UAE Law and Practice Contributed by: Duncan Pickering, Nicola de Sylva and Sean Cope, DLA Piper Middle East LLP
3.2 Typical Security Created by Commercial Investors
in accordance with Sharia principles. One of the key principles is that the payment and receipt of interest (riba) is prohibited and any obligation to pay interest is considered to be void. However, Islamic principles do not prohibit a financier in an Islamic finance transaction from making a profit, rental or other return on its asset or investment. Existing real estate may be financed through sale and leaseback arrangements (ijara), where the borrower sells the property to the Islamic financier and subsequently leases it back in exchange for paying rentals. However, this kind of arrangement may attract registration and other costs, which can make a leasing or ijara structure economically unviable. Commodity murabaha (tawaruq) financing struc - tures rely on underlying commodities trades in order to create debt-based obligations (like a conventional loan). This structure does not involve additional transfers and can also be structured on a bilateral or syndicated basis in the same way as for a conventional loan. A com - modity murabaha structure can also be secured using a mortgage over the underlying real estate. Other Financing Structures There is a general trend towards the establish - ment of real estate funds/real estate investment trusts (REITs) whereby stakeholders inject capi - tal into a fund, where the principal objective is to invest in strategic real estate in the UAE (and/ or the wider GCC area) and to grow a real estate portfolio for the fund’s investors. Another alternative is to access the debt capi - tal markets, through either bonds or sukuk (also known as Islamic bonds).
Security over real estate and real estate interests (such as usufruct or musataha) can be taken by way of a mortgage that is registered at the rel - evant land department. Some of the Emirates (and free zones) have specific laws dealing with mortgages, but, in the absence of legislation, mortgages are generally governed by the Civil Code. Generally speaking, mortgages over real estate may only be granted in favour of a bank that is licensed by the UAE Central Bank. Movable Property In 2020 the UAE issued a new Federal Law No 4 of 2020 (the “Movable Assets Mortgage Law”) as a regulatory regime which provides that a wide variety of assets (such as accounts, trade paya - bles or receivables, equipment including future property) can be secured without demonstrating possession – provided that the security is regis - tered on the applicable security register. The Movable Assets Mortgage Law provides a greater level of certainty in the context of real estate financing transactions, and also enables security to be taken over movable property that is similar in effect to a debenture or “floating charge”. In terms of registration, the current applicable security register where such security over movable property is to be registered is the Emirates Integrated Collateral Registry Com - pany. Security Over Shares Where a special purpose company (SPC) has been established for the purposes of a real estate investment or development, it may be possible for the financiers to take security over the shares of that SPC. As a general rule, it is possible to take security over the shares in a company, including onshore LLCs. There are restrictions
1041 CHAMBERS.COM
Powered by FlippingBook