As the Emirate's governing body regulating property transactions, the Dubai Land Department ('DLD') now also provides for the registration and execution of so-called deferred sales agreements. These arrangements define a specific transfer of ownership of Real Estate Developers in Dubai where the final transfer of title remains pending until all deferred considerations have been settled pursuant to the contract. While the strategy of deferred sales is not related to the entrepreneurial sphere, when institutional buyers pass ownership of commercially utilized, cashflow-generating real estate properties, deferred sales are typically the preferred course of action. Although the principle is non-specific in terms of the existence of the parties involved or the assets of real estate to be transferred, the strategy of deferred sales plays out its strengths, particularly in situations where complex commercial properties such as shopping centers, hotels or office buildings are alienated. The benefits vary from bridging liquidity or value discrepancies to (depending on the jurisdiction) optimizing or deferring tax burdens. On the legal side, however when the Selling and Purchase Agreement is to be complemented by a joint-venture style arrangement, specifying the conditions for board participation, dilution rights, buy-sell agreements and the like, the above benefits come at the expense of a much increased complexity.
In particular, the deferred selling of property is useful for the alienation of property properties typically integrated into legal entities, which have various ongoing contracts with third parties (tenants, service providers, banks, etc.). To this point, the transaction entails an entire business activity under which the central capital asset is the role of the land. It is also typically desirable to keep the operational side of the property undertaking unaffected, so that the deferred sale agreement includes the eventual transfer of the asset holding entity's shares. Sometimes the duration of such transfers, depending on the conditions and agreements of the parties, is several months to several years.
In Dubai, deferred transactions are processed within the Real Estate Registration Service Department of the Special Registration Unit of the DLD, which tracks the agreements under the contract and actually serves as a trustee monitoring compensation for the selling of the asset and the transfer of the securities. With regard to documentation, no additional documents are required from the Land Department of Dubai for the purpose of registering a deferred sale. However, as with any other property transaction in Dubai, companies held by a legal entity must also provide the records of the respective holding companies in order to apply for a transfer.
Non-recourse loans may stay in place for the property sector or new funding can be taken up against the collateral of the company. If the current lending arrangement is appropriate for the property investor, there is no need to discharge the existing debt, thus dramatically reducing transaction costs (negotiation with banks, discharge or registration of new loans). By deferring purchase price payments, the purchaser may pay large portions of the purchase price in an ideal situation by making the property operation's potential cash flows and will thus be able to agree to a much higher nominal) acquisition price. By comparison, the seller can obtain a higher nominal price by choosing to delay parts of the sales proceeds, while deferred selling price payments have to be corrected according to economic theory for the use of a reasonable discount rate to measure the capital value. "While the acquisition of commercial Property Developers in Dubai, UAE has generally been subject to VAT (5 percent) since the beginning of 2018, the transfer of an ongoing property company as mentioned above qualifies as a "going concerto exclude the investor from the VAT levy in compliance with UAE tax law.
The idea of deferred sales is another building block in the ambition of Dubai to constantly advance its commercial and real estate laws and procedures with the ultimate objective of gradually attracting international institutional real estate investors and generally attracting Foreign Direct Investment (FDI). While the absence of a corporate tax levy in the UAE and Dubai would make one of the traditionally dominant advantages of the scheme superfluous in most use cases, it is not possible to ignore a range of significant benefits for institutional investors and the alienation of their assets.