Published: Nov 20, 2023

Overview of the New UAE’s Finance Leasing Law

The United Arab Emirates (“UAE“) is introducing a New Law to supplant the current finance lease law (Federal Law No. 8 of 2018) (“Current Law“). Despite being published in the Official Gazette, the New Law is scheduled to come into force six (6) months post-publication, specifically on 29 March 2024 (“Effective Date“). The Current Law will remain operational until the Effective Date, following which it will be automatically repealed.

The New Law affirms that implementing laws and decisions issued under the Current Law will remain in force until replaced by new law or decisions. Notably, the UAE Cabinet Decision No. 76 of 2020, addressing accounting standards applicable to finance leasing (“Cabinet Decision“), serves as a significant implementing regulation under the Current Law. This decision has been instrumental in aiding court-appointed experts in finance lease disputes, particularly in matters related to rental calculations and claims adjudicated by UAE Courts.

Some of the notable features of the New Law include the following:

Ownership of Asset: The New Law defines ‘Finance Lease’ as a lease whereby the Lessor leases out the Asset to the Lessee against rent for a specific term, while the Lessee may be granted an option to own the Asset, pursuant to the applicable provisions of the New Law. It is important to note that the New Law now removes the requirement for the lessor to own the asset and enter into a separate contract with the lessee. The change in definition ties in with the introduction of bilateral and tripartite finance lease agreements in the New Law.

Bilateral and Tripartite Finance Leases: The New Law introduces (a) bilateral finance lease, which is between the lessor and the lessee with a purchase option of the leased asset, in whole or in part, and (b) a tripartite finance lease, which is between the lessor, lessee, and a supplier where the lessee selects the asset and the supplier, and the lessor owns the asset to lease it to the lessee. A tripartite lease may also provide a purchase option for acquiring the leased asset. It is understood that a tripartite leasing arrangement may still be subject to the New Law even without a purchase option included. The New Law also covers sale-leaseback arrangements (common in asset finance transactions), whereby the supplier sells the leased asset to the lessor and then simultaneously leases it back from the lessor under a lease agreement.

Sub-lease arrangements: The New Law now recognizes sub-lease arrangements, including sub-lessors and sub-lessees (within the global descriptions of ‘lessor’ and ‘lessee’).

Leased Asset: The New Law, in a change from the Current Law, now officially excludes aircraft, airframes, helicopters, aircraft engines, marine vessels, and other assets that are registrable in “special registers” either under UAE law or pursuant to the international treaties or conventions. This is a welcome change for offshore asset financiers (for both aircraft and marine vessel lessors) and consistent with international best practice. In addition to the above, the New Law also excludes from its purview cash, investment bonds, and granted land in the UAE.

Scope of Application: The New Law applies to all finance lease contracts (governed by UAE law or otherwise), regardless of whether the lessee is licensed by the Central Bank or otherwise. In a welcome change, it appears that the New Law recognizes cross-border finance leases as well as assets located in the UAE (excluding financial free zones such as DIFC and ADGM).

New Licensing Requirements: The UAE Central Bank (“Central Bank“) will continue to regulate and license finance leasing conducted by banks and licensed financial institutions subject to the Central Bank’s supervision. However, the UAE Cabinet will separately determine the regulatory and licensing framework and regulating authority of non-licensed financial institutions conducting such business. This is a key development under the New Law as there is a restriction under the Current Law on a person or entity conducting finance lease business in the UAE without a license from the Central Bank.

Registration: Reference to a special register to be set up for registering finance lease contracts is now removed from the New Law, and the finance lease contracts should be registered in the register of the leased asset in the UAE (e.g., for properties, the land registry). A major development is that the New Law removed the strict requirement for registration of a finance lease agreement for the lease to be valid, unlike the Current Law, which states that a finance lease agreement is void if it was not registered. Registration is still required for enforceability vis-a-vis third parties under the New Law.

Enforcement: The enforcement of rights under a finance lease in relation to movable assets shall be governed by the Movable Asset Security Law (Law No. (4) of 2020).

Allocation of risk: Unless otherwise agreed by the lessor and the lessee, in a tripartite lease, the risk of loss of the leased asset shall pass to the lessee unless the asset remains to be delivered (in whole or in part) to the lessee. However, in a bilateral lease, the lessor shall be liable for the loss, and the liability may not be transferred to the lessee unless the loss is caused by the lessee.

Maintenance obligations: The lessee is liable for maintenance of the asset, which is in contrast to the provisions applicable to Ijara leases where maintenance (and insurance) is the obligation of the lessor.

How can we help?

At Al Tamimi & Company, our Banking and Finance team are well-equipped to provide comprehensive legal support and expertise in navigating the complexities of the New Finance Leasing Law. Our team are available to assist with compliance and guide you through the implementation of the new law.

Key Contacts

Jody Waugh

Deputy Managing Partner, Head of Banking & Finance
Mark Brown

Partner, Head of Projects