Project Finance – Q&A – Practical Guide – UAE
What are the key difference in the legislation in this jurisdiction and other key international jurisdiction?
In comparison with other jurisdictions, the laws regulating the project financing in UAE are not too strong. The Federal Law Number 18 of 1993 concerning the Commercial Transactions Law (the commercial law) and the Federal Law Number 5 of 1985 concerning Civil Code (the civil code) governs the project finance in the country. However, these laws are not at par and are in comparison with other major countries are not too detailed. Further, concerning the civil code and the commercial code, the following are the main transactions which are not regulated by security laws of UAE:
The first and the principal difference in UAE and other jurisdictions is the lack of a concept of floating charges, the security law in UAE do not recognize the creation of security interest, either by mortgage or through the pledge. The security interest can only be created for assets that can be identified and ascertained.
In several jurisdictions, the court or the relevant government authority of that country requires them to register a mortgage over a movable property to allow for filling financing documents. However, UAE does not need parties to record for pledges over the movable property.
The UAE imposes a mandatory requirement on the parties to register the mortgage at Lands Department in the relevant Emirate and depositing documents of title in the bank is not sufficient.
In other jurisdictions, the assignor, and assignee enters into an assignment to notify the assignment debtor, however, under UAE law debtor’s consent is required for that particular assignment to be created.
Are there differences in the way project finance operates in the free zones and secondary jurisdictions?
Yes, there are variations in the operation of project financing in free zones and other jurisdiction since the free zone is in itself a separate jurisdiction in UAE. Henceforth, all the free zones have their own rules and regulations governing the project finance. The first difference that in most of the free zone the mortgages over land is not possible, however, the Jebel Ali Free Zone (JAFZA) passed Law Number 1 of 2002 concerning the lease of immovable property in JAFZA which allows for a mortgage over a building but still not over a land.
Within UAE, different Emirates have promulgated their local laws which govern the mortgage and pledge apart from the commercial code and the civil code. The Emirate of Dubai has implemented its own real estate law, Dubai Law Number 13 of 2008 concerning the Interim Real-Estate Register, this law conforms with the UAE laws to facilitate the registration of a security interest in the land.
It is advisable to operate in the free zones rather than the mainland because of the ownership restriction in the mainland. The foreign investors can enjoy hundred (100) percent ownership in the free zone as opposed to forty-nine (49) percent in the mainland.