Amendment to Ministry of Defence De

On 5 May 2018, the Minister of Defence issued decision No. 66 of 2018[1] amending some of the provisions of decision No. 203 of 2012 that determines the rules and regulation for the ownership or use of real estate in the area of the Sinai Peninsula. The new decision allows the presence of non-Egyptian individuals and companies for the purpose of implementing development projects in a very specific spot which is the coastal strip of land within Zone (C) in South Sinai that is adjacent to Egypt’s eastern border.

Background

From a legal standpoint, investment in the Sinai Peninsula - especially with respect to the rules governing ownership of land and real estate - is a complex topic. Successive governments have tried to achieve a balance between providing a suitable investment environment and taking into account the strategic importance of the peninsula. As a result, a number of legislation (analysed in various issues of the Egypt Legal Update) were issued in the past few years, including:

• Decree-Law No. 14 of 2012 issued by the Supreme Council of Armed Forces (the “Law” or “Law 14/2012”), which set up a new legal framework for investment in Sinai, with respect to the ownership and right to use (usufruct) of property for Egyptians and foreigners, and established a new administrative body, the National Agency for the Development of the Sinai Peninsula (“Sinai Development Agency” or the “Agency”); (See the ELU February 2012 Issue)

• Prime Minister Decree No. 915 of 2012 enacting the Sinai Development Agency Statutes; organizing the operation of the Sinai Development Agency. The Decree mandates that the Agency obtains the approval of the Ministries of Defence and Interior as well as General Intelligence prior to issuing its decisions; (See the ELU August/September 2012 Issue)

• Prime Minister Decree No. 959 of 2012 enacting the executive regulations of the Law and expounding on several issues, including determining the geographical scope of the Law to include North and South Sinai and some areas in Suez, Ismailia and Port Said; (See the ELU October 2012 Issue)

• Prime Minister Decree No. 6 of 2014 on the rules governing adverse possession in Northern Sinai; (See the ELU November 2014 Issue)

• Law No. 95 of 2015 amending some of the provisions of Law 14 of 2012 on the Development of the Sinai Peninsula.

• Prime Minister Decree No. 48 of 2017 on the rules governing adverse possession in Sinai in general. (See the ELU February 2017 Week 1 Issue)

• Prime Minister Decree No. 215 of 2017 amending certain provisions of the executive regulations of Law 14/2012 to reflect the amendments introduced to the same law in 2015, which made the citizenship requirements for land ownership more restrictive, where it stipulated that the owner should not have any citizenship other than the Egyptian one. It also prescribed the process for when land is transferred to individuals who do not fulfil the citizenship requirements and it extended the maximum term for usufruct rights from 50 to 75 years. (The Amendments to the Executive Regulations were analysed in detail in ELU March 2017 Week 1 Issue)

Legal Framework

Law 14/2012 defines the Peninsula as “all of the governorates of North and South Sinai, in addition to the areas located within the administrative boundaries of the governorates of Suez, Ismailia, and Port Said”. Furthermore, the Law defines “area” to mean “the Sinai Peninsula, including the islands within its territorial waters … the special economic zone, and [border] adjacent areas to be determined in a decision by the Minister of Defence”.

• Restriction of Ownership

Article (2) of Law 14/2012 regulates the issue of ownership – rather the restriction of ownership – of land and real estate in Sinai. It stipulates that for an individual to own land or built real estate in Sinai they must be Egyptian, of Egyptian parents. For a legal person (including corporations) to own land and built real estate in Sinai, the entity must be wholly owned by Egyptians. The Law also specifies procedures that must be followed within 6 months if any real estate ends up with non-Egyptians, by inheritance or otherwise. In that case, the owner must either relinquish their property (while retaining the right to use and ownership of constructions), or dispose of the property to an Egyptian. This same procedure must be followed if the Egyptian owner attains another nationality, their Egyptian nationality is lost for whatever reason, the property ends up with an Egyptian who has dual nationality, or if one of the parents is not Egyptian. Failure to relinquish or dispose of the property to an Egyptian both the parents of whom are Egyptian, or a legal person that is wholly owned by Egyptians within the specified 6-month period risks confiscation by the state for a price. As a limited exception from the above rule, the Board of Directors of the Sinai Development Agency may – upon obtaining approval from the Ministry of Defence, the Ministry of Interior, and General Intelligence, allow dual nationals and non-Egyptians to own built constructions (but not land). This exceptional approval may also be granted to allow the right of use by non-Egyptians of units for the purpose of residency on the condition that such be limited to 50 years. The President may decree for citizens of Arab countries to enjoy the treatment of Egyptian nationals only with respect to the right of use of units for the purpose of residency.

• Right of Use

Conditions relating to usufruct rights in Sinai are of special importance, given that this is the main form of property right enjoyed by non-Egyptians. In this respect Law 14/2012 restricts the right of use of real estate as follows:

1. The usufruct must be for less than 30 years, renewable up to 50 years.
2. It may not be transferable into a right of ownership.
3. It may not also be transferable to other parties without obtaining the original approvals.
4. It must be used for the purposes stated upon application.

Notably, the amendment issued by Law 95 of 2015 allowed the usufruct period to be up to 50 years that can be extended to a maximum of 75 years in total.

• Investment Projects

Any investment projects in Sinai have to be in the name of an Egyptian join stock company, with Egyptian ownership of no less than 55%. Companies investing in Sinai may not be listed or traded on the Stock Exchange except after the permission of the Ministries of Defence and Interior, the General Intelligence, the General Authority for Investment and Free Zones and the Egyptian Financial Supervisory Authority. Moreover, no transaction may be executed on the stocks of such companies above 10% of its capital except with the prior approval of the Agency. The Executive Regulations of Law 14/2012 also specify a list of sectors where investments in Sinai are allowed, which include: tourism, agriculture, industry, minerals, trade, development (including electricity, energy, sanitation, roads and bridges, transportation, communications, water networks, and commercial markets). It is worth noting that the President has the authority to exempt some projects from the requirement of having a 55% Egyptian ownership.

• Border Areas

What the Law calls “adjacent areas” are areas within the 5 Km strip of land adjacent to Egypt’s eastern border (with the exception of the city of Rafah) that are determined by way of a Minister of Defence decision. All forms of property disposal – ownership, right of use, lease etc. – in border areas, strategic areas of military importance, Red Sea islands, natural reserves/protectorates, and antiquated areas is prohibited under Law 14/2012. Moreover, Article (2) of the Law provided that the Minister of Defence is to issue a decision determining the rules and regulations for the exploitation of adjacent areas.

• Minister of Defence Decision No. 203 of 2012

Following the issuance of the Law, the Minister of Defence issued the rules for ownership and right of use in the Sinai Peninsula by virtue of Decision No. 203 of 2012 (“Decision 203/2012”). Decision 203/2012 prohibited the ownership or use of property, including lease or any other forms of disposal in strategic military areas, border areas, Red Sea islands, natural protectorates, and areas containing antiquities. However, it granted Egyptian individuals (born to two Egyptian parents), and wholly owned Egyptian companies certain rights in relation to the implementation of development projects in the Peninsula, according to the following table: As for foreigners, Decision 203/2012 prohibited their ownership of land or built real estate, while granting them exceptionally the right to own constructed buildings without owning the land on which they are established; and usufruct right for built units for the purpose of residency up to a period of 50 years in accordance to Law 14/2012. Decision 203/2012 necessitates that the approval of the Ministries of Defence and Interior, as well as that of the General Intelligence is in all events obtained for any of the above rights.

Current Decision No. 66 of 2018

The recently issued decision amends Decision 203/2012 regulating ownership and right of use in strategic and border areas as described above. Presence, ownership, and right of use for development projects in Zone (C) as outlined in the above table was amended according to the following:

Conclusion

The most recent decision pertains to a specific amendment in relation to development projects in the Sinai Peninsula, which must be owned by Egyptian individuals, or companies that are wholly owned by Egyptians. The amendment distinguishes between the coastal strip of the border area on the Red Sea, specifically in the South Sinai Governorate, and the area of land that is adjacent to the eastern border in the North Sinai Governorate by allowing the presence of foreigners in that defined spot of coastal land, while keeping in place all other restrictions on ownership and usufruct rights for property in Sinai.   [1] Minister of Defence Decision No. 66/2018 amending certain provisions of Decision No. 203/2012 on the rules and regulation for the ownership or use of real estate in the area of the Sinai Peninsula, Egyptian Gazette, Issue No. 102, 5 May 2018.