UAE property rights for higher education providers

In late February 2018, the University of Birmingham announced the first phase of its new campus in Dubai, which is due to open in time for the new academic year in September. The entry of a new top tier university in Dubai illustrates growing global interest in the emirate's education sector, as well as Dubai's potential as a hub for international education across the region.

We have noticed growing interest in higher education real estate both from existing institutions looking to expand and new institutions looking to enter the market. But while there is government support from investment in higher education, potential providers must be able to first identify the most appropriate market entry model and then secure the necessary land or building rights in relation to building and occupying a university campus.

Real estate rights under UAE law

Typically, international universities have chosen to set up in purpose-built areas allocated by the government specifically for educational institutions, such as Knowledge Village and Dubai International Academic City.

Although providers may choose from a broad range of corporate structuring and partnering options when looking to establish an educational institution, the underlying real estate rights available to them remain the same.

There are broadly two types of arrangement over land under UAE law:

• property rights (ownership, usufruct or musataha); or
• contractual rights (leases).

Careful consideration is therefore required at the outset to ensure that the land arrangement is appropriate for the needs of the educational institution.

Property rights

A property right is a higher right, registered on the property register at the Dubai Land Department (DLD) against the title to the land. It therefore forms an encumbrance that is binding against the world.

The two main property rights used for educational facilities are:

• a musataha right: essentially a development right with a long term right to occupy for up to 50 years, which may be renewed for up to the same term by mutual agreement; and
• a usufruct: akin to a long lease, but with a right in the property (similar to the 'leasehold' concept in England and Wales) for a term of up to 99 years.

Contractual rights

In the UAE, a contractual right is limited to a contractual claim against the other party. It would not, therefore, take the form of an encumbrance against title.

A common contractual right seen in the education sector is a lease right. There are two types of leases available:

• a long-lease, which covers anything above 10 years and below 99 years; or
• a short-lease, which covers anything below 10 years.

Although both leases are capable of being registered, a long-lease is registered on the DLD property register and is capable of being mortgaged. Currently, both types of lease remain contractual rights without an interest in the actual property.

Registration fees

As part of the choice of land arrangement, providers must take into account the registration fee. This takes the form of an up-front payment, the value of which can vary considerably between each of the granted rights.

Where a new asset is being developed, the current market trend is to use a musataha right. This attracts the lowest registration fee, whilst providing greater security of tenure.

However, where the intention is to use an existing built asset, a musataha right would not usually be appropriate. It is instead more common to opt for a usufruct right, as this attracts reduced registration fees while still providing good security of tenure.

Philip Corfield-Smith, Soheyla Dad and Nayab Aziz are real estate experts at Pinsent Masons, the law firm behind Out-Law.com.