Musataha Agreement in UAE

Musataha Agreement

Posted by: Prime Lawfirm
Musataha Agreement in UAE 06 May 2021

The United Arab Emirates is a country that rapidly develops at all sectors and levels. One vital sector which has been always a main sector is real estate development. The foreign investors may invest in construction and buildings only without intending to own the land because the land owners may not desire to give up their lands, thus, Musataha Agreement allows for alternative solutions for both parties. This article explains Musataha Right in UAE in accordance with the Civil Code and last updated of Law No. 19 of 2005

Musataha Right definition

Musataha right is defined in Federal Law No. 5 of 1985 On the Civil Transactions Law of the United Arab Emirats (Civil Code) under Article 1553  as:  The mussataha is a right in rem giving its owner the right to erect a construction or to plant on a land owned by another.  Therefore, Musataha right is a property right that authorizes its owner to construct or to plant on third-party land.  

Scope of Musataha Right 

Article 1357 of the Civil Code reflects that Musataha right s owner (Musatih) owns the constructions which they have built on the land and those constructions, together with the Musataha right, may be disposed of. Also, Article 1355 provides that Musataha Right authorizes Musatih to mortgage or assign their right. 

Term and termination of Musataha Right

Article 1356 of the Civil Code reflects that the right of Musataha is valid up to 50 years which is renewable once by mutual consent of the parties for a further term of up to 50 years. If a term is not fixed, either the Musatih or the land owner may terminate the contract. Relatedly, Article 1358 provides that Musataha right ends by the expiration of the term; or by merging the two capacities of land owner and Musatih in the same entity; or if Musatih stop paying the agreed fees for two years, unless otherwise stipulated. Moreover, it is stated under Article 1359 that the right of Musataha does not terminate by the extraction of the buildings or the plants prior to the ending of the term.

Law No. 19 of 2005 Concerning the Regulation of the Real Estate ownership of property in Abu Dhabi

This law was recently amended to introduce vital changes to the sector of real estate development. On 16 April 2019, Abu Dhabi Executive Council issued Law No. 13 of 2019 amending certain provisions of Law No. 19 of 2005 on Real Estate Ownership. The Law implements vital changes to the rules on foreign ownership of real estate in Emirate Abu Dhabi.  This amending law now allows for foreign individuals and companies wholly or partially owned by such individuals to own freehold interests in land existing at the investment areas in Abu Dhabi.

 Before this amendment, foreign individuals were only entitled to own the building and all rights deriving from the right of ownership expect the land. However, after this amendment was published, now the foreign individuals are entitled to own full freehold interests including the land as set forth under Article 3. This vital amendment will pave the way for foreign investors to start up their investment in real estate development sector more easily due to the removal of ownership obstacles existed before the issuance of this amending law.

Also, Article 4 of the Law asserts the right of Musataha right s owner with more ten years period to dispose of this right including mortgaging it without the consent of the land owner. This importantly adds an advantage to the investors because it opens more options for the investors if they are required to provide securities for their businesses finance. 

Musataha Agreements in Healthcare and Education sectors

In 2014, Abu Dhabi Executive Council issued Circular No. 11 of 2014 to provide a standard Musataha Agreement to be used by government departments. This standard form is implemented for all Musataha Agreements concluded in Abu Dhabi between two or more Abu Dhabi government entities or between government departments and third parties. It is primarily implemented between health and education related government departments and third parties.

 The standard form Musataha Agreement model has been issued after the notable rising demand in Public private partnership in Abu Dhabi especially in Health And Education sectors. These government departments include Abu Dhabi Education Council (ADEC), Abu Dhabi Health Services (SEHA) and Department of Health. These Agreements shall incorporate the standard conditions imposed by Circular No. 11 to be registered. Nonetheless, the involved parties to the Musataha Agreement will be allowed flexibly to agree to additional clauses as they consider proper meaning the foreign investors in such sectors can benefit from this Standard Agreement to avoid obstacles may affect their investments.