99-year Lease in Dubai: What Happens After It Ends?

A 99-year lease refers to a long-term property leasehold structure wherein a leaseholder, who is usually a foreign investor or company, is given the right to use and occupy the property for 99 years as if owning it, but in reality, the property is owned by the original property owner only. In easy terms, it allows foreigners to enjoy the property for a term of 99 years without owning the property, as its real owner remains the sole titleholder of the property.

This leasehold structure allows expatriates and foreign companies to lease properties for extended periods. This leasehold arrangement has helped many global investors acquire a stable and secure atmosphere for residential and housing purposes. This strategy is a prevalent practice in many countries, such as Dubai used to cater to the growing population of expatriates and investors. In Dubai, certain areas offer 99-year leasehold properties, allowing expatriates and foreign investors to secure long-term residential or commercial rights without full land ownership.

Freehold Property

A freehold property means that one owns the property and the land it stands on outright, and as a freeholder, your ownership has no time limit. The owner can enjoy full legal ownership and control and sell, lease, or pass on the property to their heirs without restrictions.

Leasehold Property

A leasehold property means buying the right to use the property for a fixed period, usually for up to 99 years. The leaseholder does not own the land, and the ownership reverts to the freeholder when the lease expires, unless it is renewed.

Choosing between freehold and leasehold properties depends on the particular preferences and requirements of a person, such as the investment goals, budget, and long-term plans. A Freehold property offers permanent ownership and flexibility, while a leasehold may provide access to prime locations at lower upfront costs with time-limited rights.

Dubai’s real estate property laws have evolved significantly, and some of the key legislations include:

• Property Registration Law (Law No. 7 of 2006) - This law focuses on the importance of registering the lease with the Dubai Land Department (DLD) to make the agreement binding on both parties.
• Escrow Accounts of Real Estate Development (Law No. 8 of 2007) - Under this law, RERA was created to regulate the real estate market in Dubai.
• Tenant and Landlord Relationship Law (Law No. 26 of 2007) - This law governs the relationship between the leaseholders and owners of the property, outlining rights, such as maintenance responsibilities, renewal terms, and termination conditions.
• Ejari - It is required to register all the lease agreements through the Ejari registration system to protect against disputes and ensure transparency.
• Tenant and Landlord Law (Law No. 33 of 2008) - This law is an amendment to the original law introduced to provide additional security for leaseholders.

Every coin has two sides. A structure that offers advantages also carries some disadvantages that must be considered before investing in any leasehold property.

Pros of 99-Year Lease

• Lower Upfront Cost - The 99-year leasehold arrangement structure is generally cost-effective and less expensive compared to freehold properties, making it an affordable option for many buyers.
• Long-Term Stability and Security - The long-term nature of the 99-year leasehold properties offers stability and security, making it suitable for long-term living, investment, or business operations.
• Access to Prime Locations - Some leasehold properties are made available in the central and prime locations of Dubai, such as Palm Jumeirah or the older part of Deira, where owning a freehold property is not available for foreign buyers.
• Legal Protection - The 99-year leasehold properties are legally protected by the Dubai Land Department, which offers safety and security through official registration of legal rights.

Cons of 99-Year Lease

• No Ownership of Land - The leaseholders only get the right to use the property, but do not own the land beneath it. Once the lease ends, the property reverts to the original landowner.
• Costs Associated with the Property - The 99-year leasehold property in Dubai may impose certain ongoing costs, such as service charges, maintenance fees, and other obligations outlined in the lease, that must be borne by the leaseholder.
• Restrictions on modifications - The leaseholders can make certain modifications as per the terms and conditions specified in the lease agreement. No freedom to make individual modifications without permission from the original titleholder.
• Uncertain Renewal - There is uncertainty in renewal, as no automatic right to renew after 99 years is present. This renewal depends on the agreement and the laws currently applicable.

These leasehold zones are typically older, established neighborhoods where the land remains under the ownership of UAE nationals or government entities. Some eminent communities where 99-year leasehold properties are available include:

• Jumeirah - This is one of the most popular beachfront communities of Dubai that offers a luxurious lifestyle combined with coastal living. This area provides a leasehold arrangement system, but remains a famous destination for property owners due to the community’s proximity to Burj Al Arab and world-class amenities.
• Deira - The district of Deira hosts historic and commercial zones that provide reasonable and affordable residential options for foreign expatriates and companies. People searching for cost-effective properties with good transportation facilities and cultural dimensions can look to invest in this area.
• Bur Dubai - This traditional community presents opportunities for buyers. With the help of the leasehold system available in the area, residents and migrants searching for reasonable and less expensive properties can invest in this community.
• Al Barsha - This community offers contemporary and budget-friendly leasehold properties with superior and top-tier infrastructures connected to major locations of Dubai through a network of roads, such as Sheikh Zayed Road and Dubai Metro Lines.

After the end of the 99-year lease in Dubai, the following procedures and steps are taken as specified by the Real Estate Regulatory Agency (RERA) :

1. Renewal of the Lease - Many leasehold properties consist of provisions for renewing the lease at the market rates if agreed by the original landowner.
2. No Automatic Renewal - Upon the exhaustion of the lease, there is no legal guarantee that the lease will be renewed. Renewal depends on:
   • The original terms of the lease agreement.
   • Approval by the freeholder.
   • Any updated laws or policies in effect at that time.
3. Reversion to Freeholder - At the end of the 99-year term, ownership and rights to the property revert to the freeholder, usually a government authority, developer, or private landowner. The leaseholder no longer has any legal right to occupy or use the property unless a new lease is agreed upon and negotiated.
4. Compensation System - Any improvements or modifications made by the leaseholders are compensated by the original owner if stated as such in the lease agreement.
5. New Lease Negotiation - In some cases, after the end of the 99-year lease agreement between the leaseholder and the owner of the property, a completely new lease agreement may be negotiated between both the parties considering different rules, terms, and conditions.
6. Opportunity to Convert to Freehold Property - In some zones and communities, an opportunity to convert the leasehold property to freehold property may be facilitated by the Dubai Government.

To summarize the above pointers, we can say that if not renewed, then the leaseholder loses rights to the property, the land and improvements is reverted to the freeholder, and renewal is possible but not guarantee

A 99-year lease in Dubai indeed offers long-term stability, a sense of security, and access to a luxurious life with world-class infrastructure and amenities in some of the most prime locations of Dubai, but it is also important to understand that it does not offer permanent residency. As soon as the lease agreement ends, all the rights to use the property revert to the original owner of the property and cannot be earned back until and unless the lease is renewed or a new lease is negotiated.

For leaseholders, an important point that needs to be highlighted is to carefully review lease terms, understand potential renewal options, and plan well in advance of the expiry date. Whether you’re investing, residing, or developing property under a leasehold agreement, seeking legal and professional advice is key to protecting your interests. To get more information and comprehension about the Dubai real estate market and how it functions and works, you can contact Dubai Housing, a trusted professional that provides guidance and support on your journey to your dream investment in Dubai.

As Dubai continues to evolve as a global real estate hub, leasehold properties remain a valuable option. Be sure to go into any deal with a clear understanding of what happens after the end of the 99-year leasehold property agreement.