On October 30, 2023, Ad,

The General Authority of the Court of Cassation in Abu Dhabi recently established a judicial principle regarding the distinction between rental contracts, disputes of which are subject to rental dispute resolution committees, and investment contracts, disputes of which are subject to the commercial courts in the Emirate of Abu Dhabi.

On January 2, 2023, Federal Decree No. 50 of 2022 was issued, promulgating the Commercial Transactions Law. This decree introduced significant amendments to the definition of commercial businesses, as outlined in Article No. (6) of the same law, which states, “The following businesses are considered commercial businesses if they are practiced professionally: –

15- Renting or leasing houses, apartments, and rooms, furnished or unfurnished, with the intention of re-renting them.”

According to Article (4) of the Decision of His Highness the President of the Judicial Department No. (28) of 2019, concerning the establishment of the Abu Dhabi Commercial Court, the court has jurisdiction to hear lawsuits related to commercial businesses, even if the business is commercial for one party and civil for the other party.

However, when applying the requirements of this concept to some disputed cases, there was a suspicion of a conflict regarding the criterion for distinguishing the two contracts (lease and investment) concerning the jurisdiction of any of the courts to hear the disputes arising from them.

On the other hand, the ruling issued on 8/23/2023 in Appeal No. 42 of 2023, rescinding rents, considered that the lease contract subject to the dispute, even if based on existing buildings, does not lose the character of an investment contract. This is because the intention of both parties was to invest in the property leased to achieve profit. It was concluded that the commercial judiciary has jurisdiction to consider this dispute.

In order to resolve the quasi-inconsistency between the two aforementioned principles, this request aimed to harmonize the legal principle and ratify the judicial principle in accordance with the decision of the Abu Dhabi Court of Cassation in Request No. 3,

Which implies that the lease contract governed by Law No. 20 of 2006 and the relevant legal provisions stipulate that “the tenant’s use of the property subject to the lease contract itself be intended in and of itself.” This contract differs – in its nature and the formal and substantive legal rules that govern it – from the investment contract concluded between the owner and the investor, in which the investor professionally exploits the real estate in the condition it is in by:

– Re-renting its units to others with the aim of making a financial profit, or

– Constructing buildings on it at his own expense, or

– Modifying or adding facilities to existing buildings and investing in them by re-renting their units.

All of this is aimed at making a profit, which is considered a commercial business according to Article Six of the Commercial Transactions Law.”

Therefore, the Commercial Court has jurisdiction to hear lawsuits related to the investment contract.

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