On 25 September 2023, the President of the United Arab Emirates (“UAE”) issued Law no. 32 of 2023 on Finance Lease (the “New Law”), coming into effect on March 2024, repealing Finance Lease Law no. 8 of 2018 (the “Old Law”). The New Law pertains the basic characteristics of the finance leasing as defined under the Old Law, while elaborating on its characteristics and types of Finance Leasing agreements depending on its parties’ relationship, among other key elements.

Key provisions

Finance Leasing Characteristics, Leased Assets, and Territorial Application of New Law

The New Law maintains the key element of finance leasing, the lessee’s option to purchase the Leased Asset upon lapse of the finance leasing agreement’s duration. The New Law further provides that financial leasing agreements could be either bilateral (between a lessor and a lessee) or tripartite (between a lessor, a supplier of the leased assets, and the lessee).

The New Law further defines the Leased Asset encompassing various types, including; non-consumable object owned or legally possessed by the lessor and used in a lessee’s craft, trade, business or personal uses; capital and future assets; assets manufactured in a certain way, equipment, plants, living and unborn animals; and movable property (if they becomes immovable by destination or is incorporated in real property). Leased Assets exclude aircraft, airframes, helicopters and aircraft engines of any type that are subject to registration in special registers, pursuant to UAE legislations; marine vessels of any type that are subject to registration in special registers, pursuant to UAE legislations; cash; investment bonds; and land plots granted by the UAE.

Moreover, the New Law sets out the necessary clauses required to be included in a finance lease agreement, regardless of its type, by law.

The provisions of the New Law apply to financial lease agreements where; i) the asset in question or the lessee’s business headquarters is located in UAE or in freezones where there are no special regulations applicable to finance leases; ii) the agreement provides for UAE laws as applicable law to such an agreement.

Additionally, the New Law recognises the subleasing arrangements, as described under article 3 of the New Law, as devised by the lessee or the lessor.

Finance Leasing Regulation

The New Law regulates the licensing to carry out finance leasing activities as follows:  

• UAE Central Bank regulating licensing and supervises the finance lease activity carried out by banks and entities governed by the UAE Central Bank.
• UAE Cabinet, at the recommendation of the UAE Minister of Finance, regulate any other persons (whether natural or legal entities) engaging in finance leasing activities.

In either cases, it is foreseeable that further regulating decrees are to be issued by the relevant authorities.

Registration and Enforceability of Finance Leasing Agreement and Associated Rights

Per article 6 of the New Law, specifies that Finance lease agreements are automatically enforceable against its parties upon its conclusion. For enforceability against third-parties, however, registration would be required to be made before the relevant register (the relevant real estate register in the relevant emirate for properties and the relevant register for special movables that are subject to special registration provisions). In all cases, the enforcement of rights under a finance lease agreement in relation to movable assets shall be governed by Federal Law no. 4 of 2020 Securing the Rights in Movables.

Other Key Provisions

The New Law elaborates on various other provisions regulating the relationship between the lessors, lessees, and suppliers in a relevant finance lease agreement. Such provisions cover; the warranty of quiet possession of the Leased Asset (article 16); warranties of the supplier and the Lessor (article 17); breaches, termination, bankruptcy and damages due under a finance leasing agreements (articles 20 through 25), and penalties for violation of the New Law (article 27).

How Can GLA Help?

As we eagerly anticipate the implementation of the New Law, it is crucial to recognize the significance of financial leasing for consumers. Beyond its immediate impact on businesses, finance leasing empowers consumers by offering accessible avenues for acquiring assets without the burdensome upfront costs associated with outright purchases. This accessibility, coupled with the flexibility it affords, positions finance leasing as a pivotal tool in personal and corporate financial strategies.

However, it is essential to acknowledge that while the New Law sets a framework, its complexities may leave individuals and businesses with lingering questions, especially in the area of licensing of finance leasing service providers. Comprehensive new regulations and regulatory insights are to be expected.

As we move forward, our team stands ready to provide practical takes on finance leasing agreements by offering expertise and insights, we aim to empower our clients to navigate the evolving landscape of financial leasing with confidence and make informed decisions that align with their objectives.

Authors: Yousef Al Amly, Partner, and Khaled Al Khashab, Associate.

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Yousef Al Amly (y.alamly@glaco.com).