Abu Dhabi Global Market Court Clarifies Indefeasibility of Title and Equitable Rights in Real Estate

In the UAE, indefeasibility of title is an important concept in the real estate market.  In order for the market to function properly, purchasers must have confidence that the property they are buying is free from claims and encumbrances.  But indefeasibility of title is not absolute.  In some cases, a third party may have equitable rights to the property which prevail over the rights of the registered owner.

A recent decision in the ADGM Court of First Instance in the case of Federal Properties Limited – Sole Proprietorship LLC v Rawafid H Jazairi Ibrahim & Others (Consolidated Cases Nos. ADGMCFI-2023-249, ADGMCFI-2024-047, and ADGMCFI-2024-154) considered the application of common law equitable principles in the ADGM in relation to equitable interests in property, setting an important precedent for the recognition of equitable rights in that jurisdiction.

In this update we discuss the key findings in the judgment and its wider significance for the real estate sector in the ADGM.

Background

Federal Properties arose out of a dispute over ownership of four residential units in the Mangrove Place Building (the “Building”) on Al Reem Island, Abu Dhabi.

The Building was originally developed by a development company called Luxury Real Estate LLC pursuant to a contract with the master developer and owner of the land, Sorouh (which later merged with Aldar).

In September 2014, the land and the unsold units in the Building were transferred from Aldar to a third party (“Third Party”).

In August 2021, the Third Party transferred the Building to Federal Properties Limited (“Federal”), a company of which he was the sole shareholder, which was formally registered as owner. With the extension of the ADGM jurisdiction to Al Reem Island in January 2025, Federal’s title to the property transitioned to the ADGM Real Property Register under the ADGM Real Property Regulations 2024 (the “Regulations”).

Prior to the acquisition of the Building by the Third Partyand Federal, Luxury Real Estate sold a number of units off-plan under sale and purchase agreements (“SPAs”). However, title those units was not transferred to the purchasers because the UAE lacked a comprehensive legal framework for registering title to apartments at that time.

Despite Federal’s registered title to the Building, three individuals who had purchased units from Luxury Real Estate asserted rights to their units.

Federal commenced proceedings in the ADGM against those individuals for possession of the units and damages in respect of unlawful occupation.  The defendants counterclaimed for rectification of the property register to reflect their ownership interest.

Against that background, the ADGM Court of First Instance addressed three issues:

1. The legal effect of registration under the Regulations;

2. The scope of exceptions to indefeasibility of title under section 24(f) of the Regulations;

3. Whether the defendants’ equitable claims justified rectification of Federal’s registered title to the disputed units.

Legal effect of registration

In relation to the first issue, the Court emphasized that registration of title under section 22 of Regulations is conclusive evidence that the registered owner holds an indefeasible title. Justice Paul Heath KC recognised that the ADGM adopted the “Torrens” system of legal title over property and stated:

“Registration of title was introduced to protect certainty and prevent the need to look behind the register except in defined circumstances.”

Justice Heath noted that the Torrens system operates on the principle of title by registration rather than mere registration of title. A registered proprietor is presumed to own the property free of unregistered interests unless one of the statutory exceptions applies.

The equitable interest exception

On the second issue, the Court examined the exception to indefeasibility under section 24(f) of the Regulations, which provides:

“24. Exceptions to section 23

Neither a registered owner of an interest in real property nor any person relying upon a certificate issued by the Registrar showing the registered owner of real property obtains the benefit of section 23 in relation to the following interests or rights affecting the lot –

…

(f) an equitable obligation binding the registered owner as a result of the registered owner’s conduct;

The Court noted that while the Torrens system is built to ensure certainty of registered ownership, there are limited circumstances where equity can step in to override the interests of the registered owner.  The Court made clear that simply having an older, unregistered agreement isn’t enough to bind a later registered owner. To displace registered title, there must be evidence that the registered owner either; knew about the earlier equitable interest, acted in a way that created a trust or some other equitable obligation, or obtained title through fraud or in circumstances giving rise to an equitable estoppel.

Referring to the English case of Lord Briggs in Byers v Saudi National Bank Justice Heath held that a person who obtains property with knowledge that it belongs to another holds it as a constructive trustee for that person. In those circumstances, the law will require the constructive trustee to restore the property to the person for whose benefit it is held.

The Court highlighted that equitable obligations only arise where the conduct of the registered owner makes it unjust for them to rely strictly on their legal title.

The defendants’ equitable interests

On the third issue, upon an examination of the evidence, Justice Heath found that, by virtue of having signed SPAs with Luxury Real Estate, the defendants did have an equitable interest in the units and that Federal had knowledge of those interests.

His Honour noted that prior to the Third Party’s acquisition of the Building a valuation report had been commissioned which had identified which units were “unsold”.  The defendants’ units were not amongst those.  Justice Heath found that because Federal was 100% owned by the Third Party, his knowledge could be imputed to Federal.  Further, subsequent to its acquisition of the Building, Federal had charged the defendants service charges, which was consistent with Federal being aware that those units were owned by the defendants.

 Applying the legal principles to the claims against the three defendants, the Court ruled that because Federal had knowledge of the three defendants’ interest in their units, the claims against those defendants must fail and the counterclaims must be upheld.  The Court accordingly directed that title to the defendants’ units be transferred from Federal to the defendants and that the register be updated accordingly.

Conclusion

The judgment in Federal Properties sets an important precedent in terms of the ADGM Court’s recognition of the principle of indefeasibility of title.  At the same time, the judgment acknowledges that valid equitable interests will be upheld provided the elements of the common law test set out in Lord Briggs in Byers v Saudi National Bank are satisfied.  Accordingly, the judgment strikes an appropriate balance between the need for certainty in relation to title to land and the protection of legitimate equitable interests.