Court of Cassation Upholds Award of AED 578,000 in Hotel Participation Agreement Dispute (Appeals 3 & 14/2025)

Case summary

This joined cassation appeal relates to the dispute between the owner of the hotel apartment unit and the company operating the hotel in question under a long-term rental participation (revenue sharing) agreement.

The owner brought an action against the operator (as a principal defendant and also, alternatively, against the hotel operator and the building management company). The claims included:

• The termination of the participation agreement,
• The return of the unit,
• The payment of non-received revenues, 
• Compensation for the delay in the opening of the hotel and 
• Some utility/service fees, together with interest.

The operator contested the amount of the award as well as the basis for liability. Both cassation appeals were dismissed by the Court of Cassation, which upheld the Court of Appeal’s judgment.

Meaning of a Hotel Participation Agreement

A hotel participation agreement is a kind of agreement by which the hotel operator is entitled to use a certain unit owned by another person for the purpose of operating it as a hotel room, and in return:

• The operator takes care of running the unit like a hotel room.
• The owner is paid back a certain proportion of the hotel income.
• The hotel operations are run by the operator.
• The owner is not residing in the unit during the period of participation.

Such agreements are used in hotel-apartment buildings where different units are owned by different individuals, but the whole building is run as a hotel.

Background to the case

• The unit owner concluded a sale/purchase agreement and a separate participation agreement with the operator. According to the participation agreement, the operator (or its selected international hotel management company) would operate the unit within the framework of a hotel and pay revenue shares in accordance with the rules outlined in the agreement.
• The participation agreement should last till the end of 2022 (or until its premature termination in accordance with the terms of the agreement).
• The hotel was opened several years later than provided for in the agreement.
• The operator purportedly terminated the participation agreement unilaterally and continued to operate the unit.
• The owner claims:

• The termination/expiry of the participation agreement and the return of the unit,
• The recalculation and payment of revenue shares (including the guaranteed return period and after it),
• The compensation for the delay in opening the hotel.
• A claim for certain utility and cooling fees.
• Interest.

Two further parties (Hotel Management Co and Common Areas Management Co) were added as defendants. However, the claims against both were successfully dismissed on grounds of lack of standing.

Procedural History

The Court of First Instance terminated the participation agreement, ordered the return of the unit to the owner, ordered payment of revenues and interest, and rejected the claims against the other two companies. Compensation for late opening was not granted.

Both parties appealed. The Court of Appeal consolidated the appeals and partially upheld the appeal of the owner. The latter was granted compensation for the delay, and the interest rate calculation was redone. The Court applied the contractual revenue-sharing provisions until the agreement’s termination date; thereafter, it considered the operator’s occupation illegal and awarded market rent. Nothing else of the first-instance judgment was changed.

Both parties made cassation appeals. The Court of Cassation consolidated the appeals, recognized their timeliness and correctness, and dealt with their merits.

Key Issues and the Court’s Decisions

1. Standing of the additional companies

Operator and Management Company were not the parties to the 2006 participation agreement. They acted based on some other agreement or statutory regulation concluded with the Operator or Owners Association. The Court of Cassation ruled that their claims were properly dismissed as lacking legal capacity under the agreement.

2. Return of the Unit

Following the termination of the participation agreement, the Unit had to be returned to the owner. The Court decided that the owner shall receive the Unit on the terms provided by the existing declaration of the Residential Complex and by the rules adopted by the competent authorities/Owners Association. It is not a restriction of ownership rights.

3. Monetary Claims

The court of appeal’s recalculation on the basis of the court-appointed experts’ report was confirmed. It comprised:

• The owner’s contractual share of the revenues up to 31 December 2022.
• The rent of equivalent (market rent) following the end of the agreement, as the continuation of possession constitutes unlawful occupation.
• The fixed compensation of AED 288,000 for the delay in opening the hotel.
• The deduction of the sums paid to the Owner.

The total amount awarded was AED 578,431.14, including 5% interest.

The challenges to:

• The valuation of daily rent,
• The distribution of the previous payments among two units, and
• The utility charges

were dismissed as purely factual issues which were sufficiently proved.

4. Compensation for Delayed Opening

The compensation claim was founded upon principles of general civil law liability and the participation agreement, and not upon the sales agreement alone. The experts established that there was a delay of 70 months without force majeure having been proved. Hence, the Court of Appeal’s decision awarding AED 288,000 was upheld.

These arguments were dismissed:

• limitation,
• exclusion of damages under the contract, and
• outside regulation delays.

5. Interest

Interest was correctly awarded at 5% on:

• The liquidated portion of the debt from 16 August 2023.
• The other portion from the date of the judgment of the Court of Appeal.

This is consistent with UAE practice of differentiating between liquidated debts and unliquidated sums.

6. Costs

As both parties were successful to some extent, the courts had the discretion to divide the costs. The Court of Cassation found no justification to interfere with the discretionary decision.

Key Legal Principles Applied

The case sheds light on several common issues that occur in the context of hotel-apartment projects:

• The term of a fixed-term participation agreement comes to an end upon its expiration. Occupation after the agreed period results in liability for market rent and return of the unit.
• The company performing management services in accordance with a separate agreement generally is not involved in the dispute based on the owner-operator agreement.
• Relevant expert conclusions regarding calculations of revenue and market rent are highly considered. The differences confined to the numerical calculations do not make a basis for cassation.
• The compensation for the delay in opening still may be claimed under the civil liability law when fault and damage are proven.
• The interest payment start depends on whether the amount is fixed or has to be determined by the court.

Conclusion

The Court of Cassation demonstrated a consistent contractual approach. Once the period of time outlined in a participation agreement expires, the operator has no more rights. The owner can claim return of the unit and obtain market rent for the remaining period of occupancy. The revenue should be calculated in accordance with the terms of the agreement until it expires and at market rate afterwards. The interested parties are the contracting parties alone. The compensation for delayed opening is still possible to claim in compliance with the civil liability law if there is relevant expert evidence.

The ruling increases predictability for the owners and operators of branded hotel apartments in Dubai. Moreover, it means that the Court of Cassation will not review factual determinations and conclusions of the experts if the lower courts apply a reasonable method based on the documents.

Disclaimer: This case analysis was prepared solely based on the original judgment issued by the Dubai Court of Cassation in the public session held on 06 May 2025 in the joined Cassation Appeals Nos. 3 and 14 of 2025 (Real Estate).