Saturday, August 05, 2006

Freehold 2

Freehold is a bit of a buzzword in the UAE today, but what exactly is it? It is obviously a legal term with regard to property rights. A Legal Encyclopedia hosted by Answers.com provides the following definition:
A life estate, an interest in land the duration of which is restricted to the life or lives of a particular person or persons holding it, or an estate in fee, an interest in property that is unconditional and represents the broadest ownership interest recognized by law.

In order to be categorized as a freehold, an estate must possess the characteristics of (1) immobility—in the sense that the property must be either land, or some interest derived from or affixed to land—and (2) indeterminate duration.

Determinable freeholds are life estates created by language that provides that the estate is to terminate automatically upon the occurrence of a specified event.
A lot that is referred to in this definition appears to correlate with how the term is used in the UAE. Specifically, freehold as a legal concept in the UAE would seem to include the following notions:
  1. an estate in fee or fee simple (terms interchangeable with freehold); see Wikipedia definition.
  2. an interest in property that is unconditional
  3. ...that represents the broadest ownership interest recognized by law
  4. an estate that is immovable, i.e. land
  5. ...or some interest derived from or affixed to land
  6. an indeterminate duration of applicability
This might be considered a broad definition of freehold as used in the UAE, with need however to qualify points 2 and 4.

Point 2: In the UAE there appear to be conditions associated with freehold possession in terms of limitation of use. Commonly, for example, the owner may not alter the appearance or other external features of the property accept in accordance with procedures set forth by a master developer. This is, in effect, a rather substantial condition, however, it is not dissimilar to limitations commonly imposed by municipality or community based zoning restrictions.

The notion of unconditionality is particularly relevant in terms of the owner's right to sell, transfer or pass on the property as inheritance. Apart from procedural requirements, these rights may be considered largely unrestricted, except in the case of inheritance, which must be in accordance with federal and state (or emirate) statutes and practices--a grey area at present.

As stated in Point 3, this notion of freehold with the apparent restrictions referred to in Point 2, does in fact represent the broadest extent of ownership interest as recognized by UAE statutes.

Point 4: The question of land ownership and the associated rights thereupon appear to also be in question, whereupon, there are suggestions that even apart from meeting the master developer's zoning restrictions, the owner is not free to build a new structure on the land even in cases of the original structure being demolished or destroyed. (The implication is that the right to build any structure on the land or plot is subject to the consent of the master developer.) The question of ownership, therefore, seems to be primarily concerned with the right to sell, transfer and pass on the land or plot as inheritance.

In Other Words...

To put it in terms the layperson might better appreciate:
Freehold ownership in the UAE involves the unrestricted right to sell, transfer or pass on as inheritance an interest in land or a permanent structure, normally a house (villa) or apartment unit. It also includes permanent ownership of the property not limited to any number of years or the lifespan of the owner.
Freehold is, therefore, distinguishable from leasehold in terms of the indeterminate period of ownership. Otherwise the two concepts as used in the UAE may be considered nearly identical--as even within leasehold the property may be sold, transferred and passed on as inheritance up to the duration of the original lease term.

Another term of relevance is commonhold which refers to the common ownership of public or communal areas of a residence or office property--such as corridors, lobby, community room, gym, elevators, attendant grounds, etc., including the plot of land on which the structure rests. Ownership in such case is governed by the provisions of an owners association. Freehold ownership of an apartment or other unit within any such compartmentalized structure may or may not include commonhold ownership of the public or shared areas and facilities. It is possible that the plot of land and all common facilities will be owned by a third party, the developer for example, with the unit owner having ownership rights over only a single unit or units.
776 words
Open a printable copy, in a new window.
Quick Quiz:

  1. The right to freehold became protected by legal statute in Dubai in
    2002   2004   2006
  2. Freehold ownership of property in Dubai is limited to:
    UAE and GCC nationals only
    UAE and GCC nationals and non-national residents
    UAE and GCC nationals, and non-nationals (resident or not)
         in certain designated areas
  3. Freehold properties are available in which emirates* of the UAE?
    (select as many as apply):
    Abu Dhabi   Dubai   Sharjah   Ajman   UAQ*   RAK   Fujairah*

Answers to Quesions in a pop-up box.
Feel free to challenge or disagree with any answers posted and offer suggestions.

Links:

Freehold! is an earlier post which discusses the history of and outlook for freehold in the UAE.
Commonhold: A Primer looks at this concept in detail.
Freehold Areas Announced... Some Surprises! reports on recent news about freehold in the UAE property market.
Noteworthy: Dubai's Property Law (English translation)
Interactive Map of Dubai Properties

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1 comment:

BD said...

QUICK QUIZ ANSWERS:

1. 2006

2. UAE and GCC nationals and non-nationals (resident or not) in certain designated areas

3. Dubai, Ajman, RAK