Afridi & Angell Analysis: Force Majeure In UAE Real Estate Amid Regional Instability

Afridi & Angell Analysis: Force Majeure in UAE Real Estate Amid Regional Instability

The prominent UAE law firm, Afridi & Angell, provides timely insights on the evolving legal landscape amid regional tensions. In its latest analysis, the firm examines how ongoing geopolitical instability across the Middle East is affecting force majeure in UAE real estate contracts, including implications for developers, landlords, tenants, and investors.

Introduction

Geopolitical tensions in the Middle East are heightening focus on force majeure in UAE real estate. Supply chain disruptions, regulatory restrictions, and financing constraints continue to influence development, leasing, and investment transactions. Force majeure may be invoked under UAE law even without express contractual provisions, arising from the UAE Civil Code, though statutory reliance is stricter than contractual clauses. This note outlines the legal framework and practical application in the current environment.

Legal Framework (UAE Law)

Under the UAE Civil Code:

• If performance becomes impossible, the obligation is extinguished;
• If impossibility is partial or temporary, performance may be suspended.

To qualify, the event must be:

• External to the parties;
• Unforeseeable at the time of contracting; and
• Render performance objectively impossible (not merely delayed or more expensive).

In the context of regional instability, the distinction between impossibility and hardship is critical. Disruption, delay, or cost escalation will rarely meet the statutory threshold absent a direct prevention of performance.

From a seller/landlord perspective, this high threshold offers protection against broad or opportunistic claims. From a buyer/tenant perspective, reliance on statute alone requires clear evidence of genuine impossibility.

Contractual Force Majeure

In practice, most UAE real estate contracts include bespoke force majeure provisions. These clauses typically take precedence, defining both the scope of qualifying events and the consequences of invocation.

Commonly included events in the current climate include:

• War, hostilities, or regional conflict;
• Government restrictions or regulatory action;
• Disruption to labour, logistics, or materials;
• Sanctions or financial restrictions.

The effectiveness of such clauses depends on drafting. Key variables include:

• Whether indirect effects (e.g., regional instability) are captured;
• The requirement for direct causation;
• The remedies available (suspension vs termination).

In practice, the contractual regime governs first, with statutory force majeure operating as a fallback where contracts are silent or unclear.

From a seller/landlord perspective, clauses are often drafted narrowly to preserve performance and limit termination exposure. Conversely, a buyer/tenant will seek broader wording to capture indirect disruption and secure flexibility.

Application in Real Estate Transactions

• (a) Development and Construction

Regional disruption may impact materials, labour, and approvals. Extensions of time are typically justified, while cost increases alone will not qualify.

• (b) Leases

Tenants may seek rent relief due to operational disruption or reduced demand. However:

• Economic hardship is not force majeure;
• Relief depends on express lease provisions.

Absent clear drafting, rent obligations generally continue.

• (c) Sale and Purchase Agreements (SPAs)

Force majeure may arise where transfers or payments are delayed due to administrative or banking disruption. Typical outcomes include deferral of completion, with termination linked to longstop dates.

Rights and Remedies

Where established, force majeure may result in:

• Suspension of obligations;
• Extension of time;
• Termination (in cases of permanent impossibility);
• Limited restitution.

Relief is conditional on strict compliance with:

• Notice provisions;
• Mitigation obligations;
• Evidence of causation.

From a seller/landlord perspective, remedies are structured to preserve contractual continuity. A buyer/tenant will focus on flexibility, including suspension or exit where justified.

Distinction from Exceptional Circumstances (Hardship)

Where performance is not impossible, but becomes excessively onerous, and Force Majeure is not available, parties may look to the doctrine of exceptional circumstances under the UAE Civil Code. Courts may rebalance obligations, though this remains discretionary and is applied conservatively.

Practical Considerations

• Causation is key: direct linkage between event and non-performance is essential.
• Foreseeability is shifting: ongoing tensions may weaken claims in new contracts.
• Drafting matters: tailored force majeure provisions are increasingly standard.
• Procedure is critical: failure to comply with notice or mitigation requirements may defeat a claim.

In practice, a seller/landlord will adopt a narrow, compliance-driven approach, while a buyer/tenant must build a robust evidentiary position to support relief.

The Afridi & Angell team, led by Shahram Safai (Partner) and Doneen Ennis (Associate), examined the impact of ongoing geopolitical tensions across the Middle East on force majeure in the UAE real estate sector.

Conclusion

Force majeure remains a high-threshold doctrine under UAE law. While regional instability creates real disruption, relief depends on demonstrating objective impossibility, not commercial inconvenience. Contractual provisions are central, but statutory force majeure remains available even where contracts are silent, subject to stricter requirements.

Where force majeure cannot be established, the doctrine of exceptional circumstances (hardship) offers a potential alternative, allowing courts to adjust obligations in cases of excessive burden. In the current environment, careful drafting, proactive contract management, and clear risk allocation remain essential.

In the current environment, real estate stakeholders are advised to review and update force majeure clauses, maintain thorough documentation of any disruptions, and proactively manage contractual timelines. Developers, landlords, and tenants should collaborate closely to anticipate risks, mitigate potential losses, and ensure compliance with notice and mitigation requirements to preserve their rights under both contractual and statutory frameworks.

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