Security interests in the UAE

Security interests in the UAE are governed largely by Federal Law No 5 of 1985 (Civil Code) and Federal Law No 18 of 1993 (Commercial Code). The former provides for business or commercial mortgages and commercial pledges and the latter provides for real property mortgages and possessory pledges.

Business mortgage

A business mortgage is a mortgage over the tangible and intangible property of a business other than real property. This includes goods, stores, machinery, client contacts, goodwill, trade name and intellectual property rights. The mortgage is made in favour of a bank or a financial institution, under a notarized document. To ensure the mortgage is valid for five years and can be renewed, it must be registered in the commercial register of the mortgagor.

The mortgaged assets must be specified in detail as otherwise only the trade name, right to let, client contacts and goodwill are deemed to be mortgaged. The premises where the business is conducted is not considered as part of the business and the Commercial Code appears to suggest that its lessor has a prior lien on it for unpaid rent (subject to a maximum of two years’ rent).

Jayanthi Guru is an associate in the Dubai office of Afridi & Angell, a UAE-based law firm. She can be contacted at jguru@afridi-angell.com. Afridi & Angell has offices in Abu Dhabi, Dubai and Sharjah.