Navigating emerging disputes in the UAE’s real estate and hospitality sectors

The UAE's real estate and hospitality sectors remain attractive destinations for domestic and international investment.

However, growing economic and geopolitical uncertainty is beginning to test project economics, financing structures and long-term commercial relationships. While the market continues to demonstrate resilience, previous market cycles suggest that disputes often emerge gradually as financial and operational pressures accumulate rather than as an immediate response to market disruption. This article identifies several areas where stakeholders should expect increased dispute activity and examines why arbitration is likely to remain the preferred forum for resolving many of these claims.

Liquidity challenges and payment claims

Historically, periods of market uncertainty have frequently resulted in liquidity-driven disputes, and similar trends are beginning to emerge across the UAE market. Delays in financing, reduced revenue streams, changing lending conditions and pressure on cash flow can disrupt payment obligations throughout a project structure.

In real estate and hospitality developments, these issues rarely remain confined to a single contractual relationship. Delayed payments by developers can affect contractors, subcontractors and suppliers, while reduced occupancy rates or rental income can create pressure on profit-share arrangements, management fees and tenant obligations. Over time, disagreements over payment can expand into broader disputes involving contractual entitlement, valuation of works, certification issues, performance securities and allegations of bad-faith conduct. Where multiple project agreements are involved, disputes can become increasingly complex, with parallel proceedings and competing claims across interconnected contracts.

Project restructuring, suspension and termination

As market conditions evolve, some parties may seek to revisit existing commitments that no longer align with their business objectives. Developers may consider suspending projects, tenants may seek to exercise break rights, and owners may review the performance of operators under hotel management agreements.

Disputes arising from these decisions often focus on whether contractual termination mechanisms have been exercised correctly. Notice requirements, cure periods and procedural formalities frequently become central battlegrounds. Even relatively minor procedural errors can have significant consequences for liability and damages.

Under UAE law, termination disputes are also influenced by wider legal principles, including good faith and the binding nature of contractual obligations under the UAE Civil Code. Tribunals seated in the UAE are therefore likely to consider not only the express contractual provisions but also whether the parties' conduct is consistent with those broader legal obligations. This additional layer of scrutiny can be particularly significant where termination appears to be driven by commercial expediency rather than a clear contractual right.

Hospitality sector performance disputes

The hospitality sector faces a distinct set of risks due to its sensitivity to tourism, consumer confidence and regional stability. Hotel management agreements are likely to remain a focal point for disputes, particularly where market conditions affect the assumptions upon which performance obligations and revenue expectations were originally based.

Owners and operators may find themselves in dispute over performance benchmarks, management fees, operational control, capital expenditure obligations and termination rights. Where agreements include performance tests or revenue-linked remuneration structures, sustained market pressure can create disagreements over whether contractual targets have been achieved and whether relief or adjustment mechanisms apply.

These disputes are highly fact-sensitive and often require detailed consideration of operational performance, industry standards and market conditions. The involvement of international hotel operators and global brands frequently adds a cross-border dimension that further strengthens the case for arbitration as the preferred dispute resolution mechanism.

Mixed-use developments create interconnected risks

Many major UAE developments combine residential, retail and hospitality assets within a single project. While this integrated model can generate significant commercial benefits, it also creates the possibility of interconnected disputes when one component experiences delays or underperformance.

For example, delays affecting hospitality, leisure or retail elements may reduce the value or attractiveness of residential units, resulting in claims by purchasers, investors, operators or asset managers. In these circumstances, disputes often involve multiple parties, linked contracts and different legal relationships, creating significant procedural challenges.

Modern arbitration frameworks are increasingly equipped to deal with these issues through mechanisms such as joinder, consolidation and coordinated proceedings. These tools help reduce fragmentation and minimise the risk of inconsistent outcomes across related disputes.

Pressure points in landlord and tenant relationships

Commercial leasing arrangements are also likely to come under increasing scrutiny as market conditions continue to evolve. Disputes may arise in relation to turnover rent calculations, service charge allocation, rent suspension, fit-out obligations and break rights.

The risks may be particularly acute in hospitality-led developments where retailers, food and beverage operators and serviced residence operators are heavily dependent on hotel occupancy and overall visitor numbers. While local court proceedings continue to play an important role in resolving many leasing disputes, arbitration may be used where leases form part of broader investment structures, involve cross-border parties or require detailed forensic accounting analysis.

Financing and investor protection disputes

Project financing arrangements represent another significant area of potential dispute activity. As economic conditions shift, parties may revisit funding arrangements and restructuring options, giving rise to disagreements regarding funding obligations, security enforcement, guarantees and financing covenants.

Given the international nature of many UAE investments, arbitration continues to offer an attractive dispute resolution framework. The ability to secure enforceable awards across jurisdictions remains a key consideration for lenders, investors and project sponsors operating in complex cross-border structures.

Renewed focus on risk allocation and contractual relief

Recent market developments have also renewed attention on force majeure provisions and other contractual mechanisms addressing unforeseen events or material adverse changes.

The success in relying on these provisions will depend heavily on the precise contractual wording and the specific facts of the case. Tribunals in the UAE and the wider region have generally favoured a text-based approach, requiring parties to demonstrate that the relevant contractual threshold has been met. Careful contract administration and comprehensive records are therefore likely to remain critical in supporting or defending future claims.

A more sophisticated arbitration environment

One of the most notable differences between the current environment and previous periods of market stress is the maturity of the UAE's arbitration framework.

The introduction of the DIAC Rules 2022 and the arbitrateAD Rules 2024 has strengthened the procedural toolkit available to parties through enhanced provisions relating to joinder, consolidation, expedited proceedings and costs. Combined with greater judicial support and increasing sophistication among market participants, these developments provide a stronger platform for resolving complex, high-value disputes efficiently and effectively.

Practical implications for clients

The emerging dispute landscape highlights the importance of proactive risk management. Stakeholders should review contractual risk allocation, termination provisions, performance obligations and dispute resolution clauses before disputes arise. Particular attention should be paid to notice requirements, contractual relief mechanisms, record-keeping processes and the alignment of dispute resolution provisions across related project documents.

For developers, investors, lenders, owners, operators and occupiers, the key takeaway is that commercial pressure is unlikely to translate into immediate disputes, but rather into a gradual build-up of claims as projects and relationships come under strain. Those who anticipate these risks early and adopt a strategic approach to contract management and dispute planning will be better positioned to protect their interests and preserve value in an increasingly complex market.

Clyde & Co advises clients on dispute resolution strategy across complex real estate and hospitality disputes, including arbitration, litigation, interim relief and enforcement.

For further information please reach out to Jennifer Eakins and Maria Andraos