Real Estate Brokerage 100% Ownership

Lawgical with LYLAW and Tim Elliot

19 October 2021

Tim Elliot:  Welcome to Lawgical, the U.A.E.’s first, and still the only, legal podcast.  My name’s Tim Elliot.  Lawgical is brought to you by the Dubai-based legal firm, HPL Yamalova & Plewka.  As always, here is the Managing Partner, our legal eagle, Ludmila Yamalova.  Good to see you.

Ludmila Yamalova:  Good to be with you here, Tim, as always.

Tim Elliot:  Now in this episode, Ludmila, big news here in Dubai, I think it’s fair to say.  You hear that phrase a lot, but I think this is an important development.  It always kind of feels like everybody here loves their real estate.  It’s a major part of Dubai’s economy, of course.  Now real estate brokerage, or opening a brokerage firm, has been recategorized as a professional activity by the Dubai Department of Economic Development.  That’s Dubai Economy.  What does that mean?  Let’s break it down.  Is it now the case that in brokerage and real estate, if you’re a foreigner, I could, for example, open a real estate brokerage here in Dubai?

Ludmila Yamalova:  Indeed.  Why this is interesting is for two reasons.  One is that (1) legally you can do it now, and (2) is that a lot of people might actually find it surprising to know that it was impossible in the past.  Because, let’s face it, there are a lot of real estate brokers here who over the years have always said, it’s my brokerage firm, or it’s owned by such and such, a foreigner.  It’s his brokerage firm, or it’s her brokerage firm.  But I will tell you, technically speaking, throughout all this time until basically now, every real estate brokerage was not only owned by a local shareholder but had to exclusively be owned 100% by the U.A.E. national.  It could not even be owned as your typical LLC which was in the past 51% U.A.E. and 49% an expatriate.  There was an additional requirement to the law that required the 51% and 49% split, but certain businesses and certain industries actually required 100% ownership by an Emirati.  Real estate brokerages were one example of that.  For example, insurance and recruitment companies were some of the other examples.  But yet, over the years, you would always here people holding themselves out to the public as owning real estate brokerage firms.  But if you ever asked for their trade license, you would see that all those trade licenses were owned 100% by Emiratis.

The scheme that existed before was that the license itself, the company, would be in the name of a U.A.E. national, but then there would be a power of attorney and a bunch of what would be called side agreements that ultimately gave a foreigner the right to run the company.  But in legal terms, the company always remained owned by an Emirati and all these other side agreements, again in legal terms, were not enforceable.  But that was a practice that existed and worked for many years.  It works until there is a problem.  If there is a problem, the problem was always resolved in one way, which is this is a local company and that’s that.

Then last year, along with so many other legislative changes, one of the other groundbreaking changes was the company laws.  One of the changes to the U.A.E. company law was that the requirement of a lot of the businesses to be 51% owned by a U.A.E. nationals basically was erased altogether.

Now the default application is that all businesses can be owned by foreigners except . . .

Before it was the other way around, all businesses required local ownership except . . .

So now the default is it can all businesses can be owned by foreigners except certain industries, certain industries of strategic importance, in particular, obviously state security, nuclear power, and such.  There are certain areas that are regulated which still require some form of U.A.E. national control, not so much necessarily ownership, but control.  With the amendment to that law, obviously now it changes the previously existing requirement that the brokerage firms were to be owned by U.A.E. 100%, and that is because the law went away altogether and then the individual emirates were left to regulate or to set their own list of specific activities that were still requiring some form of U.A.E. national control, and real estate brokerage firms are not on those lists.  At least as far as Dubai and Abu Dhabi are concerned, the Departments of Economic Development in those two emirates have confirmed that brokerage firms are basically deemed as professional activities, and they are not on the list of these strategically important areas or industries that require some form of U.A.E. national control.  That means that now if you wanted to set up a brokerage firm, there is no more requirement of it to be owned 100% by Emiratis.  It can now be owned 100% by you.

Tim Elliot:  This follows a recent similar announcement in Abu Dhabi.  This is Dubai.  If I decided I’m ready to set up my real estate brokerage, which would be called Tim’s Real Estate Brokerage.  I think that’s catchy.  I could, under the Department of Economic Development Dubai Economy License, set up an office.  I could open a bank account.  I could take on staff.  But there is a proviso that I need an Emirati local service agent as well.  I’m wondering, what would that local service agent be responsible for?

Ludmila Yamalova:  That’s a concept that has existed in the past, and some of it still carries on into the new types of companies.  But really all this means is the service agent is basically an agent.  They are not a shareholder.  They are not an officer of the company, and they have no control over the company.  It is really just for service, so in other words, somebody who can accept service, for example, on behalf of the company.  That existed before as well.  Let’s say if you have a business that is owned 100% by foreigners, and all of sudden, the foreigners leave, and then there is a case or some kind of investigation going on involving the business.  How do you serve the business?  Basically, the local agent, at least historically and now, exists for that reason.  It is just to be able to contact someone locally that is not responsible for the business, but as a point of service, somebody who can be served with whatever documents need to be served on the business.  It’s really that.  You can change the local agent at any point in time, so it’s not that you’re bound to be with that agent.  You don’t need that agent with regard to any kind of decision making authorities or any business dealings.  You don’t need a signoff as was the case in the past when you had a shareholder, for example, or an officer.  You don’t need them for any other reason unless there were some papers that needed to be served on the business, and the actual shareholders and the managers in the office of the company were not available.  It’s really just for that reason.  You can change the person at any point in time.  There is no requirement of a particular fee, for example, and it’s just whatever it is that you agree with the local agent, whatever that fee should be.  Most importantly is that you can let them go at any point in time because it is purely contractual.

Tim Elliot:  Okay.  Tim’s Real Estate Brokerage, or TRB, as I like to call it, is up and running.  What’s really important to point out, I think, is that nothing has changed in terms of how real estate brokerages are regulated.  One of the really important points is that you have to be registered with RERA, the real estate regulatory agency, to run a brokerage.

Ludmila Yamalova:  Yes.  This is as far as Dubai is concerned.  Yes, in Dubai, there is a specific authority that regulates real estate, and that is RERA, the Real Estate Regulatory Agency.  It is an agency, in fact, not authority.  I always authority, but it is actually agency.  As was the case before for all of the real estate brokerage firms, in addition to having a license from the Department of Economic Development, you needed to have an approval and license from RERA, the Real estate Regulatory Agency.  It is still the case today, so any kind of brokerage firms would still require that kind of license.  Just the company itself will require that license and also all the real estate brokers that will be working for the company would also have to have a RERA license.  As part of getting a RERA license, you would have to go through RERA training, take courses, and also be ultimately subject to RERA supervision.  In other words, it is an industry that is still regulated for good reason.  It continues to be regulated, and the regulatory authority is RERA in Dubai.

In other emirates, like Abu Dhabi for example, it is the Municipality Department.  In most other emirates as well, it is the Municipality Department that oversees the real estate sector, although there have been some discussions in other emirates who may also introduce a similarly dedicated agency to regulate their real estate.  But one way or the other, wherever it is in the emirates, there is always a second layer of licensing requirements from that regulatory body in addition to the Economic Department that actually would ultimately issue the license.

Tim Elliot:  Gotcha.  Isn’t that still an exam that real estate brokers have to take with RERA before they can practice?

Ludmila Yamalova:  Indeed, yes.  There is an exam, and they have to have this RERA card once they have passed the exam.  All the same kind of regulations apply and that is similar, for example, if you are a law firm.  Lawyers, in addition to having the trade license where the law firm operations, the lawyers in the law firm also need licenses from the regulatory authority, being for example, the Legal Affairs Department in Dubai.  That is just another example.  It’s still a regulated industry.

Tim Elliot:  A couple of final questions, Ludmila.  It’s time to get TRB rolling, Tim’s Real Estate Brokerage.  Legally speaking, what’s the process from filling out the forms to opening the office?

Ludmila Yamalova:  It remains to be as it was before.  It’s forming a new company.  You need to start with wherever it is that you decide to be licensed first.  If it’s in Dubai, it would be the Department of Economic Development, which is DED.  You will have to apply for that option.  A lot of the applications right now are online, but you would apply for the option of a real estate brokerage, and as part of that, you would also have to present to them as part of the licensing process that there are approvals from RERA and the various trainings from RERA, and such.  Then you have to find an office and have that office registered to your license.  More or less, the same process applies.

The law is fairly new.  Even though the law came out a year ago, there was a grace period for this particular section to kick in.  I think it was in May of 2021.  Obviously, it has already been a few months, but since then the different DED departments in different emirates have been posting their own updates by which industries or sectors are still restricted in terms of ownership and control and which ones are not.  As these updates continue to roll out, we will know more.  This is one update that we now know from Dubai and Abu Dhabi is available for real estate brokerage firms, but in terms of what it now takes to actually open one from A to Z, since it is such a new law, remains to be seen, but I would say at least a few months to be on the safe side of things.

But also, what I want to highlight is that this application, or this new form of license that is available now, it does not apply to all the other existing brokerage firms.  That is important because there are a lot of questions that we receive.  A lot of clients ask, “Okay, I have a real estate brokerage.  Can I just make it 100% owned by me?”  Well, it doesn’t quite work retrospectively in terms of amending unilaterally and automatically the existing legal form.  The law applies, but it needs to go through all the legal protocols in terms of how to change an existing legal structure of an existing company.  For example, if Tim had, or he thought he had a brokerage, or he held himself out to have a brokerage firm before, this law would not just apply.  It is not like you can say, okay, now, I no longer have a local partner and it is mine.  No.  You ultimately would have to agree with your local partner to buy out his shares or to transfer his shares, whatever the agreement might be, so that you can have all of the shares in your name.  What has changed is that now he can transfer those shares to you.  In the past he couldn’t legally.  Now he can.  But contractually, it still remains between you and your partner to decide how to transfer the shares and for how much, for all of the shares or part of the shares, and whatever other potential contractual terms and conditions that the local partner may want or insist on as part of his exit from the business.

Tim Elliot:  A final question for you.  Why now?  There are plenty of real estate brokers here in the U.A.E., plenty of real estate to buy, of course, but what’s hastened this particular decision?

Ludmila Yamalova:  The law didn’t change specifically for the real estate industry.  It just changed overall, and that is in terms of just making the U.A.E. more competitive and more business friendly by allowing foreigners to own business without the requirement of having a local partner on the mainland, which was the case before.  It is part of the U.A.E.’s initiative to be more competitive and business friendly and to incentive obviously more foreign investment into the country or to attract more foreign investment into the country.  As part of that, because let’s say in the past, if you were Apple and you wanted to set up a shop here on the mainland, you couldn’t do it.  You needed to have a local partner.  Obviously, that wasn’t going to work for a lot of these companies.  Although we have an Apple shop in Dubai at the Mall of the Emirates, which is on the mainland, but there was in exception that was made for them.  But these kinds of arrangements are not sustainable in the long run, especially if you want to attract businesses here, so we need to create more positive and flexible and business friendly legal arrangements.  This was on the back of that, and it is a hugely welcomed development, one that many people had been waiting and hoping for, for a long, long time.  The real estate industry happened to be part of that overall change, and that is that now there is no more requirement of having a local partner.  Overall, it is the U.A.E.’s initiative or drive to be more competitive that they have change the law, basically allowing foreigners to own businesses in more flexible legal structures.

Tim Elliot:  That’s another episode of Lawgical, this time, more on the news that real estate brokerages can now be 100% foreign owned here in the U.A.E as long as a U.A.E. national is appointed as a local service agent if you are opening in Dubai.  As always, our legal expert here on Lawgical, Ludmila Yamalova, the Managing Partner here at Yamalova & Plewka based in JLT.  Once again, a big thank you.

Ludmila Yamalova:  Thank you, Tim, as always, always a pleasure chatting with you.

Tim Elliot:  You can find us at LY Law on social media, TikTok, Instagram, Facebook.  We’ve also not got an easy-to-search library of hundreds of podcasts on all manner of legal issues here in the U.A.E., and they are free to listen to as well.  To have your legal question answered in a future episode of Lawgical or if you’d like a consultation with a qualified U.A.E. experienced legal professional, go to LYLawyers.com and click Contact.