22 April 2021
Middle East update – April 2021 – 2 of 4 Insights
Dubai is a constantly expanding urban metropolis. It is well known around the world for having grown from a dry, arid land where there was once only desert into a thriving multicultural destination. However, expansion on such a grand scale requires significant amounts of land, and with Dubai Expo on the horizon, land is a more precious commodity than ever.
To facilitate the continued expansion of Dubai, the government may need to requisition land owned by third parties. However, the mechanism for acquisition and calculation of compensation in the event of a land appropriation is a rarely discussed topic in the UAE. For that reason, we wanted to outline some of the broad rights and recourses available to landowners who are presented with a compulsory purchase scenario.
The power to appropriate land is overseen by the Dubai Municipality, however, powers have also been conferred on the Road and Transport Authority (RTA). Under Article 6.1 of Law No.17 of 2005 concerning the establishment of Roads and Transportation Authority (the RTA Law), the RTA has the authority to "acquire and lease property….as necessary as to perform and execute its work." Furthermore, under Law No.4 of 2021 concerning the Organization of Roads in the Emirate of Dubai, where land is appropriated for the development, establishment and maintenance of roads, the RTA will be responsible for paying compensation to landowners.
These powers of appropriation are further reinforced by Article 1135 of Federal Law No.5 of 1985 (the Civil Transactions Law) which states that while "expropriation for public utility may take place against a fair compensation and in accordance with the provisions of the law," landowners may only be deprived of their land for a "lawful reason".
While the Civil Transaction Law outlines a basis for appropriation and compensation, there are no specific provisions outlining what "fair compensation" or "lawful reasons" entail.
A Dubai Court commentary in the Dubai Court of Cassation Case 6/2009 (the Commentary), gives some further clarity on how fair compensation might be calculated. Compensation will be assessed at the time of the transfer of ownership and the Dubai Municipality will have no regard to any changes in value which occur at a later date.
In outlining what fair compensation is, the Dubai Municipality will consider both:
From this, we see that fair compensation will include recompense for any additional loss arising out of the appropriation. Where an entire plot of land is appropriated, compensation will be assessed on the market value at the time and will not take into consideration any increase in value that the land may have as a result of public works or development planning.
Ultimately, there is no standard calculation to establish the compensation payable. The Dubai Municipality, in conjunction with the Dubai Land Department, will make the necessary assessments and take decisions on a case-by-case basis. However, the overriding principle is that compensation must be fair and proportionate and should not exceed the loss of profit and damage sustained as a result of the appropriation.
Note that the Commentary states that there must be no "unjust enrichment" for the landowner and the loss must be "material, direct and ascertainable".
When assessing the value of compensation, the Dubai Municipality will also take into consideration whether the land being appropriated is freehold or leasehold. If the land is freehold, the landowner will usually receive a higher amount of recompense than if the land is leasehold. When considering leasehold land, the authorities will have regard to the unexpired term of the lease in question.
Under the Civil Transactions Law, the right to appropriate must be for a "lawful reason". A landowner is entitled to appeal the appropriation, or the compensation offered either with the Dubai Municipality or on the Dubai Land Department website. The applicant must submit an explanatory memo and any documents that support the appeal.
Under Dubai Court of Cassation Case 84/2008, if the appropriation is appealed, a final decision will be made by a committee, and if a grievance is raised then the Dubai Municipality will review the case. However, a decision issued about a grievance will be final and not subject to any further form of appeal.
In the case that a UAE national has been granted appropriated commercial or industrial land, under Decree No.4 of 2010 Regulating the Transfer of Title to Granted Industrial and Commercial Land in the Emirate of Dubai, that individual (the beneficiary) may register that land with the DLD. However, they will be charged a transfer fee of 30% of the market value of the land, which will be determined at the time of the transfer.
If the beneficiary then proceeds to sell the appropriated land, the new landowner will be required to pay a transfer fee of 50% of the market value of the land to the Dubai Land Department to register the freehold title to himself.
While land appropriations are not a common occurrence in the Emirate of Dubai, the expansion of the city doesn't appear to be slowing and the rights of landowners are always something we should be aware of. Much like the development of the city, the rules and regulations of the Dubai Municipality are fluid and are constantly evolving. If you're ever presented with the situation of a land appropriation, you should always take considered legal advice; our Real Estate & Infrastructure team can provide further guidance and support on any of the matters discussed in this article.
by Jerry Parks