Abu Dhabi Off‑Plan 2.0: Escrow, Guarantees and Governance in a Maturing Market

Recent legislative and regulatory measures in Abu Dhabi have reshaped the risk allocation around off‑plan real estate projects. Amendments to the core Real Estate Sector Regulation Law, together with a 2025-26 package of implementing decisions, now tighten the segregation and permitted use of escrow funds, introduce a bank‑guarantee‑backed route to early escrow withdrawals, and codify governance and downside protections for purchasers.¹Abu Dhabi Law No. 3 of 2015 concerning the Regulation of the Real Estate Sector in the Emirate of Abu Dhabi (the “Real Estate Sector Regulation Law”), as amended by Abu Dhabi Law No. 2 of 2025; Department of Municipalities and Transport (DMT) / Abu Dhabi Real Estate Centre (ADREC) administrative decisions issued in 2025 and 2026.

For institutional capital, the practical effect is that purchaser monies are more robustly ring‑fenced, completion thresholds are harder to displace, and the treatment of purchasers and creditors in stress scenarios is more predictable. The legal framework is closer to what international credit and investment committees expect, but it is more prescriptive and requires careful integration into deal structures.

In our earlier client alert on Abu Dhabi’s updated jointly owned property regime, we outlined how the new owners’ committee and management company framework affects governance, service charge recovery and capital structuring across mixed‑use and community developments.²King & Spalding, “Common Ground: Abu Dhabi’s Updated Jointly Owned Property Regime – Structuring Implications for Capital” (7 April 2026). This note complements that analysis by focusing on the off‑plan and escrow side of the reforms and by identifying the questions developers, lenders and institutional investors should now address explicitly at term sheet and documentation stages.

1. The statutory baseline: Law No. 2 of 2025

Abu Dhabi Law No. 3 of 2015 concerning the Regulation of the Real Estate Sector (the “Real Estate Sector Regulation Law”) established the original architecture for project escrow accounts, developer licensing and jointly owned property. Law No. 2 of 2025 amends that law with the stated objective of strengthening oversight and enhancing market standards.

1.1 Escrow segregation and permitted uses

Under the amended regime:

• Each off‑plan project must have a dedicated escrow account opened with an approved escrow account trustee.³ Law No. 3 of 2015 (as amended by Abu Dhabi Law No. 2 of 2025), Art. 18

• Purchaser instalments and, where applicable, project‑finance proceeds must be paid into that account.⁴Law No. 3 of 2015 (as amended by Abu Dhabi Law No. 2 of 2025), Art. 18, Art. 23
• Escrowed funds may no longer be used to pay the land purchase price or broker commissions; permitted uses are confined to construction costs, financing payments and other direct project completion costs identified in statute and regulation.⁵Law No. 3 of 2015 (as amended by Abu Dhabi Law No. 2 of 2025), Art. 19

The intention is that escrow operates as a completion account rather than a general project account.

1.2 Twenty per cent completion as a hard condition

Law No. 2 of 2025 reinforces the rule that withdrawals from a project escrow account cannot be made until at least 20% of the project’s construction works have been completed.⁶Law No. 3 of 2015 (as amended by Law No. 2 of 2025), Art. 19(3). Completion must be verified by engineering consultants approved by the competent authority and escrow trustees are prohibited from effecting withdrawals unless this threshold and other regulatory conditions are satisfied.⁷Executive regulations and DMT/ADREC guidance. This converts what was, in practice, sometimes treated as a flexible milestone into a clear statutory precondition.

1.3 Mortgages, transfers and remedies

The amendment also clarifies the interaction between:

• Mortgages over development land or units and the protections afforded by the escrow regime.
• Transfer or replacement of developers on incomplete projects.
• Cancellation of off‑plan contracts and the treatment of buyer monies.⁸Law No. 3 of 2015 (as amended by Law No. 2 of 2025), Art. 20, Art. 23, Art. 25, Art. 26.

From a capital perspective, these provisions matter because they affect recovery pathways if a project stalls or changes hands.

2. The implementing package: four decisions

To give practical effect to Law No. 2 of 2025, the Department of Municipalities and Transport (“DMT”) and Abu Dhabi Real Estate Centre (“ADREC”) have issued a package of four administrative decisions. In outline:

• Administrative Decision No. 24 of 2025 - Mechanism and controls for disbursement from the project escrow account prior to completion of 20% of the project.
• Administrative Decision No. 25 of 2025 - Regulation of property ownership rights and management of jointly owned properties and common facilities.
• Administrative Decision No. 26 of 2025 - Approval of standard bylaws governing owners’ committees.
• Administrative Decision No. 165 of 2025 - Rules on compensation ratios, refund periods and procedures for purchasers of cancelled units that are resold under the Real Estate Sector Regulation Law.

Our “Common Ground” client alert focuses on Decisions 25 and 26 of 2025 and their implications for jointly owned property and service charges. The balance of this note concentrates on Decision 24 and Decision 165 of 2025 because of their direct impact on off‑plan cash flows, security packages and investor downside protection.

3. Decision 24 of 2025 - pre‑20% escrow disbursement against bank guarantees

Law No. 2 of 2025 embeds a general rule: no withdrawals from a project escrow account before 20% completion. Decision 24 of 2025 recognises that, in some cases, earlier access to escrow may be justified, and creates a narrow exception.

3.1 Legal basis and concept

Decision 24 of 2025 is issued “for the purposes of applying Clause (3) of Article 19” of the Real Estate Sector Regulation Law.⁹Administrative Decision No. 24 of 2025, preamble and Art. 2. It allows ADREC to approve disbursement from a project escrow account before the developer has completed 20% of the construction works if:

• the developer meets specified experience and compliance criteria; and
• the developer provides a bank guarantee in an amount determined by ADREC, which must not be less than 20% of the value of the project’s construction works.¹⁰Administrative Decision No. 24 of 2025, Art. 2, Art. 3.

The guarantee is in favour of DMT/ADREC and is intended to backstop completion.¹¹Administrative Decision No. 24 of 2025, Art. 5 and annexed bank guarantee form.

3.2 Eligibility criteria

To use this route, a developer must, as a starting point:

• Be registered as a developer in Abu Dhabi for at least four years as of the application date.
• Have completed and delivered at least three real estate development projects in Abu Dhabi on or before their scheduled timelines, subject to carve‑outs where delays were genuinely beyond its control.
• Have incurred no violations or administrative penalties under the Real Estate Sector Regulation Law in the preceding 12 months.¹²Administrative Decision No. 24 of 2025, Art. 3(1)(a)–(c).

ADREC may impose additional conditions, and the DMT Chairman has discretion to exempt a developer from any of the criteria.¹³Administrative Decision No. 24 of 2025, Art. 3(1)(d) and 3(2).

The effect is that early access to escrow is reserved for experienced and compliant sponsors, or for projects that the regulator considers strategically important.

3.3 Application and information set

Decision 24 of 2025 requires a structured application to ADREC, accompanied by:¹⁴Administrative Decision No. 24 of 2025, Art. 4.

• Details of the completion status of projects executed by the developer in Abu Dhabi and other Emirates.
• The payment plan in the project’s off‑plan sale contracts.
• A reconciliation demonstrating alignment between amounts deposited in the project escrow account and payments recorded in the Interim Register.
• A technical report from an ADREC‑approved engineering consultancy specifying the estimated total cost of the construction works.
• Any other documents requested by ADREC.

For developers and financiers, these are familiar data points; Decision 24 of 2025 makes them prerequisites for early escrow access.

3.4 Guarantee terms

The bank guarantee is tightly drafted. Decision 24 of 2025 requires that it:¹⁵Administrative Decision No. 24 of 2025, Art. 5(1)(a)–(g).

• Be issued by a locally licensed bank or financial institution approved by ADREC.
• Have a value of not less than 20% of the total cost of the project’s construction works, based on a recent engineering report.
• Be unconditional, irrevocable and free of deductions, fees or taxes payable by DMT/ADREC.
• Be payable, in whole or in part, on first written demand by DMT or ADREC, by immediate payment into the project escrow account or by any other method determined by ADREC, without any need to refer to the developer, the issuing bank or any third party and without any right to refuse, restrict, delay or object to payment.
• Use the wording in the form attached to Decision 24 of 2025.

The annexed form describes the bank guarantee as a performance guarantee against completion of the project and confirms that claims may be made at ADREC’s discretion, with payment into escrow or as otherwise directed.¹⁶Administrative Decision No. 24 of 2025, annexed bank guarantee form. The original bank guarantee is held by the escrow account trustee and may not be returned without written instruction from ADREC.¹⁷Administrative Decision No. 24 of 2025, Art. 5(4)–(5).

In economic terms, the risk of premature or unjustified use of off‑plan monies is partially replaced by credit risk on a regulated bank under a robust on‑demand instrument.

3.5 Top‑ups and release

Two further features are relevant for capital structuring:¹⁸Administrative Decision No. 24 of 2025, Art. 5(2)–(3), Art. 6.

• If the guarantee is issued based on an estimated cost that later proves materially lower than the final cost (as determined by ADREC), the developer must provide additional guarantees so that coverage remains at the required 20% level. Any reduction in the guarantee amount, including by partial drawdown, must also be topped up.
• ADREC may approve the return of the bank guarantee when the project is 100% complete and a completion certificate has been issued. Early return is possible only if
  
  (i) at least 60% of the works have been completed and
  
  (ii) the balance in the main escrow account is sufficient to cover the cost of completing the remaining works to full completion, as confirmed in a technical report.

These rules are designed to ensure that escrow plus any guarantee proceeds are always sufficient to fund completion.

4. Decision 165 of 2025 - refunds and compensation for cancelled units 

Decision 165 of 2025 addresses the treatment of buyers when off‑plan units are cancelled and resold under the Real Estate Sector Regulation Law.¹⁹Administrative Decision No. 165 of 2025. It:

• sets compensation ratios and refund entitlements for purchasers whose units are cancelled and then resold; and
• establishes timelines and procedures for processing refunds and reallocating units.²⁰Administrative Decision No. 165 of 2025, Art 2, Art 3, Art 4.

For purchasers, this offers greater clarity on outcomes if a project or building is re‑profiled or partially cancelled. For financiers and investors, it helps define the cash‑flow waterfall in distress scenarios and limits the extent to which developer documentation can move the statutory minimum.

Taken together with the escrow and guarantee regime, Decision 165 of 2025 completes the picture of how purchaser monies are treated both in the ordinary course and in stress.

5. Practical questions for market participants

The new framework does not remove project risk, but it makes the allocation of that risk more transparent and less dependent on individual contract drafting. For market participants, a short set of questions can help test how well a particular transaction is aligned with the regime.

For developers:

• How is the capital stack structured, given that escrowed funds cannot be used for land or commissions and cannot be accessed before 20% completion absent a qualifying bank guarantee?
• If early escrow access is contemplated, does the developer meet the Decision 24 of 2025 criteria and what is the economic and covenant impact of the required bank guarantee?
• Are escrow provisions, guarantee undertakings and references to Decisions 24 and 165 of 2025 integrated coherently into the development, financing and sale documentation?

For lenders:

• How is compliance with the 20% completion rule monitored and reported, and what are the consequences under the financing if withdrawals occur prematurely?
• If a bank guarantee is in place, how do calls on that guarantee interact with loan repayments, reserve triggers and enforcement mechanics?
• How are the regulator’s powers over escrow, guarantees and cancelled units taken into account in security and enforcement analysis?

For institutional investors:

• How do the escrow, guarantee and buyer‑remedy protections support the investment thesis and underwriting assumptions?
• How do the owners’ committee and management arrangements discussed in our previous jointly owned property client alert operate alongside these off‑plan protections for the specific asset or portfolio?
• Is there a consistent internal approach to Abu Dhabi exposures so that assets can be assessed on a like‑for‑like basis under the new regime?

6. Working within the new regime

Abu Dhabi’s updated legal framework for off‑plan projects is more prescriptive than its predecessor, but it is also more closely aligned with the expectations of institutional capital. Escrow funds are more tightly ring‑fenced, early withdrawals are subject to defined eligibility criteria and strong guarantees, governance is standardised and purchaser remedies are codified.

In practice, the regime works best when it is treated as a design parameter at the outset of a project or investment, rather than as an after‑the‑fact constraint. That means building the 20% rule, the guarantee mechanics and the purchaser‑remedy framework into the capital structure, documentation and risk analysis from the start, and ensuring that joint ownership governance and off‑plan protections are considered together rather than in isolation.

King & Spalding is assisting sponsors, lenders and institutional investors to implement these structures on off-plan projects, including large‑scale community and mixed‑use developments and cross‑border financing platforms. As the market adjusts to the new rules, we expect to see a clearer distinction between projects that simply comply at a minimum level and projects that use the framework to calibrate risk and support deeper deployment of capital.

Additional Contributors: Sherif Saleh