Concept of Finance Lease in the UAE

Over the years, Dubai has emerged as a business hub, regional leader and ideal place to invest in the financial sector. The city has attracted billions of dollars around the world. Financial investments in Dubai are recorded as highest in Dubai, if we compare with globe. Emirate of Dubai is the center of attention for businesspersons, investors, entrepreneurs, skilled employees, and biggest multinational corporations. Multinational companies and business corporations must have one office in United Arab Emirates. A Dubai Legal and commercial system fully supports the financial sector. Ease agreements and contracts have been fully governed by the UAE legal framework. However, our primary question today is how to define a finance lease in Dubai. Let us explore further about this subject” finance lease in UAE”.

Finance lease in Dubai or finance lease in UAE is described as a long-term rental contract or agreement between a lessee and the lessor. The lessee is the one who uses an asset for his personal or commercial usages. Residential assets are leased for personal usages while, commercial assets are used, for commercial usages. The lessor retains the ownership of the asset because asset belongs to him. However, the lessee can purchase the asset at the end of the term as well. It can extend the lease or return it. Finance lease in Emirate of Dubai is most famous arrangement that is special for vehicles, legal estate properties, assets, and even for equipment. Dubai’s growing real estate sector is mainly attributed to the finance leases. A huge amount of investment is in the form of a finance lease in Dubai. More specifically, it is a commercial arrangement with a following description:

• Lessee is a borrower, he gets a property/product.
• Lessor is the one who purchases the property/product for the lessee.
• Lessee has to pay rent to use that property/product.
• Lessor has right to collect the installment/rent for that property/product.
• Lessee can take the ownership of the property once the payables are finished. Payables are e.g. actual price, rent, service fee, interest etc.

Finance lease and standard rental contracts are two different things. There is a major difference between the two. The main similarity is that both allow the use of an asset. The terms and responsibilities are significantly distinct from each other. Under a finance lease in Dubai, the lessee is the one who bears most of the risks and rewards of ownership. Real Estate, Banks, banks and financial institute on the same pattern finance Assets etc.

The ownership or the legal title is with the lessor in a finance lease. Normally, the lease agreements are non-cancellable. These agreements cover mainly all the assets useful life.

The payments that are made under these contracts usually reflect the full cost of the asset, along with the interest rate or it can also be mentioned as service fee. The structure of the lease allows it to be treated as a financial liability on the lessee’s balance sheet. The businesses finance lease is often use by businesses searching for high value equipment without upfront capital investment.

There are a lot of legal complications involved in this matter. It is advisable to seek services from skilled legal professionals. Obviously professional law firms can provide the best. They have expertise in guiding clients regarding entering such financial arrangements. Therefore, the advice by lawyers or legal consultants must be the part of entire process, especially when you are going to deal with a bigger commercial product.

Typically, the UAE federal laws administer the Finance leases. It includes the Federal Law No. 8 of 2018 on Financial Leasing. The law explains the crucial role of a lessee, lessor, and also elaborates on the established terms and conditions. It also talks about the contract validity and sets out the regulations for assets ownership. Furthermore, the federal law also illustrates about the assets, ownership, termination terms, and registration. Prime condition for finance lease in Dubai is that the movable asset should be register with the relevant authorities in Dubai.

All the movable assets must be registered with the Emirates Movable Collateral Registry. Any failure to register will lead to legal implications, and it will become tougher to enforce the legal rights over the leased property in Dubai.

Finance lease in Dubai often might involve legal complexities or challenges. Therefore, it is suggested to take help from well-versed lawyers. They are often associated with Dubai law firms. They can assist clients with drafting the lease contracts. Lawyers in Dubai is a good deal to cope such challenges. They also protect the interests and ensure legal compliance with evolving legal standards.

It is commonly used in various sectors of Dubai, especially where equipment is capital intensive. Therefore, the use of finance lease is high in sectors like construction, logistics, manufacturing, healthcare, and technology.

The construction sector uses heavy machinery like cranes, machines, and heavy equipment that can be purchased over leased. They are usually available for 5-year leases with the option to buy the asset at the end of the lease.

The new startups in the construction business often opt for office equipment, machinery, and vehicles on leases. It helps them to maintain liquidity.  The new business can access resources without exhausting all its finances and working capital initially.

Moreover, the Dubai real estate sector is heavily dependent upon the lease agreements. They are often structured to resemble the finance lease, especially in commercial developments.

The lawyers in Dubai offer valuable assistance to clients in various sectors. They provide customized lease agreements that reflect business needs. They ensure the clients adhered to legal requirements and the laws.

The Lessor and Lessee both parties in a finance lease, have specific legal obligations. The lessor should provide the agreed-upon asset in usable condition. The lessor will retain ownership until the lease ends, or it can be converted into a purchase at the end.

On the other side, the lessee is responsible for the asset’s maintenance. It also takes care of the insurance and usage according to the contract terms. The payments should be made as per the schedule, regardless of whether the asset is in use or not.

It is quite common that disputes arise between the lessor and lessee. They often step in to resolve the conflicts through mediation, arbitration, or litigation. The legal assistance ensures a smooth resolution of the leasing issues.

Each financial agreement is associated with legal risks.  A few of the most common issues in finance leases include premature termination, asset repossession, or failure to register the contract properly. There are risks involved too.

There may be ambiguity regarding the clauses around maintenance, payment obligations, or liability. It is essential to seek Legal review before signing the lease contract.

The professional Dubai lawyers often make sure the contracts are according to the Legal standards outlined under the Financial Leasing Law. They offer a balanced approach. It provides protection to both parties involved.

They also provide assistance in case of default or asset disputes. The legal representation ensures the resolution of matters without aggravating the situation. It prevents escalation and also safeguards the company’s financial and operational stability.

They carefully draft the lease contracts that align with the UAE legal specifications and with international best practices. Dubai Lawyers, bridge in negotiating between the lessee and the lessor. This ensures transparency and fair terms.