UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for March 21, 2010

Studio City Free Zone UAE (TV, Film, and Music)


Watch this cool video about Dubai Studio City and Dubai, the upcoming film hub of the SAMENA region

Dubai Studio City Vision

“To facilitate the creation and development of an environment and world-class infrastructure to foster the growth of the television, film and music industries in the region.”

Dubai Studio City Mission

“To compel best-in-class audio visual media companies to establish in Dubai by providing world-class internationally benchmarked infrastructure, talent and services.

Designed to accelerate the growth of the broadcast, film, television and music production industries, Dubai Studio City (DSC) will be an ultra-modern facility integrating every component of content production & broadcast under one roof.  Spread across 22 million sq.ft., it will include production, post-production, broadcast, equipment rental, freelancers, commercial offices, business centre and satellite facilities among others.

It will also have residential areas, hotels, an entertainment centre, film schools and training institutes. This unique combination of world-class infrastructure, qualified professionals and unique networking environment will make it the ideal location for creative people to unleash their imagination.”

Guides to Applying for a Free Zone LLC and Branch License by Individual and Corporate Applicants




Federal Law No. 5 of 1985, the Civil Transactions Law

Article 1106:

Assignment is the transfer of a debt and a claim for a debt from the liability of assignor to the assignee’s liability.

Article 1107:

The assignment is a binding contract unless either party to it stipulates that he shall have the option of recourse.

Article 1108:

  1. An assignment is either restricted or absolute.
  2. A restricted assignment is that which places restriction on the discharge of the debt owed to an assignor against an assignee or on a real property kept in his or her hands as a trust or as a security.
  3. An absolute assignment is that which is not restricted to any of such things, even if it is existent.


Article 1109:

  1. The consent of the assignor, assignee and the party in whose favor the assignment is made is required as a condition for the validity of the assignment.
  2. An assignment made between an assignor and an assignee shall be dependent on the acceptance of the party in whose favor the assignment is made.


Article 1110:

To fulfill the conditions of the assignment, the assignor is required to be indebted to the beneficiary, but an assignee is not required to be indebted to the assignor.  However, if the assignment is accepted by him, he shall be liable for the debt assigned to him.

Article 1111:

Restricted assignment by the beneficiary of the endowment to his adversary shall be valid if it becomes due to him from the custodian of the endowment, provided that the proceeds of the endowment are received into his hands prior to the assignment.

Article 1112:

Acceptance by a father or a custodian of the assignment to a third party is admissible if it serves the interest of the minor, provided, however that the assignee is better off than the assignor and it shall not be admissible if he is equally or approximately solvent.

Article 1113:

In addition to general conditions, the assignment shall not be valid unless it fulfills the following conditions:

  1. It must be perfect and dependent only upon a convenient or customary condition nor shall it be contingent upon a future contract.
  2. The payment therein must not be deferred indefinitely.
  3. It must not be subject to a time limit.
  4. The property transferred must be a certain and communicable debt.
  5. The property transferred to the assignee in the restricted assignment must be a debt or a real property which is incommunicable and both funds must be equal in kind, amount, and nature.
  6. It must not contain a recompense to either party in a conditional or noticeable manner.  However, the assignment shall not be affected by a recompense annexed to it subsequently and it shall not be payable.


Article 1114:

  1. The assignment shall not be valid if any of its conditions are not fulfilled and the debt shall revert to the assignor.
  2. If the assignee has effected payment in favor of the beneficiary before the invalidity becomes known to him, he shall have the option either to make recourse against the assignor or against the assignee.


Article 1115:

The assignment shall become invalid if the cause of debt assigned by it or assigned to it is void.


In Between Beneficiary and Assignee:

Article 1116:

If the assignment is properly made, the beneficiary shall have the right to make a claim against the assignee, and the assignor shall be discharged of both the debt and the claim.

Article 1117:

The inherent quality of the debt when it is in the hands of the assignor shall pass to the assignee upon transfer of the debt, that is, if the debt is owed, the assignment made on it shall be owed, and if it is deferred, the assignment shall be deferred.

Article 1118:

A beneficiary and an assignee may, after the assignment is made, compound for part of the debt or less or for deferment of the debt owed or expedite payment of a deferred debt, or take compensation for a debt unless such transactions involve usury interest.

Article 1119:

Securities given on the transferred debt shall remain notwithstanding the change of the debtor’s person.  However, the guarantor whether in rem or in person shall not remain liable to the creditor unless he accepts the assignment.

Article 1120:

The assignee shall plead against the beneficiary by all pleadings regarding the debt which is held by him against the assignor, and he or she shall plead by all pleadings held by the assignor against the party in whose favor the assignment is made.

In Between Assignor and Assignee

Article 1121:

The assignor shall have the right to make a claim against the assignee for any debt or property owed to him by the latter if the assignment is not restricted to either of them, however, the assignee shall not have any right to withhold them until they are paid to the beneficiary.

Article 1122:

The right of the assignor to make a claim against the assignee for the any debt or property due to him by the assignee shall be extinguished if the assignment in either case is restricted and its conditions are fulfilled.  However, the assignee shall not be discharged of obligations toward the beneficiary if he or she gives either of them to the assignor.

Article 1123:

In a proper assignment, be it restricted or absolute, the assignee may not withhold payment to the party in whose favor the assignment is made even if the assignor recovers his debt or his real property which was in the possession of the assignee.

Article 1124:

  1. If absolute assignment is made with the consent of the assignor, and if a debt is owed to him by the assignee, it shall be set off against his debt after discharge of the obligation.
  2. If no debt is owed to him by the assignee, the assignee shall make recourse against him after making payment.


In Between Beneficiary and Assignor

Article 1125:

An assignor shall give a beneficiary the assigned deed of right and all details or means necessary to enable him to recover his right.

Article 1126:

If an assignor guarantees the assignee’s insolvency for a beneficiary, such a guarantee shall apply to his solvency only at the time of assignment unless otherwise agreed.

Article 1127:

  1. If the assignor dies before he receives the debt of the restricted assignment, the beneficiary shall have exclusive title to the property owed against the assignee or held in his hands during the life of the assignor.
  2. The maturity date of the debt in both cases of assignment shall remain as if the assignor dies and shall fall due upon the death of the assignee.


Article 1128:

  1. The restricted assignment shall become void if the debt abates or if the real property becomes due by a reason precedent thereto and the beneficiary shall then make recourse for his right against the assignor.
  2. The restricted assignment shall not be void if the debt abates or if the real property falls due by an incidental cause thereafter and the assignee shall after discharge of the debt, have recourse against the assignor for whatever is paid by him.


Article 1129:

The beneficiary shall have recourse against the assignor in the following cases:

  1. If the assignment is terminated by the mutual consent in the following thereto.
  2. If the assignee denies the assignment and no evidence of it has been established, and he swears to said denial.
  3. If a real property in a limited assignment, deteriorates and it was without security.


In Between Beneficiary and Third Parties

Article 1130: 

  1. If several assignments are made for one right, preference shall be given to the assignment that becomes against third parties effective before the others.
  2. The assignment shall not become effective against a third party until it is officially communicated to the assignee or accepted by him under a document with a fixed date.


Article 1131:

  1. If a distress is levied upon the belongings of the assignee before the assignment becomes effective against a third party, the assignment with regard to the distrainer shall be considered as another distress.
  2. In such a case where a distress has been levied after the assignment becomes effective against a third party, the debt shall be divided among the former distrainer, the beneficiary and the latter distrainer, as is the case with division among adversaries provided that a portion shall be taken from the share of the latter distrainer to enable the beneficiary supplement the amount of the assignment.


Expiry of Assignment

Article 1132:

The assignment shall expire upon payment of its object to the beneficiary ipso facto or ipso jure.

Dubai Mortgage Law, Law No. 14 of 2008

Mortgages Over Immoveable Property Erected at Jebel Ali Free Zone


‘The government of Dubai issued Law No. 1 in Relation to Mortgages over Immoveable Property at JAFZA or the Jebel Ali Free Zone.  Under this law, only structures erected at JAFZA may be mortgaged and this does not include the land leased by JAFZA, which remains under the ownership of the Dubai government. 

Banks and other creditors may be the mortgagee under the Law and therefore the scope of application of this law is wider than former security laws in the UAE.  The mortgagor and the mortgagee have to provide their mutual consent to the mortgage over the immoveable property before the Registrar at JAFZA.  Once the registrar has obtained receipt of an application to register the mortgage, he or she must ascertain the competence of the contracting parties to perform the mortgage and ensure that there is no previous attachment court order over the immoveable property.  In addition, the Registrar has to ensure that the immoveable property is owned by the mortgagor after reviewing evidence submitted to him regarding the same.   This may be in the form of different invoices, the lease and any bank accounts.  Finally, the registrar ensures that the amount of the mortgage debt is not higher than the value of the immoveable property mortgaged.

Under the Law, a registered mortgage constitutes conclusive evidence vis-à-vis third parties, therefore, registration is essential for the preservation of the security for the debt.  Any alteration or cancellation will not be effective vis-à-vis third parties unless the same is made in the Registrar.  Priority among registered mortgages is according to the date of the registration of such mortgages.  Under Section 13 of the Law, a deed of mortgage made pursuant to its provisions will be deemed an executable deed.  Accordingly, if the mortgagor fails on repayment of the debt, the mortgagee may approach the Dubai Execution Court immediately without having to resort to filing a civil action before the courts.

Under Section 14 of the Law, it is provided that a mortgage shall expire at the end of the lease of the land on which the immoveable property has been erected or by agreement of the contracting parties or by a final judgment of a competent court.  In practice, the first circumstance may cause problems in the event that the lessee has defaulted on rent.  JAFZA may then terminate the lease and if one applies the section as if worded, the mortgage shall accordingly expire.  In effect, the mortgagor may upon his own will, be able to free the immoveable property of all mortgages by simply defaulting on the rent.

Under section 17 of the law, it is stipulated that the buyer of the mortgaged property may personally benefit from it or rent the land from JAFZA for the remaining period of the lease concluded between JAFZA and the lessee (mortgagor).  Further, the fees for registration of a mortgage is 1.2% of the amount of the debt and this is also applicable in the event of an amendment to the conditions of the mortgage.

It should be noted that JAFZA has stated that it shall refrain from registering a mortgage over Immoveable Property when the lease of the related land has already been assigned, thereby removing one possible conflict in enforcing this Law.’

*AL Tamimi, Banking and Security Law in the UAE E-brochure

Commercial Houses Under the UAE Commercial Transactions Law


The Commercial Transactions Law, Federal Law No. 18 of 1993

Commercial Houses

Article 39:

A commercial house is the total material and abstract funds allocated for practicing commercial activities.

Article 40:

  1. The commercial house incorporates the elements necessary for the commercial activities, and such elements are divided into material elements such as goods, equipment, machines and tools, and abstract elements such as communication with the customers, commercial reputation, trade name, the right to be supported, titled to the industrial, literary, and technical property and licenses.
  2. The material elements are not considered essential in a commercial house contrary to the abstract elements without which the commercial house cannot exist unless one or more of such elements are available.


Article 41:

If the trader is the owner of the real estate in which he practices his business, such property shall not be considered an element of the commercial house and any other condition to the contrary shall be relied upon.

Article 42:

Any act, the subject of which is the transfer of a commercial house or the establishing of a corporal right there on, shall be authenticated and attested by the notary public and entered in the commercial register, otherwise it will be void. The act shall include the following data:

  1. Names, nationalities, and places of residence of the contracting parties.
  2. Date and nature of the act.
  3. Nature of the commercial house its address and the items agreed to be included in the act.
  4. Price of material and abstract items shown separately, if the act involves a sale; and the part of payment made upon entering into the contract and the terms for payment of the remaining part.
  5. Agreements on the contracts and tenders related to the commercial house if any.
  6. Agreements on the retention by the seller of the right to terminate or the right of lien, if any.


Article 43:

The price of good shall be deducted first, from the value paid, to be followed by the price of equipment and then the price of abstract components even if otherwise agreed upon.

Article 44:

  1. The title to the commercial house shall not be transferable in between the contracting parties as well as to others except from the date of entry of the act in the commercial register and publication of its extract in two daily Arabic newspapers issued in the State separated by one week intervals and after the expiry of the period specified for acceptance of objection of the said act.
  2. If the commercial house contains items, subject to a special regulation of advertisement or registration, the advertisement for disposing of the commercial house shall not substitute for the special advertisement or registration unless otherwise provided for by law.


Article 45:

Disposing of the commercial house shall be entered in the register after completion of the following procedures:

  1. At the request of the buyer and at his own expense, the authorized employee in the commercial register shall publish a summary of the sale contract in two daily Arabic newspapers issued in the State, the publication of which must be separated by one week interval.
  2. The published extract shall include names and nationalities of the contracting parties, designation of the commercial house, value of the total price, and authorization for the creditors to submit their objections within ten days from the date of the last publication.
  3. The objections shall be submitted to the civil court of jurisdiction in which circuit the commercial house exists, including the amount of debt and its cause.
  4. The buyer shall abstain from payment of the price until the court decides in the objections, and the seller may demand from the judge of summary cases to allow him to receive the price even before hearing the objections if he provides sufficient guarantees to meet the dues of creditors.
  5. Any objecting creditor or loan holder shall have the right to make an offer to buy the commercial house for himself or for others at a price exceeding that agreed upon by one fifth at least.
  6. The objector to the price shall deposit with the courts treasury an amount not less than one third of the original value in addition to the increase offered by him.
  7. The court of jurisdiction shall notify the parties to the sale contract of the commercial house, of the bids, and after the lapse of twenty days from such notification, the court shall decide to sell the commercial house to whoever offers the highest price.


Article 46:

  1. Anyone to whom the title of the commercial house devolves shall by law replace the disposer in the rights and undertakings arising from contracts related to the commercial house unless otherwise agreed upon or unless the contract is based on personal considerations.
  2. Nonetheless, whoever is a second party to the contracts referred to in the preceding paragraph shall within ninety days from the date of advertising the disposal apply for cancellation thereof provided that he must have serious reasons justifying that and shall notify the new owner of his desire to cancel in due course.


Article 47:

  1. Anyone to whom the title of the commercial house devolve shall specify a date for the creditors existing before the notice of the disposal, in order to supply a statement of their debts for settlement.  Such date shall be advertised in two daily newspapers issued in the State, one of the being in Arabic; and the publishing thereof being separated by a period of one week.  The period specified for the creditors shall not be less than ninety days from the date of publication, and the liability of the person to whom the title of the commercial has devolved, shall remain uncleared towards those who provide a statement thereof within the said date, if such debts have not been settled during the said period.
  2. As for the debts which the owners thereof have not submitted their statement within the date specified in the manner described in the preceding paragraph, the liability of the person to whom the title of the commercial house devolves shall be cleared.
  3. The disposer’s liability towards the debts connected with the commercial house, and existing prior to the notice of disposal, shall remain uncleared unless the creditors release him from such liability.


Article 48:

As an exception from the provisions related to bankruptcy, the seller of the commercial house who has not received the full price, may protest against the group of the creditors involved in the bankruptcy of the buyer by his right to invalidate the sale contract of the commercial house and to redeem it or by his right of lien if he has retained such right in the sale contract and was expressly stated in the contract extract published in the newspapers.  However such termination, cancellation or lien shall not be invoked except with regard to the elements contained therein.

Article 49:

  1. The commercial house may not be mortgaged except to the banks and finance corporations.
  2. If the subject of mortgage is not stated, it shall not be applied except to the trade name, the right to lease, the contract with customers and the commercial reputation.


Article 50:

  1. The mortgage shall not be effected except by a deed attested or certified by the notary public and entered in the commercial register.
  2. The mortgage deed must include a declaration by the debtor whether the seller has the right of lien over the mortgaged commercial house and must also include the name of the insurance company where the commercial house is insured if any.


Article 51:

  1. The entry into the commercial register shall guarantee the retention of the lien for a period of five years from the date thereof and the entry shall be considered void if it is not renewed within the previous period.
  2. The entry shall be written off with the consent of the interested parties or by a final judicial ruling.


Article 52:

The mortgagor is responsible for maintaining the mortgaged commercial house in good condition.

Article 53:

  1. If the owner of the commercial house fails to pay the price or its balance to the seller, or to settle the debt at the date of its maturity to the loan holder; the seller or the loan holder may after eight days from the date of notify his debtor who owns the commercial house submit a petition to the judge of summary proceedings seeking permission to sell in public auction all or part of the contents of the house which are placed under lien by the seller or the loan holder.
  2. The sale shall be effected at such place day and hour as specified by the judge and it shall be published at least ten days prior to its occurrence.


Article 54:

Any provision in the deed of mortgage that entitled the creditor, to take possession of the mortgaged property or to dispose thereof, without compliance with the procedures shown in the preceding Article, shall be considered null and void.

Article 55:

The seller and the loan holders shall have on the amounts resulting from the insurance if the maturity of such amounts fall earlier the same rights and privileges that they had on the insured things.

Article 56:

The tenant of the premises where mortgaged furniture and machines are kept for use in the exploitation of the commercial house shall not exercise his privilege for more than two years rent.

Liens in the UAE


Federal Law No. 5 of 1985 on Civil Transactions

General Provisions:

Article 1504:

A lien is an accessory real right which entitles a creditor to have priority in receiving his right owing to his status and it shall be decided by provisions of the law.

Article 1505:

  1. If the law does not specify the rank of a lien, its rank shall be placed next to the rights provided for in this chapter.
  2. If rights are placed in one rank, they shall be settled in the proportion of each unless otherwise provided for by the law.


Article 1506:

The general lien of a creditor shall be levied on all properties of the debtor but the special lien shall be exercised over a particular moveable or immoveable property.

Article 1507:

  1. A lien shall not affect the rights of a bona fide person who is in possession of a moveable property.
  2. Under the provisions of the foregoing Article, the lessor of a real property shall be considered a possessor as regard the moveable properties existing in the leased property and likewise, a hotelier with regard to the belongings of occupants.
  3. If a person who has a lien upon a moveable fears that it will be lost or disposed of, he may apply to have it placed under receivership.


Article 1508:

  1. Provisions of a security mortgage shall apply to the liens levied on immoveable properties where there is no conflict with their nature.
  2. Liens held as security for the rights due to the public treasury, as well as the fees and expenses of juridical sales, shall not be registered.


Article 1509:

Provisions of a security mortgage concerning deterioration and defect of a thing shall apply to liens. 

Article 1510:

A lien shall terminate in the same manner in which the right of mortgage and right of pledge terminate subject, however, to the provisions of termination of said two rights unless otherwise provided for.

Kinds of Liens:

General Provisions:

Article 1511:

Liens indicated in the following provisions shall have privilege according to their rank therein and they shall be satisfied in relation to each other according to the proportion of each beside the other liens prescribed by special laws.

General Liens and Particular Liens on A Moveable Property:

Article 1512:

  1. Judicial expenses spent in the common interest of creditors in preserving and selling the properties of a debtor shall have a right of lien on the proceeds of such properties.
  2. Such expenses shall be recovered before any other rights even if they are privileged or secured by mortgage, including rights of creditors in whose interest the expenses have been spent.  However, expenses incurred in the sale of properties shall have precedence over those incurred in the distribution of proceedings.


Article 1513:

  1. Taxes, fees, and other rights of any kind whatsoever due to the government shall have a privilege according to the conditions provided by relevant laws.
  2. Said dues shall be recovered from the proceeds of the properties which are overburdened with such lien no matter in whose possession they exist prior to any other right, even if it is privileged or secured by mortgage, except legal expenses.


Article 1514:

Expenses incurred in preserving or repairing a moveable shall have privilege over it and they shall be recovered from its proceeds after deduction of legal expenses and amounts due to the public treasury.

Article 1515:

  1. The following rights shall have priority over all the properties of a debtor, whether be it moveable or immoveable, to the extent of the amounts that have due in the last six months.  a.) Maintenance costs owed by a debtor to his dependents. b.) Amounts due for food, clothes, medicine supplied to a debtor and to those supported by him.
  2. Such amounts shall be recovered immediately after the legal expenses and amounts due to the public treasury and expenses of preservation and repairs.  However, among themselves, such amounts shall be recovered as per the proportion of each of them.


Article 1516:

  1. Costs of seeds, manure and other fertilizers as well as insecticides and expenses of planting and harvest shall have a lien on the crops on which they have spent, and they shall rank equal in receiving dues from its proceeds after deduction of the aforesaid rights if any.
  2. Costs of agricultural machines and expenses incurred in their repair shall have a lien thereon in the same rank.


Article 1517:

Rent of real estates and agricultural lands for two years or for the whole tenancy period if it is less than that, and any other right due to the landlord in accordance with the tenancy contract, shall have a lien on whatever moveable property or agricultural crop existing in the leased property and owned by the tenant.

Article 1518:

Lien of rent referred to in the foregoing Article shall be established even if moveables are owned by the wife of the tenant or a third party whose right is not known by the landlord, without prejudice to provisions related to stolen or lost moveables.

Article 1519:

  1. Lien of a rental debt on moveable s and crops existing in a leased property shall be established even if they are owned by a sub-tenant, if the landlord has not permitted the first tenant to sublease the rented property to a person other than him.
  2. However, if the landlord has permitted the first tenant to sublease the rented property to a person other than himself, the lien shall not be established except for amounts that are due to the first tenant against the sub-tenant.


Article 1520:

The landlord shall have the right to follow up the properties encumbered with a lien if they have been removed from the leased property without his consent or without his knowledge and no sufficient properties have remained in the real property to secure the privileged rights without prejudice to the rights of bona fide third parties which they have on such properties.  However, the lien upon the removed properties shall remain even if it causes damage to the interest of a third party for a period of three years from the date they have been removed if the landlord imposed a distraint upon them within thirty days of the date of removal.  Nonetheless, if said properties have been sold to a bona fide buyer in a common market or in a public auction or to a dealer who trades in similar properties, the landlord shall refund the price to the buyer.

Article 1521:

Debts on rented real estates and agricultural lands shall be recovered from the proceeds of properties encumbered with liens subsequent to the rights stated in the foregoing articles, except for those which are not enforceable upon the landlord who is considered a bona fide possessor.

Article 1522:

  1. Amounts owed to a hotelier against an occupant for room rent and board and expenses charged to his account shall have line on belongings brought by him into the hotel.
  2. The lien shall be imposed on the personal effects even if they are not owned by the occupant if it is established that the hotelier has not been aware of a third party’s right there on at the time when they were brought into the hotel, provided that such belongings are neither stolen nor lost.  However, the hotelier may object to the removal of belongings from the hotel as long as he has not received his dues in full and if the belongings are taken away despite his objection or without his knowledge, the right of lien shall remain existent thereon without prejudice to the rights acquired on such properties by a third party in good faith.


Article 1523:

The lien of a hotelier shall have an equal rank as the lien of a landlord.  However, if the two rights exist concurrently, the one whose date is earlier shall have precedence unless it is not valid against the other.

Article 1524:

  1. A seller of a moveable property shall have a lien thereon for the price and its accessories and said lien shall remain as long as the moveable keeps its identity, without prejudice to the rights acquired by a bona fide third party and subject to the provisions pertaining to commercial items.
  2. Such lien shall rank next to the aforementioned rights of lien imposed on the moveable property and it shall apply to the landlord and hotelier if it is proved that they are aware of the seller’s lien at the time when the moveable has been brought into the rented real property or into the hotel.


Article 1525:

  1. The co-owners of a moveable, if it is divided amount them, shall have a lien thereon as security or the right of each of them to take recourse against the others for the cause of division and for receiving the share appropriated by them.
  2. A sharing partner shall have equal rank of lien as that of a seller and the lien whose date is earlier shall have precedence over the other if they exist concurrently.


Particular Rights of Liens on Immoveables

Article 1526

  1. Proceeds of a sale and its accessories which become due to a seller of an immoveable property shall have a right of lien on the sold property.
  2. Such right of lien must be registered, even if the sale is registered and its rank shall take effect from the date of its registration.


Article 1527:

  1. Amounts due to contractors and architects to whom construction of buildings or other installations or reconstruction, renovation or maintenance of such buildings have been entrusted shall have a lien on said installations to the extent of the excess in the value of the real property at the time of its sale as a result of such works.
  2. Such lien must be registered and its rank shall come into effect from the time of registration.


Article 1528:

  1. The co-owners of a real property, if it is divided by them, shall have a right of lien thereon as a guarantee of each one’s right to take recourse against the others for the right to receive his average share appropriated to him by the division.
  2. The right of lien arising from the division must be registered, and its rank shall be determined as of the date of its registration.

Provisions on Certain Pledges in the UAE


Pledges on Immoveable’s:

Article 1484:

Every pledge on immoveables shall not be considered effective with regard to non-contracting parties unless it is registered together with the possession by the pledgee of the pledged immoveable.

Article 1485:

  1. The pledgee may lend the pledged immoveable or he may lease it to its pledger provided that the pledged immoveable shall remain as security for payment of the debt without prejudice to the enforcement of the pledge against non-contracting parties.
  2. The provisions of Article 1474 of this law concerning the proceeds of the pledged real property shall be applied in respect of the rent payable by the pledger.


Article 1486:

The pledgee shall pay the necessary expenses for the repair and maintenance of the pledged immoveable property including any taxes and costs imposed in connection therewith, provided that such amounts shall be deducted from the proceeds of the pledged real property, or from its sale proceeds according to the rank of his debt.

Pledges of Moveables

Article 1487:

A pledge of a moveable shall not be considered effective against non-contracting parties unless an instrument with a fixed date is made, showing the debt and the property held in pledge together with the transfer of possession to a pledgee.

Article 1488:

If the pledged property is threatened to suffer damage, deterioration or loss in value, the pledgee shall notify the pledger of the same and if the pledger fails to provide a collateral security to the pledgee, either of them may apply to the court to sell the property held in pledge and thereupon the right of the creditor shall then be transferred to the sale proceeds.

Article 1489:

The pledger may apply to the court for permission to sell the pledged thing if a favorable deal has been offered, even if such an offer comes at a time prior the maturity of the debt.  The court shall, upon giving permission, determine the conditions of sale and decide upon the question of depositing the proceeds.

Article 1490:

The foregoing provisions shall be applicable to the extent that they are not in conflict with the commercial laws and special laws which are in consistence with Islamic Law (Shari’a).

Pledge of Debts

Article 1491:

Whoever pledges a debt owing to him shall deliver to the pledgee the debt instrument.

Article 1492:

  1. A pledge of debt shall not be effective against a debtor except thereupon giving him notice of such a pledge or upon his acceptance thereof.
  2. It shall not also be effective against a person other than the debtor, except upon possession by a pledgee of a bond of the pledged debt.
  3. The rank of the pledge shall take effect from the fixed date of notification or acceptance.


Article 1493:

Nominal bonds or promissory notes shall be pledged in the special manner provided for in the law for their transference provided that it shall be stated that the transference has been made as a pledge.

Article 1494:

A debt which is neither transferable nor attachable shall not be pledged.

Article 1495:

A pledgee may receive the regular accruals of the pledged debt as well as the costs connected therewith, and in this case he shall deduct such amounts from the expenses and from his principal debt.

Article 1496:

The pledgee shall preserve the pledged debt, and if he has the right to recover any part of such a debt without intervention by the pledger, he shall do so at the time and place specified for recovery and he shall notify the pledger thereof.

Article 1497:

A debtor whose debt is held in pledge may plead against all defenses concerning the validity of a right secured by pledge as well as the defenses which he may have the right to plead against his original creditor, in as much as the debtor may plead such defenses against an assignee in case of assignment.

Article 1498:

  1.  A debtor whose debt is pledged must pay the debt to the pledger and pledgee together if it falls due before the maturity of the debt secured by pledge.
  2. The pledger and pledgee may mutually agree to deposit whatever is paid by the debtor in the hands of an impartial holder until the secured debt becomes due, whereby the right of pledge shall be transferred to whatever has been deposited.


Article 1499:

If both of a pledged debt and a debt secured by pledge becomes due for payment and the pledgee has not received his dues, he may recover from the pledged debt what is due to him and return the remainder to the pledger if the dues owing to him and the pledged debt are of the same kind, otherwise he may apply to have the pledged debt sold, or he may take ownership thereof in settlement of his dues.

Article 1500:

The provisions concerning pledge of a moveable property shall apply to the pledge of a debt where there is no conflict with the preceding provisions.

Effects of A Pledge with Regard to Non-Contracting Parties in the UAE


Federal Law No. 5 of 1985 on Civil Transactions

Article 1481:

It is necessary for enforcing a pledge against non-contracting parties that the pledged thing must be in the hands of the pledgee or an impartial holder approved by both parties.

Article 1482:

The pledgee shall have the right to retain the pledged property in his possession until he receives his entire debt and any accessories or expenses attached to it.  However, if his possession thereof ceases to exist for a reason beyond his control, he shall have the right to recover it.

Article 1483:

The thing held in pledge shall be considered security for the principal debt and the necessary expenses paid by the pledgee on behalf of the pledger plus the expenses of the pledge deed and its execution.

Effects of A Pledge With Regard to Contracting Parties in the UAE


Federal Law No. 5 of 1985 on Civil Transactions

With Regard to the Pledger:

Article 1467:

  1. A pledger may not dispose of the pledge without the consent of the pledgee.
  2. If such a disposition is a sale, the right of the pledgee shall be transferred to the proceeds of the pledge.

Article 1468:

  1. If a pledger admits that possession of a thing held in pledge belongs to a third party, his admission shall have no effect against the pledgee.
  2. Such an admission shall not extinguish the right of the pledgee in keeping the pledged property until he receives payment of his debt.

Article 1469:

The pledger shall be liable for the safety of the pledged thing and he must not act in a manner that decreases such liability or prevents the pledger from exercising his rights.

Article 1470:

The pledge shall be subject to the provisions governing, deterioration or defect of the thing held in pledge due to the pledger’s error or by act of God, provided for in Article 1415 of this law.

Article 1471:

The pledge shall, upon deterioration or defect of the pledged thing, be transferred to the property replacing it, and the pledgee shall recover his dues from it according to the provisions of Article 1416 of this law.

With Regard to the Pledgee:

Article 1472:

The pledgee shall keep the thing in pledge with himself or with a trustworthy holder, and he must exercise the care of a reasonable man in looking after it.  He shall be liable for its damage or defect unless it is proved that such damage or defect is imputable to a cause beyond his control.

Article 1473:

The pledgee must not dispose of the thing in pledge without the permission of the pledger, nor may he sell it unless he is authorized to sell.

Article 1474:

  1.  The pledgee must not enjoy the benefit of the pledged thing whether it is a moveable or immoveable property, without the permission of the pledger.
  2. The pledger may permit pledgee to enjoy the use of the pledged thing provided that the returns he has received shall firstly be deducted from the expenses he has paid on the pledge and secondly from the original debt.

Article 1475:

The pledgee may stipulate that the benefit of the pledge shall be for himself if its period is specified by time or a certain job and that the value of such use is charged to the debt whether arising from a sale or a loan.  However, if it is not charged to the debt, its stipulation shall be nullified if the debt is from a loan and its stipulation shall be valid if it arises from a sale for a deferred price and the sale contract provides for such a stipulation.

Article 1476:

If a creditor misuses a thing held in pledge, the pledger may request that the pledge be placed with an impartial holder.

Article 1477:

The pledge may retain the possession of the thing held in pledge until he receives payment of his entire debt and any accessories or expenses attached to it, and then he shall make restitution of the thing in pledge to its pledger.

Article 1478:

  1. If a pledged thing perishes in the hands of the pledgee, he shall be liable for its value as on the day of taking delivery thereof.
  2. If its value is equal to the liability for the debt, the debt shall be extinguished whether such damage results from trespass of the pledgee or not.
  3. If its value is more than the debt, the debt shall be extinguished and the pledgee shall be liable for the remainder if the damages occur as a result of his trespass or his failure to take care of it.
  4. If its value is less than that of the debt, the debt shall be abated to that amount only, and the creditor shall make recourse for the balance due to him against the pledger.

Article 1479:

The pledgee shall have the rights of the holder of a security mortgagee in making execution on the pledged thing and on all properties of the debtor upon his failure to make full settlement of his debt as provided for in the provisions of Article 1419 of this law.

Article 1480:

Provisions of Article 1420 of this law shall apply to the pledge.

Definition of a Pledge and Its Creation in the UAE


Federal Law No. 5 of 1985 on Civil Transactions

Article 1448:

A pledge is a deed that creates a right to foreclose property in the hands of a creditor or a fair person as security for payment of a debt in whole or in part by having precedence over all other creditors.

Article 1449:

It is stipulated that a thing in pledge shall be capable of being delivered at the time of pledge and must be valid for sale by public auction.

Article 1450:

  1. Pledging fruits before they become ripe shall be valid; but they must not be sold for payment of a debt there from unless they start to ripen.  However, if a pledger becomes bankrupt or dies before they begin to ripen, the mortgage holder shall enter into partnership with the adversaries for payment of his debt from other properties of the pledger.
  2. However, if the fruits begin to ripen after partnership, they shall be sold and the pledge holder shall exclusively receive its price and he shall make restitution of whatever he has taken in partnership to the adversaries if such a price is equal to his debt.  If it is less, he shall make restitution to them of any amount in excess of what he would have taken had he entered into partnership with them beginning with the remainder of his debt after the price of the pledged fruits which has been exclusively received by him.


Article 1451:

Highly perishable things may be held in pledge for a deferred debt and if possible they shall be preserved.  Otherwise they shall be sold at public auction and the proceeds shall be held in pledge in place of it.

Article 1452:

It is stipulated that the consideration for a pledge shall be a debt owing as a fixed liability or promised as a sum certain in money at the time of pledge or a secured real property.

Article 1453:

A pledge shall fulfill its conditions and shall become binding when it is received by the creditor or an impartial person, and the pledger may revoke the pledge before delivery.

Article 1454:

If a pledger faces any incapacity barring him from a financial disposition before the pledgee takes possession of anything in pledge, the deed of pledge shall be void.

Article 1455:

The pledger and pledgee may agree to keep a pledged property in the hands of an impartial holder, whereby the hands of the impartial person shall be as the hands of the pledgee and the pledge shall then be made by taking delivery thereof.

Article 1456:

  1. An impartial holder may not deliver a pledged property to the pledger or pledgee without the consent of the other while the debt still exists, and must recover it if he has delivered it.
  2. If a mortgaged thing deteriorates before it is recovered, the impartial holder becomes liable for its value.


Article 1457:

If an impartial holder dies and no agreement is reached by the pledger and pledgee to deposit the pledge with a third party, either of them may seek a court order to deposit it with an impartial order to be selected at its discretion.

Article 1458:

Whoever puts anything in pledge as security for a debt owing against him or against another person must be the owner of the pledged thing and capable of making dispositions therein.

Article 1459:

Provisions of the security mortgage set forth in Article 1403, 1404 of this law shall apply to the pledge.

Article 1460:

Provisions of the security mortgage set forth in Article 1408 of this law shall apply to the pledge of a common property.

Article 1461:

If a part of a common real property and the like is held in pledge, the mortgage holder shall take possession of the whole property if the remaining part is property of the pledger.  However, if it is property of a third party, he shall take possession of the part held in mortgage only.

Article 1462:

The pledge shall be subject to the provisions of indivisibility of the property held in pledge as security for the debt provided for in Article 1410 of this law and the whole property in pledge shall be held as security for the whole debt or for a part thereof. 

Article 1463:

A pledge shall include all sale accessories attached to the thing held in pledge.

Article 1464:

If the property held in pledge grows distinctively form and consistently with the thing lying in pledge while it is in the hands of the pledgee, it shall be considered a collateral pledge.  However, if it is of a different nature it shall not be a collateral pledge unless it is stipulated in the pledge to be considered a collateral.

Article 1465:

  1. The thing in pledge may be held as security for more than one debt having equal rank, provide that they are grouped in one pledge deed.
  2. The whole thing shall be held in pledge by each creditor as security for his debt.


Article 1466:

  1. A borrowed property may be held in pledge with the permission of its owner, the lender, and subject to his conditions.
  2. The lender may not recover the pledged property before payment of the debt.
UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance