dubai Land Department (DLD) regulations. Dubai Courts have generally interpreted these models as a "conditional sale" or a "promise to sell," ensuring that the buyer’s future right to ownership is a legally recognized and protectable interest.

• Conditional Sale: This typically involves a lease agreement where the tenant’s right to purchase is explicitly conditioned upon the timely and complete payment of all rental installments. Ownership formally transfers only upon fulfillment of this condition.
• Promise to Sell: This is a separate, binding agreement where the developer promises to sell the property to the tenant at a future date, contingent upon the fulfillment of specific conditions (e.g., completion of payments, obtainment of financing). The enforceability of such promises is expressly supported by Article 129 and Article 148 of the UAE Civil Code, which uphold the validity of agreements containing conditions and obligations.

Developers may introduce complex variations, such as a sliding scale of rent-to-purchase credits. For instance, a contract may stipulate that a higher percentage of rent is credited toward the purchase price if the option is exercised in the first year, with this percentage decreasing in subsequent years. Such clauses demand meticulous drafting to ensure legal enforceability, particularly regarding how the credited amount is clearly defined as part of the purchase price and not merely as a non-refundable fee.

1.2 Forfeiture and Default Remedies

A critical legal risk for prospective buyers (tenants under a lease-to-own model) in deferred ownership structures is the forfeiture of payments in the event of default. While contracts frequently include clauses allowing developers to retain all or a portion of the payments, their enforceability is not absolute. Such clauses are subject to the principles of good faith under Article 246 and the limitations on damages under Article 271 of the UAE Civil Code. A court or the Dubai Land Department (DLD) may limit the amount forfeited to actual damages demonstrably incurred by the developer.

• Developer Default: Conversely, if a developer fails to deliver a unit or breaches other material obligations, the buyer may seek a refund of all payments made, as the underlying contract has been breached.

1.3 Financial and Escrow Considerations

• Mortgage Financing: Banks are generally cautious in financing lease-to-own structures, as legal title remains with the developer. A traditional mortgage is typically unavailable until the purchase option is exercised and a sale and purchase agreement is concluded.
• Developer Finance: Developers may offer vendor-backed financing, acting as the lender. However, it is crucial to note that a formal mortgage can only be registered over a registered freehold or usufruct right, not over a mere promise to sell. Buyers seeking enhanced protection in such arrangements should ensure their contractual interest is adequately protected through DLD registration where permissible.
• Escrow System: To mitigate risk for off-plan properties, Real Estate Regulatory Agency (RERA) Circular Number 2 of 2023 mandates the use of escrow accounts for all off-plan payments. These bank-monitored accounts are audited by the Dubai Land Department (DLD) and funds cannot be released without construction milestone verification. In the event of developer insolvency, this system ensures segregation and protection of investor funds.
• Interim Registration: Investors may register their contractual interest in off-plan properties with the DLD through the "Oqood" system (Initial Register) as per Law Number 13 of 2008 (Article 3). While this creates a legal record of their claim and provides a degree of protection, it is essential to clarify that not all types of deferred ownership agreements are currently eligible for full Oqood registration, depending on their specific structure and the property's status. Expert legal advice is critical to determine eligibility and the extent of protection conferred.

2. Dispute Management and Enforcement

2.1 Onshore Litigation and Pre-Dispute Strategies

Litigation in the onshore Dubai Courts is governed by Federal Decree-Law Number 42 of 2022 (UAE Civil Procedures Law). This law has introduced streamlined procedures and digital filing, but complex cases may still involve time-intensive processes. Proactive pre-dispute strategies are crucial to enhance leverage and accelerate resolution:

• Registration of Interests: Registering a conditional sale or promise to sell under Article 9 of Law Number 7 of 2006 offers documentary proof and establishes a formal record of priority for the buyer’s interest.
• Precautionary Attachments: A court order can be sought to provisionally attach a developer’s assets or freeze property titles, preventing their disposal pending the resolution of the dispute.
• Personal Guarantees and Step-In Rights: For high-value projects, incorporating personal guarantees from developer principals or contractual step-in rights for buyers (allowing them to take over project completion under defined circumstances) can be critical protections.
• Rental Dispute Committee (RDC):: For disputes arising specifically from lease-to-own agreements that are primarily characterized as tenancy contracts, the DLD’s RDC may have initial jurisdiction under Law Number 26 of 2007 (as amended by Law Number 33 of 2008). This specialized tribunal offers a faster, less formal resolution pathway for tenancy-related issues. 

2.2 Arbitration as a Strategic Forum

• DIFC-LCIA and International Chamber of Commerce (ICC): These globally recognized arbitration forums are highly effective. The DIFC-LCIA is often preferred for claims exceeding AED 1 million where a nexus to the DIFC exists, while the ICC is commonly utilized for complex, multi-jurisdictional disputes. Both are recognized under the New York Convention, facilitating global enforcement.
• Saudi Center for Commercial Arbitration (SCCA): The SCCA is increasingly gaining interest for Gulf-wide commercial disputes, particularly those involving UAE and Saudi-based entities, offering a regionally aligned yet internationally recognized framework.
• Federal Decree Law Number 6 of 2018 on Arbitration: This landmark law significantly modernized the UAE’s arbitration framework, aligning it robustly with international best practices (e.g., UNCITRAL Model Law) and limiting the grounds for annulment of awards, thereby enhancing enforceability.

2.3 Enforcement Protocols

The execution of DIFC Court judgments and arbitral awards in onshore Dubai is facilitated by established cooperation protocols with Dubai Courts, ensuring mutual recognition and streamlining the enforcement process. However, foreign-seated awards (those rendered outside the UAE) remain subject to judicial scrutiny regarding compliance with specific procedural requirements and public policy principles under the New York Convention and UAE law. This requires careful consideration during drafting and enforcement strategy.

3. Cross-Jurisdictional Triggers and Strategic Catalysts

3.1 Urban Planning and ESG Compliance

The Dubai 2040 Urban Master Plan defines future urban development corridors and real estate priorities, guiding long-term investment strategies. The UAE Net Zero 2050 strategy, reinforced by DLD and RERA’s accelerating integration of Green Building Standards (e.g., circulars mandating energy efficiency, waste management), mandates sustainable practices for developers. This aligns with global ESG lending conditions, where major financial institutions increasingly require green certifications (e.g., LEED, Estidama) and comprehensive climate risk disclosures as a prerequisite for project funding.

3.2 Financial Regulation and Digital Integration

• Real Estate Investment Trusts (REITs): The Dubai Financial Services Authority (DFSA) regulating the DIFC, has issued flexible regulations for REITs, including a 70% dividend distribution requirement, which continues to attract institutional capital seeking stable, income-generating real estate exposure.
• Tokenization: RERA is actively evaluating regulatory frameworks for fractional ownership and tokenized real estate offerings, recognizing the transformative potential of Distributed Ledger Technology (DLT). While DLT is not yet adopted for primary land registries in a widespread manner, the DLD is actively piloting blockchain-based certifications and exploring smart contract-based transactions to enhance efficiency and transparency in secondary markets and related services.
• Regional Harmonization: Ongoing discussions and initiatives towards a Gulf Cooperation Council (GCC) Unified Real Estate Framework suggest increasing regulatory convergence. This may eventually permit mutual recognition of ownership rights, real estate professional licenses, and dispute judgments across GCC jurisdictions, profoundly impacting cross-border investment and operational scalability.

Conclusion

Dubai’s property market, governed by a mature and evolving legal framework, offers a resilient platform for discerning investors. Deferred ownership models—while legally and commercially intricate—can offer high-value entry points if supported by robust legal documentation, escrow protections, and enforceable dispute mechanisms.

Multi-jurisdictional family offices and institutional investors may enhance control and succession planning through Dubai International Financial Centre (DIFC) Foundations or offshore special purpose vehicles, with careful legal structuring to ensure compliance with ownership restrictions.

As the emirate aligns itself with global trends in sustainability, transparency, and capital market sophistication, strategic investors must calibrate their legal and commercial positioning to preserve competitiveness. Success in this market depends not only on capital deployment, but on disciplined legal foresight, cross-border structuring, and regulatory fluency.