OMAN REAL ESTATE LAW
Oman Real Estate Law
Tenancy Contract Royal Decree 6/89
Tenancy & Leasing Provision in Oman
Tenancy & Leasing Agreement Process in Oman
Renew Rent Contract Online
Sales and Purchase Agreements Oman
Ministry of Housing Oman
Oman Real Estate Law
Oman’s ownership of real property is evidenced by the land registration, title deed or Mulkhiya. Real estate records of ownership, transfer, usufruct rights and legal mortgage are kept in the real estate register at the Ministry of Housing (MOH) in Oman.
Oman Land registration is maintained by MOH by virtue of Land Law [RD 5/80], MD 5/91 (issued by MOH) and Land Register Law [RD 2/98]. Legal provisions and supporting legislation set up a Real Estate Register which is designed to act as a record of land interests. An independent page in the Land Register should be assigned for each separate real estate unit which should include salient particulars of the property [MD 29/99].
The Real Estate Register is only available for inspection by parties with interest in land. Under MD 5/91, MOH has authority to levy fees for registration of interests in land.
Omani nationals are entitled to freehold and leasehold real estate rights. Wholly Omani owned companies and public joint stock companies with 51% Omani shareholding may own real estate. Pursuant to MD 43/98 issued by MOH, corporate ownership of real estate is restricted to holding it for administrative office, staff accommodation, warehouses, show rooms and similar special purpose premises in relation to achieving the company’s objectives and should not be for investment purposes unless it is a land development company with a specific land development object. Companies acquiring land for administrative and other purposes are prohibited from disposing of the real estate within two years of acquisition. Pursuant to Law Regulating the Ownership of Real Estate by GCC Nationals [RD 21/04], the right to own land in Oman has been extended to GCC nationals and wholly GCC owned companies.
Previous law issued by RD 20/00 restricted a GCC entity’s right to own land to not more than 3,000 square meters. This law entitles GCC natural persons and wholly GCC owned juridical entities to own land or construct property for the purposes of residence or investment in Oman in accordance with Omani law. This law seeks to give similar land ownership rights to GCC nationals as Omani nationals. However, a GCC national purchasing a vacant plot of land is legally obliged to develop within four years from registering it. If the land is not developed within the stipulated time, the Government may dispose of the property but with due compensation.
The Government may acquire land from owners for public use and pursuant to a Royal Decree. The owner of the land must be duly compensated for expropriation [RD 64/78].
Usufruct Law [RD 5/81 as amended] provides for usufruct rights that may be granted by the Government to a third party to utilise and develop real estate. Usufruct is a real right to exploit and benefit from the land granted pursuant to a written agreement. Usufruct of real estate may be held for an initial term of 50 years and may be renewed for additional terms. The beneficiary of usufruct is entitled to use land as its own for the term. Real estate reverts to owner upon termination or on expiry of usufruct agreement.
Usufruct rights over land are granted by the Government (MOHEW) to public utility and infrastructure projects that are considered as contributing to the development of the national economy. It is also possible to sub-usufruct usufruct rights.
Owners may lease real estate which must be registered with the local municipality [RD 6/89]. A lease of over seven years must be registered with MOH also. This interest is strictly contractual and amounts to a tenancy agreement which is to be registered with the relevant municipality. A lease does not provide any actual real rights in real estate but it is a right granted by contract for payment of rental to occupy land and buildings built upon the land.
Law for ownership of real estate by foreigners in integrated tourist complexes was issued by RD 12/06. This law allows non-GCC foreign nationals and companies to own registered freehold title to Omani land provided that the land is situated in an area designated as an integrated tourist development area. Specific rights that are granted to a development company over an area of project land are recorded in a development agreement. The development agreement sets out rights and obligations of the developer and obligations of the Government in relation to supporting the project.
Rights granted to property developers in these areas are heavily controlled by the Government. The developer has to satisfy the Government that its project is beneficial to the country and will deliver a good quality and successful project.
Issues relating to transfer of title, succession and applicable laws, permanent residence in Oman, etc., are addressed in recently issued MD 191/07 issuing the Executive Regulations to the Law. Law regulating the Tenancy of Residential, Commercial & Industrial Premises [RD 6/89] was recently amended by RD 72/08 bringing about significant changes to curb rising rents.
Registration Fee for Lease Contracts and Sale of Real Estate Units Under the Tenancy Law (Royal Decree 6/1998), a tenant is entitled to utilize a leasehold property in accordance with the terms of the lease agreement. Corporate bodies and individuals may lease property from the government or individual landlords for specific purposes. Such lease can only be transferred if the prior written consent of the landlord has been obtained.
It is mandatory for the landlord to register the lease agreement, unless the landlord and tenant agree that the registration will be carried out by the tenant. In order to avail the rights and privileges provided to the landlord and tenant, it is necessary to register the lease agreement as required under the Tenancy Law. In the event the landlord fails to register the lease agreement within a period of one month from the date of signing the lease agreement, the tenant may do so within the specified period.
A lease may be a short-term lease or a long-term lease. Short-term leases are leases with a term of less than seven years and are registered with the relevant municipality. Generally, short-term leases usually have a term of one year and are renewable upon expiry. Any lease with a term exceeding seven years is considered a long-term lease and such lease must be registered with the Ministry of Housing (MOH).
All leases must be registered with either the municipality or the MOH. The payment of registration fees will differ depending on whether a lease is a short-term lease and registered with the relevant municipality, or a long-term lease and registered with the MOH. In the case of a short-term lease (i.e., a lease with a term of less than seven years), the lease needs to be registered with the relevant municipality and a registration fee of 5% of the lease rent payable over the term would need to be paid. The Muscat Municipality registration fee has been recently amended by Ministerial Decision 20/2016. Prior to the amendment, the registration fee was 3% of the lease rent payable over the term. If, however, the lease was for a period exceeding seven years, the lease will be registered with the MOH and a fee of 0.5% of the total lease rent for the entire tern of the lease is payable by way of a registration fee (pursuant to Ministerial Decision 5/1991).
Unless the lease agreement is registered and the prescribed fees are paid, such agreement shall not be recognized by any official authority in the Sultanate. Landlords failing to register the lease agreement will incur a fine of three times the prescribed fees.
Similarly in the case of sale and purchase of real estate units, all transactions pertaining to the transfer of ownership in real estate units, whether through an outright sale and purchase, inheritance or pursuant to a judgment issued by the Omani courts, would need to be recorded in the Land Register through provision of relevant documents in support of the same. The objective is to control and protect the rights of ownership for the benefit of the owner. The MOH has also announced through Ministerial Decision 13/2016 issued on February 1, 2016 that the fee for registering real estate units has been increased from 3% to 5% of the total value of the real estate unit.
Transactions relating to transfer of ownership in real estate units need to be registered in the Land Register in the absence of which a fine equivalent to twice the registration fee will be imposed on any person who has intentionally ignored registration of the real estate unit. Foreigners’ Right to Own Real Estate in Oman
Wholly foreign-owned entities can be established ‘Off-Shore’ and acquire usufruct rights in respect of property within their specific zone of establishment.
A. Legal framework for the ownership or possession of land and general prohibition on foreign holding of absolute title
Real estate’s Lands Law promulgated by SD 5/1980 constituted the State as owner of all land in Oman to which no individual could prove title. The State then commenced allocation of land for public purposes and the making of grants of residential and/or commercial or agricultural plots to individual citizens.
Omani nationals and mixed ownership SAOGs. Previously only Omani natural persons could acquire absolute title to land in the Sultanate. Pursuant to SD 24/95, companies were permitted to own land, provided that:
• companies were wholly-Omani owned; or
• in the case of public joint stock companies (SAOGs), if not less than 51% of the capital was owned by Omanis; and
• the use of the land in question was restricted to the purpose approved by the competent ministry. The 49% cap on foreign participation in SAOGs was eased in 2010 and now SAOGs with up to 70% foreign ownership engaged in real estate development and with relevant objects in their constitutional documents can own land in Oman for the purpose of development, subject to internal conditions imposed by the Ministry of Housing.
In 2004, the Rules as to the Acquisition of Immoveable Property for Residence and Investment by Nationals of GCC Member-States (Rules) were brought into effect. This extended the right to own land in the Sultanate to GCC natural persons and wholly GCC-owned companies (no non-GCC participation at any level), subject to the exception of certain reserved areas (noted below).
It must be noted that persons purchasing undeveloped land in the Sultanate pursuant to the Rules must develop it within four years of acquisition and cannot dispose of the land within four years of acquisition or until any development is completed. Entities acquiring pursuant to the Rules can own such land for investment purposes. However, The Ministry of Housing will not register ownership of land in favour of non-Omani GCC nationals in certain Reserved Areas (Al Batinah Coast, Al Gabal, Al Akhdar).
Non-GCC nationals and integrated tourism complexes (ITCs)
From 2006 it has been permissible for non-Omani individuals and companies to acquire usufruct rights over land in areas designated as “integrated tourism complexes” (ITCs) for the purpose of building units for residential and investment purposes. Thirteen such designations have been made to date. ITC’s tend to have defined tourism, commercial and housing elements.
To provide effect to an ITC, the government grants the developer a usufruct right over the development site (the nature of which is discussed below). The rights and obligations of the developer are recorded in a development agreement. Where the ITC includes the development of residential real estate, once the development is complete, the developer is authorised to dispose of the residential units to third party purchasers, including non-GCC nationals, with title absolute (subject to payment of an upgrading fee to the ministry). If the developer fails to develop the land as per the development agreement the government can take over the ITC project.
Registration of Land Ownership in Oman
All transactions relating to the property, including transfer, usufruct and mortgage are annotated and stamped on the Mulkhiya. Interests held by entities are not affected by changes to the shareholders of such entities. It should be noted that the registry maintained by the Ministry is only open to inspection by those with an interest in a specific property.
B. Rights available to foreign individuals or entities
As noted above, other than ownership rights permitted in favour of SOAGs, GCC nationals (or wholly GCC owned companies) and to non-GCC nationals in respect of residential units in ITCs, generally speaking foreign entities’ rights in relation to Mainland real estate will be limited to usufructuary or leasehold rights.
Usufruct tenure, pursuant to the Usufruct Law (SD 5/1981), is carved out of absolute title, and resembles it. That is to say that the right gives the usufructuary (the grantee of the usufruct) virtually all the rights of an absolute owner, such as: the right to quiet enjoyment; the right to sell; mortgage; and give on lease. The grant is, however, restricted to the specific use for which the usufruct has been granted, and is limited in time (e.g. 30 years, or the life of the usufructuary).
On expiry of the usufruct right all rights in the land revert to the grantor, who has remained the owner of the underlying absolute title. Compensation for the value of any additions to the land will be due to the exiting grantee, save as provided in any private agreement between the parties. Any grant of usufruct requires the approval of the Ministry of Housing. It is the closest approximation to absolute title that foreign acquirers can obtain outside of ITCs.
As usufruct rights fall within the category of “real”, or proprietary, rights, a usufruct can be viewed as a more secure and durable form of tenure than a lease. A usufruct is, therefore, suitable for long-term projects which involve the creation of fixed assets. Usufruct is also suitable for companies with foreign participation, or for foreign natural persons, in circumstances where they would not legally be able to acquire absolute title.
Leases Leases granted in the Sultanate confer rights to occupy land or premises. Leasehold rights are generally not viewed as a real property right, however, because they are not a form of property that can be readily mortgaged or entered as an asset on the lessee’s balance sheet. The basic legislation on leases goes back to SD 6/1989, which sets a comprehensive legislative framework for the lessor-lessee relationship, and provides for a system of registration of all residential lease contracts with the competent municipality and commercial leases over 7 years with the ministry. A fee is payable by the landlord on registration, currently set at 5% of the lease value.
The appropriate structuring of real estate dependent projects and ventures in Oman will depend on the specific requirements of the venture, the nature of the project and the nationality of the participants.
Given the applicable restrictions on real estate rights and the various elements to be taken into account when considering suitable corporate structuring options, it is recommend that parties obtain detailed legal advice to ensure that the correct structures are put in place at the outset. An early investment in sound structuring legal advice and securing appropriate real estate rights pays dividends and remove potentials disputes.