By Dr. Abdultaiyab Bahrainwala, Partner, Head of Corporate, and Jouslin Khairallah, Founder & Managing Director, Head of Litigation.
Dubai Court of Cassation confirms the continuing effect of financial leasing, final judicial classification and the correct limitation regime
Case note • Judgment dated 10 August 2026 • Real Estate Appeal No. 1124 of 2026
Key holding Once a final judgment has classified a lease-to-own arrangement as financial leasing, the parties cannot reopen that classification in later connected proceedings. Instalments paid for the period during which the lessee was enabled to possess and use the property are rent for that period and are not automatically recoverable when the agreement is later terminated.
Why this judgment matters
Lease-to-own property finance often looks economically similar to a purchase paid by instalments. That similarity can invite a borrower or lessee, after termination, to argue that every payment was part of the purchase price and must therefore be restored. The Dubai Court of Cassation rejected that approach in Real Estate Appeal No. 1124 of 2026. The Court treated the legal classification already established by a final judgment as binding and applied the special logic of continuing contracts: performance completed before termination remains effective because time and use are themselves part of the contractual exchange.
The ruling is important beyond the dispute itself. It shows that the label attached to a payment cannot be considered separately from the final classification of the agreement, the nature of the property use, and the procedural history between the parties. It also demonstrates why limitation arguments must begin with the correct legal characterisation of the particular obligation, rather than with the commercial status of only one party.
The financing arrangement and the later claim
The appellant applied to the respondent financier on 21 April 2008 for finance to acquire the disputed unit. On 10 June 2008, the financier agreed to fund 90 per cent of the unit’s value, stated in the judgment as AED 2,232,000, while the appellant would bear the remaining 10 per cent. The parties entered into an ijara described in the judgment as a lease of specified future property, supported by a unilateral promise to sell from the financier and a promise to purchase from the appellant, together with an instalment schedule.
According to the appellant, he paid AED 393,000 to the previous owner. This represented his 10 per cent contribution and the difference between the valuation and the actual price. He also paid AED 596,668.03 to the financier in instalments, bringing the total amount he sought to recover to AED 989,668.03. He additionally claimed legal interest at 12 per cent until full payment.
The dispute did not begin with the refund proceedings. In Real Estate Case No. 259 of 2019, the financier had obtained a judgment dated 23 June 2019 terminating the ijara agreement and its addenda, requiring delivery of the unit, and cancelling the lease-to-own registration from the title certificate. That judgment became final. Its classification of the agreement later became decisive.
The appellant then filed Real Estate Case No. 16 of 2026. He argued that, despite the agreement’s form, its true substance was a deferred-price sale structured as financial leasing to comply with Islamic finance principles. On that basis, he contended that the sums paid were purchase-price instalments rather than rent and should be restored as a consequence of termination.
The decisions of the lower courts
On 12 February 2026, the Court of First Instance held that the claim to recover the AED 393,000 paid to the previous owner could not be heard because the applicable limitation period had expired. It rejected the remainder of the claims, including the request for repayment of AED 596,668.03 paid to the financier. The Court of Appeal upheld that judgment on 18 June 2026. The appellant filed his cassation appeal electronically on 15 July 2026.
The appellant’s case before the Court of Cassation
The appellant challenged both the legal classification and the limitation analysis. First, he maintained that the courts had incorrectly treated the agreement as lease-to-own financial leasing when it was, in substance, a financed sale for a deferred price. He relied on the financier’s commitment to transfer title after payment of all instalments, the 90 per cent funding, and his own payment to the previous owner. He argued that termination should therefore restore the parties to their pre-contract positions and require repayment of the sums paid as price.
He also contended that the transaction fell under the Commercial Transactions Law because the financier entered into it in the course of its commercial financing activity. In his submission, the ten-year non-hearing period under Article 95 of the former Commercial Transactions Law applied to the AED 393,000 claim and began only when the earlier termination judgment was notified by publication on 4 February 2020.
The Court’s reasoning
A final classification cannot be litigated again
The Court began with the authority of a final judgment. A judgment that has acquired res judicata between the same parties binds a court in any later connected dispute on the legal issue it has already determined. The earlier 2019 case had finally classified the agreement as financial leasing governed, for the events in question, by Federal Law No. 8 of 2018 on Financial Leasing. The appellant could not use the refund action to reopen that settled classification and substitute a deferred-sale analysis.
This aspect of the judgment is procedural but commercially powerful. A party may lose an important future argument even when the earlier case did not decide the later monetary remedy in isolation. If the earlier final judgment necessarily determined the agreement’s legal nature, that finding can control the analysis of payments, remedies and limitation in a later claim between the same parties.
Termination does not unwind completed performance under a continuing contract
Article 274 of the Civil Transactions Law states the general rule that, where a contract is rescinded or terminated, the contracting parties are restored to the position they occupied before the contract. The Court explained, however, that complete retroactive restoration is incompatible with contracts performed over time. In continuing or duration contracts, time and the services or benefits already provided form part of the contractual subject matter. Performance occurs in successive periods and cannot simply be reversed after it has been enjoyed.
Financial leasing falls within that category throughout the lease term and before the lessee acquires ownership. If the agreement is terminated after performance has begun, its effects for the preceding period remain in place. The amount due for that period is rent for use of the leased asset. Where the lessor delivered the property and enabled the lessee to possess and benefit from it, the lessee cannot recover the rent already paid merely because ownership was never ultimately transferred.
The AED 596,668.03 remained rent
Applying those principles, the Court upheld the rejection of the claim for AED 596,668.03. The lower court was entitled to conclude from the documents and the binding 2019 judgment that the instalments were rent paid in exchange for enjoyment of the unit during the agreed term. The arrangement contemplated that ownership would arise at the end of the term after the agreed rent had been paid; it did not convert every earlier payment into immediately refundable purchase price if the lease ended prematurely.
The appellant also argued that he had not actually received the unit and that the value attributed to enjoyment lacked a stated basis. The Court considered those contentions ineffective because the earlier final judgment had already resolved the essential classification and the lower court’s findings concerning the rental character of the payments had a reasonable basis in the record. The Cassation Court therefore found no legal error warranting intervention.
The commercial ten-year period did not apply
The Court separately addressed the AED 393,000 paid to the previous owner. It reaffirmed that the relevant non-hearing period depends on the correct legal characterisation of the disputed obligation. Article 95 of Federal Commercial Transactions Law No. 18 of 1993, which the appellant invoked, applied to claims concerning obligations between traders where those obligations related to their commercial activities.
The fact that the financier conducted a commercial business did not satisfy that test by itself. The papers did not establish that the appellant was a trader, and the relationship had already been classified as financial leasing. The consequences of termination were therefore governed by the Civil Transactions Law rather than by the commercial ten-year rule advanced by the appellant. The lower court’s conclusion that the AED 393,000 recovery claim was time-barred was accordingly upheld.
The outcome
The Court of Cassation dismissed the appeal, ordered the appellant to bear the costs, and directed forfeiture of the security deposit. The result left intact both parts of the lower courts’ decision: the AED 596,668.03 paid to the financier was not refundable, and the claim concerning AED 393,000 paid to the previous owner could not be heard because of lapse of time.
Practical lessons for property finance disputes
Review the entire procedural history. Before pleading that an agreement is really a sale, loan or lease, counsel should identify every earlier judgment between the parties. A final finding on classification may bind the parties even if the new case seeks a different remedy.
Separate use payments from acquisition payments. Lease-to-own instalments may perform more than one economic function, but their legal treatment follows the governing agreement and applicable law. A payment made for possession and use during a completed period is not automatically refundable purchase price.
Do not assume termination has full retroactive effect. Restoration to the pre-contract position is the general rule, but continuing contracts require a different analysis. Benefits already supplied over time cannot ordinarily be returned in kind, so the corresponding payment may remain due.
Build the evidence on delivery and benefit. The lessor’s ability to retain rent depends materially on proof that the property was delivered and that the lessee was enabled to possess and benefit from it. Handover records, access documents, occupancy evidence and correspondence can therefore determine the monetary result.
Analyse limitation obligation by obligation. Different sums in the same transaction may have different recipients, legal bases and accrual dates. Limitation should be tested separately for each payment and only after the obligation has been correctly characterised.
Commercial status must exist on both sides where the rule requires it. A financier’s status as a commercial entity does not necessarily transform every counterparty claim into a commercial obligation between traders. The claimant’s capacity and the nature of the obligation require evidence.
What parties should address in their documents
Well-drafted lease-to-own documents should state clearly when possession and rental liability begin, what each periodic payment represents, how any purchase undertaking operates, and what happens to amounts already paid if the arrangement ends before title transfer. The documents should also distinguish rent, deposits, advance acquisition amounts, administrative charges and payments made to third parties. Ambiguity invites a later attempt to recast the commercial bargain.
Transaction records should support the drafting. The financier should preserve evidence of acquisition, handover, access and the lessee’s ability to use the unit. The lessee should promptly document any failure of delivery, legal inability to occupy, defects preventing use, or disagreement about the allocation of payments. These facts may affect whether a payment truly corresponds to an enjoyed period of use.
When termination proceedings arise, each party should consider the long-term effect of any requested declaration about the contract’s nature. A classification accepted or left unchallenged in the first case may become binding in later recovery proceedings. Parties should therefore present their complete classification case at the earliest stage and pursue available appeal rights within the prescribed period.
A measured reading of the judgment
The decision should not be reduced to a universal rule that every lease-to-own payment is non-refundable. The Court’s conclusion depended on a final earlier classification, the treatment of the agreement as a continuing financial lease, and the factual conclusion that the instalments corresponded to possession and benefit. A materially different case may arise where there was no delivery, no ability to use the property, a payment was expressly allocated to acquisition rather than rent, the agreement contains a different termination mechanism, or a special statutory remedy applies.
The judgment also applies the legislation identified as governing the events in that dispute, including Federal Law No. 8 of 2018 and the former Commercial Transactions Law No. 18 of 1993. Any current dispute must be assessed under the legislation in force for the relevant transaction and events, together with the contract, registration records and prior judgments. The case is therefore best understood as a disciplined method of analysis: determine what has already been finally decided, classify each obligation, identify the performance already completed, and then select the corresponding remedy and limitation period.
Conclusion
Dubai Court of Cassation Real Estate Appeal No. 1124 of 2026 confirms that the economic expectation of eventual ownership does not, by itself, turn past financial-lease instalments into refundable purchase price. Where a final judgment has already established that the arrangement is financial leasing, and the payments compensated the lessor for possession and use during elapsed periods, termination operates prospectively for those completed periods. The case also warns claimants to bring recovery claims promptly and to prove every condition required for any longer commercial limitation period.