Common Financing and Refinancing Consultation Mistakes to Avoid in Dubai
A signed security document has not necessarily taken effect against anyone but the grantor.
Margin, tenor and covenants get negotiated properly. The failures sit one layer below them, and this article works through seven. How each asset class is actually perfected in the UAE — real estate with the Dubai Land Department, onshore share pledges by notarisation and annotation, account pledges and receivables by notice, movables in the federal registry — and why the perfection schedule matters more than the document list. How to control the gap in a refinancing when the old security is discharged before the new security exists. Why the authority to give a guarantee or mortgage company assets is often reserved to shareholders. What a security cheque does and does not give a lender. And why choosing DIFC or ADGM law does not change the authority you approach to enforce against onshore assets.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
The mistakes that cost money in Dubai financing work are almost never mistakes about the commercial terms. Margin, tenor and covenants get negotiated properly, because everyone in the room understands them. What goes wrong sits one layer down: security that was signed but never perfected, a refinancing that released the old collateral before the new collateral existed, a guarantee the borrower's manager had no authority to give, and a cost saving that disappears once the tax treatment of the interest is worked out.
What follows are the errors we see most often in financing and refinancing advice in Dubai, and what the correct step looks like in each case.
Related: Our financing and refinancing team acts for borrowers and lenders on onshore and free zone facilities.
Treating signature as the moment security is created
A security document that has been executed has not necessarily taken effect against anyone other than the grantor. Different asset classes in the UAE are perfected in different ways, and each has its own registrar or its own formality.
A mortgage over real estate in Dubai is registered with the Dubai Land Department; until it is entered on the register it does not give the lender the position against third parties that the facility agreement assumes. A pledge over shares in an onshore limited liability company requires notarisation and annotation with the licensing and companies registry — a signed share pledge sitting in a file does nothing. A pledge over a bank account or an assignment of receivables depends on notice reaching the account bank or the underlying debtors. Security over movable business assets is perfected by entry in the federal registry established for pledges over movables.
The single most useful thing a financing consultation produces is not the document list. It is the perfection schedule: for each item of collateral, which registry or counterparty must act, who submits, what the register will show afterwards, and how the lender verifies it. Facilities close without that schedule regularly, and the deficiency only surfaces when someone tries to enforce.
Refinancing without controlling the gap
Refinancing is where perfection failures do the most damage, because there is a moment when the old security is being discharged and the new security is not yet in place. If the sequencing is wrong, the incoming lender is unsecured during that window, and the priority position it paid for is not the position it gets.
The controls are unglamorous and they work: release documents held in escrow against confirmed registration of the new security, an agreed order of steps at the relevant registry rather than parallel filings, and a payoff letter that states the discharge is conditional on receipt of funds. Where an existing security interest is being amended rather than released and retaken, that is usually the better route — but it needs the outgoing lender's cooperation, which has to be secured before the new facility is committed, not after.
Related: A structured legal consultation retainer gives finance teams access to this review before terms are agreed rather than after.
Getting the corporate authority wrong
Under the Commercial Companies Law, Federal Decree-Law No. 32 of 2021, and in the memorandum and articles of most onshore companies, the giving of guarantees and the mortgaging of company assets are commonly reserved to the shareholders rather than left to the manager's general authority. Free zone entities have their own constitutional documents saying something similar, and companies in the DIFC and the ADGM operate under separate common-law company regimes with their own requirements.
The consequence of skipping this is not academic. A guarantee given by someone who lacked authority is the first argument the guarantor's counsel will make, and it is often a good one. Corporate authorisations belong at the beginning of the conditions precedent list, checked against the current constitutional documents, not the version on file from the last transaction.
Relying on cheques as if they were security
Security cheques remain common in UAE lending, and they retain a role as an instrument for recovery. Cheques and their enforcement are governed by the Commercial Transactions Law, Federal Decree-Law No. 50 of 2022. What they are not is a substitute for registered security. A cheque gives a route to a judgment against the drawer. It does not give priority over other creditors, it does not attach to a specific asset, and it is worth what the drawer is worth on the day it is presented.
Where a consultation records "secured by cheques" and nothing else, the facility is effectively unsecured lending with an accelerated collection mechanism. That may be an acceptable commercial decision. It should be a conscious one.
Choosing a governing law that the enforcement route does not follow
Parties frequently select DIFC or ADGM law and courts for a facility while the assets securing it sit onshore. The DIFC and the ADGM are genuine common-law jurisdictions with their own courts, and there are good reasons to choose them. But the mortgage over a Dubai property is still registered with the Dubai Land Department and still enforced through the onshore process that applies to it, whatever law governs the loan.
The question a consultation should answer is not "which law is better" but "on the day of a default, which authority do we approach, what does that authority require, and does anything in our documents make its requirements harder to satisfy". Where the answer involves recognition of a judgment from one UAE forum in another, that path needs to be described in advance rather than assumed.
Related: Speak to the lawyers at Nour Attorneys about reviewing an existing security package before you refinance it.
Pricing the refinancing before the tax position
A refinancing is often justified on the difference between the old margin and the new one. That comparison is incomplete. Corporate tax under Federal Decree-Law No. 47 of 2022 limits the deductibility of net interest expenditure, so the after-tax cost of borrowing is not simply the rate on the term sheet. Group structures where the lender is a related party need particular attention, since the terms have to be defensible as well as agreed.
None of this makes a refinancing wrong. It means the saving should be modelled after tax, with the deductibility position identified before the facility is committed rather than discovered at the first filing.
Not reading the facility you already have
The last mistake is the most avoidable. Existing facilities routinely contain negative pledges, prepayment fees, break costs, mandatory prepayment triggers and cross-default clauses that reach across a group. A new facility signed without those being extracted and checked can put the borrower in default under an agreement it was not thinking about.
Before any refinancing consultation reaches the point of drafting, someone should have produced a one-page summary of every existing financing in the group: lender, amount outstanding, security granted, consents required, and what the new transaction triggers. It takes a day. Doing it after signing takes considerably longer.
Related Services: Explore our Financing and Refinancing Consultation service for practical legal support in this area.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
