Condo Hotels in the UAE
Real Estate & Construction and Hotels & Leisure Focus
Condo Hotels differ from branded residences projects in that fully furnished hotel rooms or suites in a hotel project are purchased purely as an investment.
Law Update: Issue 378 - Real Estate & Construction and Hotels & Leisure
Ian Arnott Head of Hospitality Development,Real Estate
Tessa CrawfordAssociate,Real Estate
In the last couple of years, we have advised on a number of so-called “condo hotel” projects (“Condo Hotels”) and, along with branded residences, there has been a notable recent increase in these type of projects – particularly in the UAE.
Condo Hotels differ from branded residences projects in that fully furnished hotel rooms or suites in a hotel project are purchased purely as an investment. They are sold with a mandatory rental program, whereby full control over the hotel units and the common areas is given back to the developer. Although there may be some usage rights for a short period each year attached to the purchased unit, purchasers are not permitted to permanently reside in it and the hotel is operated in the same way as any other hotel with paying guests – often by an international operator pursuant to a hotel management agreement.
For owners/developers, the model provides alternative, upfront development funding for a hotel project. It also allows developers to capitalise on the high demand in the UAE for assets that reflect the evolving intersection between real estate and high-end hospitality and which is driven by the country’s strong tourism growth and focus on luxury.
For investors, such projects allow them to passively earn a share of the room revenue generated by a hotel in an often prime location, without assuming any of the day-to-day operational burdens of operating or maintaining the unit. A revenue sharing formula – often 50/50 or 60/40 in favour of the investor after deduction of the operating expenses, brand fees, fixtures, fittings and equipment and/or capital reserve contributions is fairly typical. Purchasers of such hotel units will also be hopeful that the property’s value will appreciate over the long-term, allowing investors to benefit from the region’s buoyant hospitality sector.
Condo Hotels differ from branded residences projects in that fully furnished hotel rooms or suites in a hotel project are purchased purely as an investment. They are sold with a mandatory rental program, whereby full control over the hotel units and the common areas is given back to the developer.
Condo Hotels also carry some inherent risks for the various stakeholders in the project.
By handing back complete control of the hotel unit immediately following its purchase to the developer, an investor may have little or no redress should the hotel perform badly. Contractually, the investor will also be given no guarantee that the hotel will continue to be operated under the same brand or by the same hotel operator as when the hotel unit is originally purchased.
If a hotel performs badly, investors may seek to take back control or possession of their unit or collectively re-purpose the project. This is a serious concern for both developers and hotel operators as the continued participation of the hotel unit, as part of the inventory of a fully operational hotel that is holistically under the full control of the owner/developer, is essential to the ongoing hotel business. For this reason, hotel operators may seek termination rights under the hotel management agreement if the developer loses control of a certain percentage of the total hotel rooms in the project. The owner/developer and the hotel operator will also usually seek to ensure that there is very clear, protective language in both the sales documents and the jointly owned property governing documents whereby the investor acknowledges such matters as the unique nature and type of the investment and the necessity of it forming part of the hotel inventory, the fact that the brand or the hotel operator may change and generally waiving any rights to take control or possession of the unit.
Other risks and challenges to developers/owners include:
structuring the lease-back and/or hotel unit management agreement between the investor and the developer to ensure that this is as legally robust as possible in the relevant legal jurisdiction and to mitigate the risk of it being challenged during the term of the long term hotel management agreement entered into between the owner/developer and the hotel operator;
ensuring that the Condo Hotel is properly structured and the sales process conducted in compliance with the applicable laws in the relevant jurisdiction relating to jointly owned property and off-plan sales; and
if the hotel units are being directly sold or marketed in jurisdictions outside the UAE, consideration should be given as to whether such sales or marketing is captured by applicable securities laws in such jurisdictions – this is of particular relevance where, as with Condo Hotels, real estate is sold with a mandatory rental pool and, even more so, if the investment is being sold with a guaranteed return on investment.
New types of assets, such as Condo Hotels, that blend real estate and hospitality are inexorably on the rise throughout the region and offer owner/developers, investors and hotel operators new revenue streams and investment opportunities. However, Condo Hotels, in particular, present some unique risks and challenges which need to be carefully navigated from a legal and jurisdiction-specific perspective.
For further information,please contact Ian Arnott.
Published in June 2025
