In many major investment projects in Oman, such as hotels, tourism complexes, factories and service projects, the investor does not buy the land but obtains it under a usufruct agreement or long-term lease from the Government, builds on it and then contracts with lenders, contractors and operators. These contracts are the foundation of the whole investment; if they are poorly drafted, the investor may face early termination, disputes over deadlines or an inability to raise finance. This article explains what to secure in investment and usufruct contracts before signing.
What is a usufruct right?
A usufruct is a real right entitling its holder to use and exploit land for the agreed project under a written agreement, without ownership of the land passing to them. The Foreign Capital Investment Law 50/2019 allows land and real estate to be allocated to investment projects by long-term lease or by granting a usufruct right. Usufruct rights are recorded in the real estate register at the Ministry of Housing and Urban Planning.
Key features of usufruct over government land are that the term can reach 50 years, renewable, and that the right can be mortgaged to a lender, making it a sound basis for project finance.
Investment contracts that need care
- The usufruct or long-term lease agreement with the government landowner.
- The investment agreement setting the investor's obligations, incentives and phases.
- Shareholder or joint venture agreements between the investors.
- Finance and security documents with banks.
- Design, construction, operation and management contracts with contractors and operators.
- For major public projects, public-private partnership contracts.
What to secure in a usufruct agreement before signing
- Term and renewal: automatic or by consent, and on what terms; the term must allow you to recover the investment and earn a return.
- Permitted use: a clear project description that allows flexibility without every change counting as a breach.
- Timetable and phases: start and completion dates, and what happens if delays arise for reasons outside your control, such as late permits or utilities.
- Consideration and review: the usufruct fee or rent, payment dates and any escalation mechanism.
- Mortgage and finance: the right to mortgage the usufruct to a bank, and protection for the lender if the agreement ends.
- Assignment: whether the usufruct or the project can be assigned or sold, and with whose consent.
- Termination events: the grounds on which the grantor may terminate, and the notice and cure period before termination.
- Buildings and compensation: who owns the buildings at expiry or early termination, and whether the investor is compensated for their value.
- Dispute resolution: negotiation, then arbitration or the competent court, and the governing law.
Common investor mistakes
- Signing the standard form without negotiation, although some clauses are negotiable.
- Committing to a timetable that ignores permit and approval lead times.
- Overlooking the right to mortgage the usufruct, then finding the bank will not lend without it.
- Misalignment between the usufruct, construction and finance contracts, leaving the investor bound to deadlines its contractor is not bound to.
- Failing to document correspondence and approvals on changes and delays.
If a dispute arises
Disputes arising from investment contracts fall within the jurisdiction of the Court of Investment and Commerce unless the parties agreed to arbitration. See investment contract disputes.
Frequently asked questions
How long is a usufruct right in Oman?
Usufruct over government land can last up to 50 years, renewable; the actual term is set in the agreement depending on the project.
Can a usufruct right be mortgaged for finance?
Yes. It can be mortgaged, which makes it a basis for project finance, and the agreement should state this right clearly.
Does the investor own the land?
No. The investor holds the right to use and exploit the land for the project during the term, not ownership of the land itself.
What happens to the buildings when the usufruct ends?
The agreement decides, which is why the fate of the buildings and any compensation must be negotiated in advance.
General information based on legislation as at the date of publication; usufruct terms vary with the granting authority and the type of project.
To review a usufruct or investment agreement before signing, see our contract drafting and foreign investor services, or contact Dr. Abdullah Al Rashdi Office on WhatsApp or +968 92000841.