In the wake of the global financial crisis, we have noticed an increased desire among real estate industry participants in the Middle East, and particularly in Qatar, to modify their approach to documenting their agreements. In our opinion, there is a noticeable trend away from short-form agreements, towards the parties setting out their legal and commercial relationships using increasingly sophisticated documentation.

It is unclear what the primary motivation for this trend may be, but contributing factors are sure to include the parties taking a more risk-averse approach to legal documentation in the light of the financial crisis. The fallout from those global problems shone a light on contractual relationships and brought the rights and responsibilities of the parties sharply into focus. What we are witnessing may also be in response to the tightening of credit requirements from financiers in the region and internationally; undoubtedly, there are other contributing factors.

Suffice it to say that there has at times been a gap between the long form detailed legal documentation which has gained currency in other jurisdictions and the accepted commercial practice in this region. As described later in this article, it seems that this gap is now closing. As the market matures we are delighted to note this as a welcome and encouraging sign of the continued positive development of the real estate industry in this region.

Leasing documentation

This trend has been particularly clear in the willingness by the industry to more fully document and regulate landlord and tenant relationships. We have detected a notable shift away from the acceptance of short form documents substantially covering only key commercial terms of the transactions. Now, both landlords and tenants are increasingly interested in regulating the ongoing relationship and allocation of risk between the parties through the term of the lease.

Some of these risks include those set out in the table at the foot of this article.

In the development sector, where a real estate development is to be constructed and then occupied by a tenant through the term of a lease, there is an obvious increase in the willingness of parties to enter into more detailed documentation. For example, the parties are now keen to identify and allocate those risks that arise during the development phase of a project, compared to those that occur during the operation and use of the constructed property. Moreover, to underscore the differences, parties are now more likely to document those arrangements through separate agreements; the development phase covered by an agreement for lease and the operational phase covered by a lease which only takes effect on completion of the development.

Some of these risks include those set out in the table at the foot of this article.

Off the plan sales - one eye on strata?

To a certain extent, the purchaser of an apartment 'off the plan' (i.e. before it has been built) is demonstrating a substantial level of confidence in the developer, the development itself (including the actions of fellow purchasers) and the region generally. For example, the purchaser makes instalment payments against a development that may or may not get built - on time, to the standard expected or with the facilities promised. Another uncertainty is the on-going cost after completion of the development (the service charge) of managing and maintaining the facilities common to the development (pools, gyms etc) at a price the purchaser can reasonably afford. Common facilities and their cost must also be considered on the basis of the likely and lawful behaviour of purchasers of the other apartments in the development.

For the purposes of this article, let's overlook whether or not the construction funding being met by the purchaser is the most appropriate allocation of risk. It isn't by the way, but the practice is so well entrenched in the Middle East that there is little a purchaser can do. In any event, that method of financing has become such the regional norm that Dubai has even legislated for this approach. However, as to that second 'uncertainty' regarding the on-going cost of managing and maintaining the common facilities there is a very large scope for good and not so good practices.

Currently in Qatar, a developer has a very wide discretion in relation to the ongoing management and organisation of the operation of their completed real estate development. Qatar has yet to announce any plans to implement a programme of laws dealing with jointly owned property – mainly high rise apartments – (Strata Law) to govern and fully regulate the management of competing interests within multi tenanted, multi use real estate developments – common ownership provisions in the Qatar Civil Code are not equivalent.

Without a legislative framework to regulate these interests, it is possible for the developer and purchaser to freely make contractual provision to deal with this situation. In the Middle East, notably in Dubai, this lead to a number of problems, including insufficient consideration of the allocation of costs between different users of buildings, what happens to the allocation of that risk where purchasers of units default (i.e. who picks up the slack?) and contracts being drafted to heavily skew the allocation of costs against end users to the extent that costs allocated were not maintainable. It was these problems that gave impetus to the need and implementation of the Dubai Strata law.

So, in the absence of a Qatar Strata Law what can developers do to make appropriate provision for their developments and why should they do it?

Again, the answers lie in the contracts which they enter into with prospective purchasers. By taking the appropriate advice at the outset of a development, the required structure can be implemented from the sale and purchase agreements issued to prospective purchasers before the development has started in earnest. Therefore, risks can be appropriately allocated and ascribed in a practical and economically feasible way. This has a number of benefits for both the developer and purchaser which include:

  • Appropriate structuring adds to the value of any investment made by any prospective purchaser now and will again add value upon resale; and
  • Moreover the developer's residual interest in the development is enhanced.
  • In addition, there is a reputation benefit for the developer generally and the development specifically.
  • In the event of the introduction of a strata law in future, the cost of compliance ought to be greatly reduced where appropriate structuring advice is taken at the outset,
  • More certainty and less risk for all is attractive to potential investors and financiers alike.
    We suggest that the trends noted above can only have a positive affect on the efficiency, value and quality of management of leased properties and mixed use real estate projects be they in Qatar or elsewhere in the wider Middle East region.

For further information in relation to the issues discussed in this article, please contact Scott Aitken or Sean Magee.

Agreements for Lease

Some risks issues for consideration

Conditions precedent Consider whether any pre-conditions apply to the agreement for lease becoming operational (e.g. planning approval, other regulatory clearance, licensing, investment vehicle establishment).
Registration of this agreement To protect the parties' interests, consider the possibility to register an agreement for lease with the real estate registration office and allocation of responsibility to register and costs of registration.
Financier's consent Consider if there are any formalities to be complied with or approvals to be obtained from any parties' financier.
Landlord's works/Tenant's works

Consider the responsibility for designing, obtaining approvals, financing, insuring and carrying out works for the development.

Document the timetables, standards, specifications and deliverables pursuant to carrying out such activities, the implications for delays and suspension of works, etc.

Consider the allocation of costs for works and who is to appoint necessary subcontractors and the extent to which approvals are required.

Formalities for grant of lease Consider the procedure for the grant of the lease once the conditions under the agreement for lease are fulfilled (see "Practical Completion" below). Discuss development milestones and longstop dates which are to be imposed for the project.
Practical completion and handover Agree who is to certify practical completion – if an independent certifier, consider the terms of such appointment. In the event that it is decided that practical completion is not achieved, consider the procedure/timetables to rectify.
Defects liability period Document the length of any defects liability period and the procedure for remedial works pursuant to these provisions.
Assignment Consider whether either party is to have the right to assign the contract and, if so, on what terms and conditions.
Events of default

Consider if there are any default events that may lead to termination along with any reasonable periods to be prescribed in which such defects may be rectified.

Consider the terms on which default/termination can be exercised along with any appropriate notice periods, rights to cure, what happens to development contributions monies paid in advance of termination, etc.

Consider the involvement of any financier and discuss utilisation of 'trigger events' prior to events of default arising.


Some risk issues for consideration

Service charges

Consider the services that are to be provided, the standards to be maintained, the quantum of service charges and their fair allocation on the basis of a proportionate cost for the demise.

Consider also abatement of rent if certain services fail.

Fit-out alterations

If the premises are not already fitted out, consider the allocation of responsibility for fit-out / building obligations, including appropriate deadlines/ handover of premises, any rent-free period/ landlord contribution, etc. Discuss potential for integrated fit-out.

Consider whether fit-out must be refurbished at regular intervals and/ or removed at the end of the Lease and if so, at which party's cost. If the landlord can elect that the fit-out remain in place, whether there is to be any payment for the fit-out.

Consider in what condition must the premises be delivered to the landlord in on expiry or termination of the lease (i.e. "consistent with the tenant's obligations under the lease" or "in their original condition, fair wear and tear excluded").

Regarding alterations generally, consider whether the landlord's consent is required for certain or all alterations (consent not to be unreasonably withheld?) and any other consents/ regulatory approvals required.


Consider whether the premises are zoned appropriately for the permitted use. Discuss whether landlord wants to limit use or will allow tenant 'any lawful purpose'.

Consider whether there any specific prohibited activities for the site and whether these conflict with the intended use.

Rules and regulations Consider whether separate rules and regulations apply to the premises (for instance if imposed by superior landlord/master developer). If so, these need to be reviewed and considered when the lease is prepared.
Registration of lease Consider the obligation under law to register the lease. Allocate responsibility between parties to register and co-operate and cover related costs.
Insurance Consider the obligations of the landlord to insure (e.g. replacement of building). In turn, consider the obligations of the tenant to insure (e.g. public liability, contents, etc). Consider the extent to which each party must takes steps to ensure compliance with the other's insurance cover, including putting the appropriate levels of insurance in place.
Indemnities Consider the extent to which indemnities need to be given by the Tenant to the Landlord, including any carve-outs in respect of certain acts or omissions by the other party.
Rent review Consider whether the lease is to be subject to rent review, at what intervals and on what basis is rent to be reviewed (e.g. open market basis, fixed percentage, who is to appoint any valuer and on what criteria). Consider the impact of any applicable local laws on the ability to conduct rent review.
Damage and destruction

Consider whether there is to be a right to termination / rent abatement in the event of damage and destruction.

Consider whether the Landlord has to rebuild / repair within a reasonable timeframe.


Consider if there are any default events that may lead to termination along with any reasonable periods to be prescribed in which such defects may be rectified.

Consider the terms on which default/termination can be exercised along with any appropriate notice periods, rights to cure, what happens to rent paid in advance of termination, etc.

Consider the involvement of any financier (to the landlord or tenant) and discuss utilisation of 'trigger events' prior to events of default arising.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.