Real Estate 2019 Comparisons

Last Updated April 30, 2019

Contributed By Gide Loyrette Nouel

Law and Practice

Authors



Gide Loyrette Nouel was one of the first business law firms to set up in Morocco, in 2003. The Casablanca office brings together about 15 Moroccan and French law practitioners, who can prepare documents in French, English, Spanish or Arabic. Clients include institutional investors, investment and commercial banks, leading Moroccan groups, public institutions and foreign investors operating in various sectors of activity (banking, insurance, telecommunications, agribusiness, real estate, tourism, utilities, infrastructure, etc). The firm benefits from a network of long-standing relationships with local counsels in most jurisdictions in Africa, including Bowmans for the South African region and Udo Udoma & Belo-Osagie for Nigeria; Gide is their main point of contact for African French-speaking countries. Gide is also an active member of the Lex Mundi network of independent law firms.

The regulatory framework applicable to the Moroccan real estate sector is made up of a multitude of laws and decrees, which are regularly amended and completed. Most of the laws are not codified, and it is also not uncommon for laws to be promulgated but not come into force for some time as the secondary legislation (implementing decrees) is not in place.

The principal sources of real estate legislation can be found in the following laws:

  • Dahir dated 12 August 1913 forming the Obligations and Contracts Code regulating the general rules of contract law (as amended from time to time);
  • Dahir No 1-11-178 dated 22 November 2011, promulgating Law No 39-08 forming the Real Property Code (in French: Code des Droits Réels);
  • Dahir No 1-11-177 dated 22 November 2011, promulgating Law No 14-07 amending and supplementing the Dahir of 12 August 1913 on land titling;
  • Dahir No 1-16-05 dated 3 February 2016, promulgating Law No 107-12 amending Law No 44-00 on off-plan sales;
  • Dahir No 1-02-298 dated 3 October 2002, promulgating Law No 18-00 regulating the co-ownership rules applicable to erected buildings, as amended by Dahir No1-16-49 of 27 April, promulgating Law No 106-12;
  • Dahir No 1-92-31 dated 17 June 1992, promulgating Law No 12-90 on urban planning, as amended by Dahir No 1-16-124 dated 25 August 2016, promulgating Law No 66-12 on the control and infringements in the field of town planning and construction;
  • Dahir No 1-92-7 dated 17 June 1992, promulgating Law No 25-90 on allotments, housing groups and subdivisions;
  • Dahir No 1-13-111 dated 19 November 2013, promulgating Law No 67-12 governing contractual relations between the lessor and lessee of premises for residential or professional use;
  • Dahir No 1-16-99 dated 18 July 2016, promulgating Law No 49-16 relating to the leases of buildings or premises rented for commercial, industrial or artisanal use; and
  • Dahir No 1-03-60 dated 12 May 2003 promulgating Law No 12-03 on environmental impact assessments.

The Casablanca real estate market has performed well over the last 12 months.

The automotive market has witnessed a boom in the last ten years, and has contributed to boosted growth in the construction sector. Morocco continues to attract renowned automotive firms to install industrial plants in the country, and thereby confirm its position as the emerging leader of the African automotive industry.

The increasing demand for high-quality office space is particularly visible in Casablanca, where the average rental price for office space reached MAD153 per sq m in 2018, an increase of 4% over the previous year.

The emergence of Casablanca Finance City, an economic and financial hub intended to operate as a gateway between North, West and Central Africa, resulted in the relocation of numerous companies into a new real estate development compound of imposing office towers with iconic designs, including a 122-metre high skyscraper.

Autumn 2018 saw the inauguration of Africa's first high-speed train line, with the launch of Morocco's long-awaited high-speed intercity rail network between Casablanca and Tangier, the top two economic cities of the Kingdom. The improvement in connectivity is a key pillar of Morocco's economic development strategy and will undeniably influence the urban real estate market.

The retail sector remains steady, with stable average rents for new leases in the main Moroccan malls over the first half of 2018.

Finally, the last 12 months have shown a positive performance in the hotel market, with a number of new promotion programmes for both leisure and business travellers.

Law No. 70-14 dated 25 August 2016 introduced investment vehicles similar to real estate investment trusts in Morocco, known as ‘Organismes de Placement Collectif Immobilier’ (OPCIs). The implementing regulations (in particular the circular on the approval of the OPCIs) are on the verge of being officially published, or have been recently published (the circular on the portfolio management companies was published 2 May 2019), allowing the OPCI market to enter into operation in the coming months.

OPCIs are regulated real estate funds with the main business purpose of direct or indirect investment in real estate assets with a view to carrying out leasing activities. As usual for these types of real estate funds, they are fully exempt from corporate tax, provided that they meet certain requirements, including distribution requirements, under which an OPCI must annually distribute a certain proportion of its rental income, capital gains and dividends received from certain of its subsidiaries.

By creating a dedicated framework, this law will not only increase liquidity and facilitate leverage but will also offer more standardisation and sophistication for real estate transactions, and rental, property and asset management. As OPCIs may be listed on the stock exchange, this new investment vehicle is also expected to help increase liquidity for the Casablanca Stock Exchange.

Land Tenure

Despite recent reforms, the Moroccan legal framework applicable to real estate property rights remains complex, principally due to the variety of legal regimes governing lands and the co-existence of unregistered and registered property.

Categories of Moroccan land tenure can be summarised as follows:

  • State ownership:
    1. public domain of the Moroccan State; or
    2. private domain of the Moroccan State.
  • Collective ownership:
    1. collective lands ('terres collectives'): lands owned by local communities/tribes;
    2. habous lands ('habous'): property belonging to religious institutions (such as mosques, schools, etc); or
    3. guich lands ('terres guichs'): lands owned by military communities.
  • Individual ownership:
    1. registered title deed: characterised by the registration/publication process and the probative effect of being recorded in the land book of the Land Registry maintained by the National Agency for Real Estate Conservation, Property Registries, and Cartography (ANCFCC); or
    2. individual property of unregistered property called 'moulkiya': property governed by the traditional system based on local customs, under which ownership is based on peaceful possession and uninterrupted common knowledge for a period of ten years (for third parties) or 40 years (for family members). Such ownership is proven through the issue of a document called moulkiya from traditional notaries (adouls).

Rights In Rem (Droits Réels)

Law No 39-08 forming the Moroccan Real Property Code (Code des Droits Réels) lists Moroccan rights in rem as follows:

  • Main rights in rem (an autonomous right not dependent on any other rights): 
    1. ownership of real estate property;
    2. easements and encumbrances;
    3. usufruct right;
    4. right of use;
    5. surface right;
    6. emphyteusis right;
    7. right of Habous;
    8. right of Zina;
    9. right of Houa; and
    10. customary rights properly constituted before the enforceability of Law 39-08.
  • Ancillary rights in rem (right depending on a personal right):
    1. privileged liens;
    2. mortgages; and
    3. antichresis.

General provisions governing sale and purchase agreements are contained in the Dahir of 12 August 1913, forming the Obligations and Contracts Code, which regulates the general rules of contract law.

Specific laws govern the transfer of private registered property, with the main ones being as follows:

  • Dahir No 1-11-178 dated 22 November 2011, promulgating Law No 39-08 forming the Real Property Code (in French: Code des Droits Réels);
  • Dahir No 1-11-177 dated 22 November 2011, promulgating Law No 14-07 amending and supplementing the Dahir of 12 August 1913 on land titling; and
  • Dahir No 1-16-05 dated 3 February 2016, promulgating Law No 107-12 amending Law No 44-00 on off-plan sales.

Furthermore, specific laws apply to the transfer of certain types of real estate (land belonging to the private state domain, collective lands, individual property of unregistered land ('moulkiya'), etc).

There are no specific provisions linked to the industrial, office or retail sectors. However, it should be noted that a specific regime applies to the acquisition of agricultural land, particularly when the buyer is a foreign entity (an individual or a company whose share capital is held at least in part by foreign entities). In this case, the land cannot be used for agricultural purposes, and a certificate of non-agricultural purpose must be obtained from the administration before the land can be purchased and a non-agricultural investment project can be carried out on the land (see 2.11 Legal Restrictions on Foreign Investors).

With regard to registered lands, a transfer of title to real estate is made through signing a notarised deed of sale before a notary public. However, it is not unusual for parties to enter into a promise to sell and/or to purchase (unilateral or bilateral promise), pursuant to which the parties promise to enter into a formal notarised deed of sale once the conditions precedent set out in the promise have been satisfied.

Once executed before a notary public, the deed of sale must be registered with the Land Registry (Conservation foncière). Under Moroccan Law, ownership of registered land is transferred to the buyer only when the deed of sale is registered with the Land Registry.

Ownership is guaranteed under the provisions of the constitution, and for registered land the title is guaranteed by the Land Registry, which ensures that the deeds are properly registered. The information contained in the Land Register is available to the public and can be obtained for a nominal cost. This means that title insurance is not common in Morocco.

Off-plan sales (ventes en état futur d’achèvement) involve a contract by which a vendor agrees to build a property within a set timeframe, and the buyer agrees to pay the purchase price for it as work proceeds. For this type of regulated sale, the parties must enter into a preliminary sale agreement (only once the building’s foundations have been completed) and then a final sale and purchase agreement upon the final completion of the building and the issue of an occupancy permit (permit d’habiter) certifying that the building has been erected in compliance with the building permit. Pursuant to Law No. 44-00 as recently amended, the parties are free, prior to the preliminary sale agreement, to enter into a reservation agreement including a down payment from the buyer, provided that the building permit has been granted to the project owner. The buyer only acquires ownership of the property after its final completion and the registration of the final deed of sale.

Most of the time, due diligence reviews are conducted by buyers after the signing of a non-binding offer, subject to a satisfactory due diligence review, whereby the seller usually grants an exclusivity period and allows the investor to carry out its full due diligence.

Due diligence is usually undertaken in relation to technical, commercial and legal issues by the buyer's professional advisers (lawyers, notaries, accountants, technical advisers, property surveyors and tax advisers). Concerning legal matters, the due diligence will generally include a review of the title and encumbrances (in order to confirm the valid and full ownership of the seller, and that the title is free and clear from any liens or encumbrances whatsoever, such as mortgages, preventive seizure, etc); building permits and certificate of conformity; any rights of third parties over the real estate; the rental situation; contracts relating to the property; and corporate documentation regarding the target company.

Moroccan statutory law imposes the following guarantees on the seller:

  • a guarantee of eviction, protecting the buyer from any restriction on his use of the property by the seller or by third parties who claim rights over the real estate; and
  • a guarantee against hidden defects (vices cachés) that substantially reduce the value of the property or render it unfit for its intended use. To be valid, the claim must be brought within 365 days of the handover of the property (unless otherwise agreed). However, the seller is not liable for apparent defects, or for those the buyer knew about or could easily have known about.

In addition to the legal warranties mentioned above, which can be extended or limited by the parties in mutual consent, the seller can be required to grant additional warranties, depending on the type of real estate asset sold and on the outcome of the due diligence.

In a share deal, the warranties granted by the seller include reps and warranties relating to the company being sold (the existence of the company, the share capital and ownership of the shares, corporate matters, the accuracy of the accounts, the company’s activity, financial standing, significant contracts entered into by the company, employment matters, litigation, tax matters, etc).

In the event of a material breach by the seller of its representations and warranties, the buyer is generally entitled (unless the buyer's claim relates to any information that had been disclosed in the context of the due diligence review or in the contractual documentation) to call on the corporate or bank guarantees, to apply to the competent courts for the termination of the agreement, to reimbursement of the amounts paid as the purchase price, and to payment of damages for the losses incurred.

When contemplating the purchase of real estate in Morocco, the investor should consider the following areas of law:

  • general principles of contract law, in particular those that apply to the sale and purchase of real estate;
  • tax regulation and structuring aspects;
  • foreign exchange control regulations (particularly regarding conditions to transfer abroad all revenues generated by investments made in foreign currencies in Morocco);
  • regulations with respect to registration and publicity formalities;
  • regulations governing construction and urban planning and zoning;
  • environmental law (particularly regarding the necessity to obtain any prior permit to build or operate the property concerned); and
  • regulations applicable to the contemplated business activity to be conducted from/within the building.

Moreover, a key aspect of a real estate transaction for investors in Morocco will be the identification or anticipation of any regional or local practice or custom to be taken into consideration.

Law No 11-03 on the protection and enhancement of the environment sets out the basic rules and general principles of national policy regarding the protection and enhancement of the environment, including the polluter pays principle, which means that, in practice, the person responsible for the pollution will be liable for damages.

If pollution is discovered, the owner of the property must prove that the pollution was generated by the previous owner or by a tenant prior to the transfer of the ownership of the property, in order to avoid liability. Therefore, it is advisable to conduct technical environmental due diligence before purchasing a property.

In this respect, according to Moroccan Law, a natural or legal person storing, transporting or using hydrocarbons or toxic and dangerous substances – or any operator of a classified installation that has caused bodily injury or material damage directly or indirectly related to the exercise of the abovementioned activities – is liable, even in the absence of proof of fault.

Zoning and planning regulations must be checked before planning a construction project and applying for a building permit. The zoning and planning laws and regulations for each local region are usually available to the public for a nominal cost from the relevant local urban agency (agence urbaine).

Zoning regulations applicable to a specific plot of land may be obtained from the relevant urban agency through a dedicated application form (note de renseignement) informing about applicable uses as well as restrictions regarding footfall, maximum height of buildings, etc.

No agreement with public authorities is necessary in order to facilitate a private development project. However, in certain cases (mostly to promote tourism, industrial and/or artisanal projects, as well as social housing) it is possible to request and obtain an authorisation from the relevant Wali (governor) to derogate from the applicable urban regulations in order to implement a specific real estate project.

Law No 7-81 on expropriation in the public interest and temporary occupation allows the Moroccan State to expropriate land for reasons of public necessity, or for temporary use. In such cases, the state must compensate the expropriated entity.

The expropriation process is basically divided into an administrative phase, including a declaration of public utility (déclaration d'utilité publique), a public enquiry (enquête publique) and a transfer order (arrêté de cessibilité), followed, as the case may be, by a judicial phase if the owner concerned contests the public utility or the amount of the indemnity proposed.

According to the law, expropriation compensation should only cover the current and effective damage caused directly by the expropriation, and cannot include uncertain or indirect damage. The indemnity is determined according to the value of the property on the day of the decision pronouncing the expropriation, without taking into account any modifications and/or improvements made by the owner without the consent of the expropriator after the publication of the declaration of public utility.

The following fees are due in an asset deal involving real estate.

Notary Public Fees

An asset deal will trigger the payment of notary public fees, which vary depending on the value of the transaction and are generally borne by the buyer, unless agreed otherwise:

  • if the sale price is less than or equal to MAD300,000, the notary public fees are fixed at MAD4,000;
  • if the sale price ranges from MAD300,001 to MAD1,000,000, the notary public fees shall amount to 1.5% of the sale price;
  • if the sale price ranges from MAD1,000,001 to MAD5,000,000, the notary public fees shall amount to 1.25% of the sale price;
  • if the sale price ranges from MAD5,000,001 to MAD10,000,000, the notary public fees shall amount to 0.75% of the sale price; and
  • if the sale price is more than MAD10,000,000, the notary public fees shall amount to 0.5% of the sale price.

Registration Duties with the Tax Administration

Pursuant to Article 127-I-A-1°-a of the Moroccan Tax Code (MTC), the purchase of real estate is subject to mandatory registration duties. Article 133-I-F-1° of the MTC provides that the registration of the real estate purchase agreement triggers the payment of registration duties at the rate of 4%, calculated on the purchase price. These registration duties are borne by the buyer.       

Registration Fees with the Land Registry

Pursuant to Decree No 2-16-375 dated 18 July 2016, which sets the rates applicable to real estate property, the purchase of real estate triggers the payment of registry fees with the Land Registry, amounting to 1.5% of the purchase price (required to register the deed of sale and update the Land Register).These registration fees are borne by the buyer.

The following fees are due in the case of a share deal.

Registration Duties with the Tax Administration

If the company does not qualify as a real estate company, a share purchase agreement has to be registered with the tax office, but is no longer subject to the payment of registration duties. Only stamp duties of MAD200 are charged.

Article 133-I-A-2° provides that the sale of shares held in qualifying real estate companies triggers the payment of registration duties, at the rate of 6% of the purchase price. Such registration duties are payable by the buyer.

Pursuant to Article 61-II of the MTC, a real estate company is any company whose gross fixed assets are composed of real estate assets for at least for 75% of the company’s value, determined at the beginning of the financial year in which the taxable sale occurs (properties used for the purpose of commercial, industrial and other activity are not taken into account in the 75% threshold).

Registration Fees with the Land Registry

Contrary to a direct purchase of assets, the purchase of real estate shares does not trigger the payment of property registry fees (as the owner of the property remains the same, the title deed does not need to be updated in this case) nor public notary fees, as the sale and purchase agreement does not need to be notarised.

As a general rule, from a Moroccan law perspective, except in some specific business sectors such as agriculture, fishery, audiovisual, banking and insurance, there are no restrictions on foreign investors acquiring real estate, either directly or indirectly through the purchase of a company holding real estate assets.

Agricultural Land

Foreigners can lease agricultural land for up to 99 years. However, foreign individuals, or entities whose share capital is held at least in part by foreign entities, are not allowed to acquire agricultural land for agricultural purposes, according to Article 1 of the Dahir relating to the purchase of agricultural land in rural areas dated 23 April 1975.

However, if a foreign investor plans to carry out a non-agricultural investment project on agricultural land (industrial, housing, etc), a specific certificate may be obtained from the administration (a temporary and final certificate of non-agricultural purpose) before it can purchase the land and carry out the contemplated project. Nevertheless, the procedure to obtain such a certificate is quite long and complex, as it involves several different authorities assessing the project: the urban agency, the Wilaya (regional government office), the Investment Regional Centre and other administrative bodies.

Moroccan Foreign Exchange regulation

Under Moroccan law, all cash transfers from Morocco to a foreign country must be authorised under the Moroccan Foreign Exchange regulation – namely, a cash transfer from Morocco to a foreign country cannot be completed if it does not comply with the Foreign Exchange Regulation or, if not specifically allowed by the Foreign Exchange Regulation, it must be authorised, on a case-by-case basis, by the Moroccan Foreign Exchange Office.

So as to not impede foreign investment in Morocco, the Foreign Exchange Regulation grants foreign investors (subject to certain conditions) complete freedom, without limitation as to amounts, (i) to carry out their investments in foreign currencies in Morocco, (ii) to transfer abroad all revenues generated by these investments (with no limits), and (iii) to retransfer abroad all proceeds deriving from the sale or liquidation of these investments (with no limits) (the 'Convertibility Regime').

In Morocco, commercial real estate acquisitions are generally financed by real estate investors through a combination of equity (including internal financing by the shareholders) and banking debt.

The two following options are usually used for acquisitions of large real estate portfolios:

  • share deal option: the acquisition of shares in a company holding a real estate portfolio; and
  • asset deal option: the acquisition of real estate portfolios.

Typically, lenders require the following securities:

  • a mortgage (hypothèque) over the real estate asset – a mortgage (involving a notary public) is an expensive security to take and is time-consuming in terms of enforcement;
  • a pledge over the general business concern (nantissement de fonds de commerce), which must be in writing and registered at the relevant commercial court within 15 days of execution or it will be void;
  • a pledge over receivables (nantissement de créances) – to be enforceable against the debtor, the pledge requires a notice by a bailiff or a simple notification of the pledge by registered letter with confirmation of receipt (bearing a certified date); or
  • a bank account pledge (nantissement de compte bancaire), which must be simply notified to the bank where the pledge account is opened (in the event that the bank is not a party to the pledge agreement);
  • an assignment of insurance proceeds (délégation des indémnités d'assurance), which must be notified to the insurance company; or
  • a pledge of shares (nantissement d'actions).

It is also common to have personal securities, such as a guarantee from a company (usually a parent company) covering cost overruns, completion, interest and principal.

It should also be noted that the Moroccan House of Representatives unanimously adopted draft law no. 18.21 relating to personal property securities, on April 1. The principles initiated by such law include the establishment of a national register of personal property security, in order to centralise data on the pledged properties. This register will facilitate the information of creditors on the financial situation of companies.

Legal restrictions on Moroccan companies granting security over real estate to foreign lenders are mainly driven by the foreign exchange regulations.

Under Moroccan law, all cash transfers from Morocco to a foreign country must be authorised under the foreign exchange transactions general instruction, as amended on 1 January 2019 (the 'General Instruction') – namely, a cash transfer from Morocco to a foreign country cannot be completed if it does not comply with the General Instruction or, if not specifically allowed by the General Instruction, it must be authorised, on a case-by-case basis, by the Foreign Exchange Office.

The enforcement of any security in Morocco that benefits a foreign lender would result in a transfer of the enforcement proceeds outside of Morocco. Such a transfer will require obtaining a spot authorisation from the Foreign Exchange Office, as this operation is not already authorised under the General Instruction. Such authorisation is a typical request from lenders.

With respect to re-payment under a loan agreement, the General Instruction pre-authorises foreign financing under certain circumstances, which, if they are fulfilled, allow a Moroccan borrower to repay a loan to a foreign lender.

In addition, the General Instruction sets out various categories of bank accounts (ie, MAD-denominated bank account, foreign currency account and an account in convertible MAD) that should be used strictly as described in the instruction, unless there is prior authorisation from the Foreign Exchange Office.

Registration fees on security agreements that must be registered are generally not substantial, except in the case of a mortgage, for which registration duties and land registry fees are charged as follows:

  • Registration duties

Pursuant to Article 127.I.B.1° of the Moroccan Tax Code (MTC), any mortgaging is subject to registration before the tax authorities.

Article 131-6° of the MTC provides that the taxable basis is composed of the total amount mortgaged and includes, in particular, the following items: the amount mortgaged in principal; the estimated expenses (or 6% of the principal if there is no estimation) and interest (capped to the value of interest paid over two years).       

Pursuant to Article 133.I.C.2° of the MTC, the amount of the mortgage (as calculated according to the rules described above) is subject to registration duties at the rate of 1.5%.

  • Land registry fees

According to Decree No. 2.16.375 dated 18 July 2016 establishing land registry duties, the registration of a mortgage triggers the following fees, depending on the value of the mortgage:

    1. lower than MAD250,000 (around USD27,000): 0.5%;
    2. between MAD250,000 and 5,000,000 (around USD530,000): 1.5%;
    3. above MAD5,000,000: 0.5%.

A fixed duty (per property) of MAD100 also applies.

There are no stamp duties on credit or security agreements (subject to exceptions).

The enforcement of a security does not require any specific fee.

Depending on the type of security and the legal form of the Moroccan law entity, prior corporate approvals may be required (by the law and/or the entity’s articles of association) for granting security over real estate assets. Obtaining such authorisation is usually required as a condition precedent by the lenders.

In addition, under Moroccan law, a Moroccan entity must ensure that the following rules are complied with when granting any security:

  • Financial assistance (assistance financière) rule: according to Article 280 et seq of Law No 17-95 relating to joint stock companies, it is prohibited to provide financial assistance to the target company in the form of advances of funds, loans or security with a view to the subscription or purchase of its own shares by a third party. Article 280 refers to financial assistance "in view of" the acquisition/subscription (ie, at the time of or in contemplation of a transaction). If the court deems that a loan, guarantee or security interest given after a transaction was a condition of the transaction, guaranteed the acquisition debt, or was part of a network of fraudulent agreements, it may hold that the assistance was unlawful. The provisions prohibiting financial assistance under Law No. 17-95 relate to joint stock companies and do not, in theory, apply to limited liability companies. In addition, the SARL code does not set out similar provisions.
  • Corporate benefit (intérêt social) rule: all decisions regarding the company must be in the best interest of the company. The existence of a corporate benefit is ultimately a business decision and, as such, is an issue for the company’s directors to resolve. Any evaluation of the existence of a corporate benefit should be assessed on a case-by-case basis.
  • Corporate purpose (objet social) rule: any security granted by a Moroccan entity to the benefit of third parties must comply with the corporate purpose of the entity. Moroccan law does not provide any definition of corporate purpose, although Law No. 17-95 relating to joint stock companies specifies that the corporate purpose "must be specified in the articles of association."

There are other corporate law rules that must be complied with, including rules relating to transactions between a company and connected parties (convention réglementées) and provisions relating to transactions that take place within certain periods before the company enters into an insolvency process (période suspecte).

As long as the mortgage has been duly registered in the local Land Registry (conservation foncière), it is a first ranking mortgage and the borrower is not undergoing insolvency proceedings, secured lenders are able to enforce the mortgage without any obstacle.

Given the prohibition against agreeing to allow a private foreclosure (ie, the creditor taking ownership of the property in the event of a default by the debtor – pacte compromissoire), the enforcement of a mortgage would require initial enforcement proceedings before competent jurisdictions.

Pursuant to section 169 of Law No 39-08, priority ranks from the date of registration, with same-day registration ranking equally, and shall maintain its rank and validity without additional formality until the valid registration of its withdrawal (mainlevée).

Subordinating a mortgage already registered in favour of a new mortgage requires a specific subordination or intercreditor agreement between the creditors that are exchanging ranks. Such an agreement will set out the rules of subordination among creditors, as well as the rules governing the enforcement rights.

In principle, a holder of security over real estate is not liable for environmental damage, provided it did not cause the damage itself.

It is market practice for facility agreements to include certain representations and covenants in order to mitigate the risk of damage to reputation.

Under Moroccan law, security interests granted by a borrower may not be made void if the borrower becomes insolvent.

However, the creditors will not be authorised to proceed with the enforcement of any security interest for the duration of the borrower's insolvency proceedings because, under Moroccan law, any creditors whose receivables are not privileged by law are prohibited from commencing or continuing any individual legal actions against the debtor.

In addition, under Article 714 of the Moroccan commercial code, securities granted during the six-month period prior to the declaration of insolvency may be voided by the insolvency court if it is considered that granting such security would be prejudicial to the borrower's bankrupt estate.

As the LIBOR is likely to come to an end after 2021, parties to foreign currencies facilities based on LIBOR, with a term extending beyond 31 December 2021, shall pay particular attention that the agreements sufficiently cover the risk of LIBOR being discontinued by including drafting interest clauses which set out fallback options in case the reference rate cannot be determined (eg, alternative reference rates, interest adjustment clauses, etc).

Strategic planning and zoning regulations are ruled by the general principles established by Law No 12-90 on urban planning. Strategic plans and zoning schemes are established through the issue of Urban Development Master Plans (Schémas Directeurs d'Aménagement Urbain) and zoning plans (plans de zonage). Each municipality prepares development plans (plans d’aménagement), which divide the area into zones of different uses, and attribute building density ratios to each zone.

Historic buildings benefit from specific legislation set out in the Dahir dated 25 December 1980 promulgating Law No. 22-80 relating to the conservation of historic monuments and sites, and the registration of art objects and antiquities.

In practice, public law controls whether a landowner may construct a new building or refurbish an existing building by means of an administrative authorisation (ie, a building permit including ne varietur plans) to be obtained prior to the starting of any construction works.

The design, appearance and method of construction of new buildings or the refurbishment of an existing building are mainly governed by Law No 12-90 on urban planning and implementing decrees including Decree No 2-13-424 dated 24 May 2013 approving the general building regulations laying down the form and conditions for issuing permits and documents required under the legislation on urban planning.

The law establishes general building regulations (approved by decree) and communal building regulations (set by the president of the communal council), which must be consulted before any construction, under the terms of which the forms and conditions for issuing permits and any other required documents are defined, as well as the safety rules to be respected in construction.

Overall responsibility for regulating the development and designated use of individual parcels of real estate lies largely with the local authorities, including the urban agencies and the municipal presidents responsible for issuing building permits.

The main authorisations and permits required for the construction of a real estate project may be summarised as follows:

  • Environmental acceptability decision: pursuant to Dahir No 1-03-60 promulgating Law No 12-03 relating to environmental impact studies, companies that carry out projects relating to a certain type of activity must obtain an environmental acceptability decision (decision d’acceptabilité environementale) prior to the construction of their plant. Such approval is granted by the Ministry of Environment on the basis of the results of an environmental impact study. In principle, the authorities request such an authorisation prior to issuing the building permit and the certificate of compliance.
  • Hazardous facilities: insalubrious, inconvenient or dangerous facilities are governed by the Dahir dated 7 September 1914 (Dahir portant réglementation des établissements insalubres, incommodes ou dangeureux) and the viziriel’s order dated 13 October 1933 classifying such facilities. An authorisation has to be obtained from the relevant authorities (or a declaration has to be filed, depending on the nature/class of the facilities) prior to the construction works of the  facilities concerned.
  • Demolition permit: an application for a demolition permit must be submitted to the municipality if demolition is necessary for the implementation of a new project or to implement a major refurbishment. This demolition permit will be issued by the president of the City Council.
  • Subdivision permit (permit de lotir) and authorisation to split up (autorisation de morceller): according to Law No 25-90 on allotments, housing groups and the splitting of land, the splitting up of a plot into several parcels needs to be granted authorisation to subdivide and authorisation to split up in order to be able, in particular, to split the primary land title into several land titles, allowing each lot to have a separate land title.
  • Building permit: pursuant to Article 40 of Law No 12-90 relating to town planning, it is forbidden to carry out any construction works in respect of a building located in certain areas (such as urban perimeters and perimeters defined in Article 1 of Law No 12-90), or to modify existing constructions without having obtained a building permit in advance.

A building permit is delivered when the contemplated constructions are deemed to satisfy the legal and regulatory provisions in force, particularly those of the zoning and planning plans. Such a permit is delivered once all the authorisations and visas required by specific laws and regulations have been obtained.

The building permit is delivered by the president of the City Council for the location of the contemplated construction. The building permit is deemed delivered unless objections are raised by the administration within two months of the land owner or developer filing the request. However, in practice, owners and developers do not take the risk of relying on tacit authorisation.

Whether express or tacit, the building permit expires if the contemplated construction works have not begun within one year of its delivery.

  • Certificate of compliance (certificat de conformité) or occupancy permit (permis d’habiter): upon the completion of any construction, the owner should obtain an occupancy permit or, if the building is not dedicated to private lodgings, a certificate of compliance/conformity confirming that the buildings erected are in accordance with the provisions of the building permit. This certificate is a prerequisite to the use of the erected building.

Generally speaking, any authority's decisions, as administrative acts, must be reasoned and may be appealed before the relevant authority (recours gracieux) and/or the administrative courts (recours contentieux). Third parties with a specific interest that deserves protection may also file a lawsuit before the competent administrative authority or court asking for an annulment of the decision.

Generally, there is no need to enter into agreements with local or governmental authorities or agencies, or with utility suppliers in order to facilitate the carrying out of a development project.

Authorities can, however, take the initiative to enter into PPPs to develop infrastructure projects. Such agreements may be governed by Law No 86-12 on public-private partnership contracts, the purpose of which is to entrust a private partner with an overall objective of the design, finance, construction, maintenance and/or operation of works or infrastructure that is necessary for the provision of a public service.

Failure to comply with the regulation in force related to construction and planning law could result in:

•       the closing of the construction site until a proper building permit is obtained;

•       the obligation to modify constructions so as to conform with the regulations in force; or

•       the obligation to demolish the construction works.

In any case, a fine ranging from MAD1,000 to MAD100,000 may be ordered against the violating party. Furthermore, anyone who continues to operate a project in spite of a decision to close the construction site may be punished by imprisonment of 15 days to three months.

Several types of vehicles are available under Moroccan law to hold real estate assets. The corporate forms that are the most commonly used are the following:

  • joint stock company (Société Anonyme) governed by Law No 17-95 (as amended from time to time);
  • limited liability company (Société à Responsabilité Limitée) governed by Law No 5-96; and
  • real estate civil company (Société Civile Immobilière) governed by the Moroccan Obligations and Contracts Code.

As mentioned above (see 1.3 Proposals for Reform), Law No 70-14 introduced a new investment vehicle dedicated to real estate, known as Organisme de Placement Collectif Immobilier – OPCI, which could take the form of a fund without legal personality (Fond de Placement Immobilier – FPI) or a real estate investment company (Société de Placement Immobilier – SPI) incorporated as a joint stock company. There are two categories of OPCIs: (i) OPCIs that are meant to be open to the general public, and (ii) OPCIs with simplified operating rules, reserved for qualified investors only.

Setting up an OPCI is subject to the prior approval of the Moroccan Financial Market Authority, with the OPCI being represented by a portfolio management company (also approved by the Moroccan Financial Market Authority)  in charge of carrying out the acquisition, management and sale of the assets owned by the OPCI.

  • A joint stock company (Société Anonyme – SA) is a form of limited liability company, where the liability of each shareholder is, in principle, limited to the amount of its contributions to the company. An SA must comprise at least two shareholders.

The shares in an SA are freely transferable unless otherwise provided in the company's articles of association (which may provide for restrictions on the transfer of shares, such as a temporary lock-up or prior approval clause – agrément).

An SA may issue preference shares and debt or equity securities that are convertible into shares (eg, convertible bonds, etc), and may also be listed on a stock exchange.

  • A limited liability company (Société à Responsabilité Limitée – SARL) also stipulates that the liability of each shareholder is, in principle, limited to the amount of its contributions to the company. A SARL can be set up by only one shareholder (in which case the company is a limited liability company with a single shareholder – SARLAU), but can have a maximum of 50 shareholders.

The transfer of shares in a SARL to a third party requires the prior approval of the majority of shareholders representing at least three-quarters of the shares in the company. The articles of association of the company may extend the prior approval clause to share transfers between shareholders.

A SARL cannot be listed and cannot issue preference shares and debt or equity securities that are convertible into shares.

  • A real estate civil company (Société Civile Immobilière) is a civil company whose corporate purpose is to hold real estate assets. As a civil company, an SCI cannot have – in principle – a commercial or trading nature. Towards third parties, the shareholders are liable indefinitely for the debts of the company in proportion to the shares they hold in the share capital.
  • A joint stock company will have a minimum share capital of MAD300,000. Contributions can be made in cash (numéraire) or in kind (en nature), with it being specified that contributions in kind are subject to a specific appraisal procedure by an independent appraiser.
  • A limited liability company has no minimum share capital requirement. Contributions must be made in cash (numéraire) or in kind (en nature), with it being specified that contributions in kind are subject to a specific appraisal procedure by an independent appraiser.
  • A real estate civil company has a minimum share capital of MAD1. Contributions can be made in cash (numéraire) or in kind (en nature), or may consist of technical skills (apport en industrie).
  • An SA can either have (i) a board of directors (conseil d'administration) or (ii) a management board (directoire) and a supervisory board (conseil de surveillance). The CEO (directeur – général) is in charge of the day-to-day management of an SA and is vested with the widest power and authority to represent the company vis-à-vis third parties.
  • A SARL is managed by one or several managers, who must be individuals.
  • A real estate civil company (Société Civile Immobilière) is managed by one or more managers, who must be shareholders of the company (if the articles of association of the company are silent on this point, all the shareholders are vested with the powers and authority to manage the company).
  • An SA must appoint at least one statutory auditor (two if the company is listed), and is required to file its annual accounts annually. These accounts must be certified by the statutory auditors, closed by the board of directors and approved by the shareholders' meeting before being filed with the local tax authorities and the trade registry. Stamp duties apply (up to MAD200), plus the costs of the statutory auditors for the certification of the annual accounts.
  • A SARL must appoint statutory auditors only if its annual turnover exceeds MAD50,000,000. A SARL is also required to file its annual accounts – duly approved by its shareholder(s) – with the local tax authorities and the trade registry.
  • There is no requirement to appoint a statutory auditor in a real estate civil company (Société Civile Immobilière), nor to file annual accounts.

In Morocco, there are several types of arrangement allowing a person, company or organisation to occupy real estate for a limited period of time without buying it outright. The main types of arrangement are the lease agreement, the usufruct, the commodat (a free lease agreement for the use of the property) and, in connection with private state land, the authorisation to temporarily occupy publicly owned land.

The law determines two types of lease that can be implemented with regards to the use of the premises subject to the lease:

  • Lease of buildings or premises used for commercial, industrial and handicraft purposes (the 'commercial lease'):

The commercial lease is regulated by Dahir No 1-16-99 dated 18 July 2016 promulgating Law No 49-16, which sets out a complete list of situations in which it applies. Therefore, the landlord must grant a commercial lease for:

    1. premises or buildings in which a business (fonds de commerce) is operated;
    2. premises or buildings considered an accessory to the main premises in which the business is operated;
    3. premises that consist of undeveloped land that will be developed and used to operate a business;
    4. premises or buildings used for commercial, industrial and handicraft purposes and as part of the private State domain; and
    5. premises and buildings used as private schools, clinics, or pharmaceutical laboratories.

However, the Law expressly excludes certain cases for which a commercial lease cannot be implemented, as follows:

    1. premises or buildings that are part of the public state domain;
    2. premises or buildings that form part of the private state domain but are used for public interest;
    3. premises or buildings incorporated in a Habous;
    4. premises or buildings rented following a court order;
    5. premises or buildings located in a shopping mall; and
    6. premises or buildings located in a dedicated zone gathering companies operating information technology, industrial or offshoring activities.

One of the main characteristics of a commercial lease is based on the right of the tenant to renew the lease. From this right, if the landlord wishes to terminate the lease, the tenant may claim compensation (indemnité d'éviction) based on the value of its business, among other things.

The right to the renewal of the lease is conditional on the effective occupation of the premises by the tenant for two consecutive years. This condition does not apply if the tenant paid what is known as ‘key money’ (pas-de-porte).

  • Lease of premises for professional use (a 'professional lease'):

Law No 67-12 regulates contractual relations between the landlord and the tenant for residential or professional premises. The professional lease applies to liberal professionals that do not practise commercial, industrial or handicraft activities.

The general conditions of both commercial and professional leases, such as maintenance and repairs of the building, are governed by Articles 626 to 699 of the Obligations and Contracts Code, which generally provides for rules and regulations that can be contractually excluded by the parties.

Rents under either commercial or professional leases are freely negotiable between the landlord and the tenant.

Variable rents, although permitted by law, are not common in leases for offices, but are a common feature in retail leases for premium international brands (expressed as a percentage of the yearly gross revenues of the tenant's business, subject to a specified minimum fixed rent).

The duration of commercial leases and professional leases is not regulated by Moroccan Law, and there is no minimum duration with which parties must comply.

The length of the lease term of business premises is not regulated under Moroccan law, so the tenant and the landlord are free to conclude a lease for any agreed amount of time. However, unless the tenant has paid the key money (pas-de-porte) on the signature date, the right to the renewal of the commercial lease is conditional on the effective occupation of the premises by the tenant for two consecutive years.

In practice, commercial leases are entered into for a fixed initial period of three to six years.

Finally, if the initial duration of the lease is for more than ten years, this may trigger the risk of being qualified by the tax administration as a long-term lease, and therefore subject to registration duties amounting to 6% of the annual rent multiplied by 20.

Unless otherwise agreed, tenants bear all the costs for ordinary repairs and maintenance of the premises. By law, the landlord generally remains responsible for structural and major repairs and repairs resulting from wear and tear, force majeure events, construction defect or acts by the landlord, unless otherwise agreed. The landlord may carry out improvement works on the premises during the term of the lease if they cannot reasonably be delayed, but the termination of the lease or a rent reduction may be applicable if the works temporarily prevent the tenant from using a part of the property.

The frequency of rent payments is freely negotiable between the parties. Rent for professional or commercial premises is usually payable monthly or quarterly in advance.

According to Dahir No 1-07-134 of 30 November 2007, promulgating Law No 07-03 on the revision of the amount of rent for premises of commercial, industrial or handicraft use, the landlord and the tenant may freely agree on setting the rent amount, the conditions for its revision and the rate of its increase or decrease.

However, due in particular to the lack of any regular and reliable index, it is fairly unusual for parties to agree on an automatic change of the rent on an annual basis, notably determined by reference to an index (such as the construction cost, inflation, etc).

In addition, although parties are free to revise the rent, it is legally forbidden to increase the amount of the rent for a period shorter than three years from the date of concluding the lease contract, or from the date of the last judicial or contractual review, and/or to agree on an increase in excess of the rates set out in this law (ie, 8% for residential leases and 10% for others, including commercial and professional leases).

If no agreement has been reached between the two parties concerning the conditions for adjusting the amount of the rent and the rate of its increase, the parties may seek a judicial review based on the abovementioned rates.

Law 49-16 on commercial leases and Law 67-12 on professional and residential leases also provide that the tenant may claim a rent reduction, in accordance with Articles 660 and 661 of the Obligations and Contracts Code, when the premises are partially destroyed or damaged in such a way that they are not fit for the purpose for which they were leased, or when the quality promised by the landlord or required by the destination of the thing leased is fully or partially lacking.

Law No 07-03 on the revision of the amount of rent for premises of commercial, industrial or handicraft use and Law 67-12 on professional and residential leases provide that the rent increase is limited as follows:

  • for commercial leases – a 10% raise as regards the current rent; or
  • for residential leases and professional leases – an 8% raise as regards the current rent.

These increases may only apply every three years following either the conclusion of the lease or the date of the previous judicial or contractual rent review.

VAT is payable on rent in the following cases:

  • Taxable rental transactions:
    1. rental of furnished premises;
    2. rental of equipped premises for business purposes;
    3. rental of non-equipped premises for business purposes in which an intangible asset of the business is included; and
    4. rental of premises in commercial complexes ('shopping malls').
  • Rental transactions not subject to Moroccan VAT:
    1. rental of unequipped premises for business purposes; and
    2. rental of equipped premises with an annual turnover of less than MAD500,000.

The landlord can opt for VAT (at 20%) regarding non-equipped business rentals. This option is formalised by a formal request and can apply globally or partially to the taxpayer’s activities (ie, the option can apply only to a given real estate project, or to a single building/premise/apartment).

Apart from a registration duty payable to the tax administration (fixed at MAD200), there are no additional costs to be paid by the tenant at the beginning of the lease term, according to Moroccan law. It is market practice for the tenant to carry out and bear the registration duty, even though the Moroccan Tax Code does not expressively specify which party must pay this.

Contractually speaking, the lease may provide for fit-out costs (generally borne by the tenant, unless the landlord undertakes to contribute) or key money (though this is not typical in Morocco). Finally, it is usual that a two-month cash deposit or advance payment of rent is paid by the tenant at the signature or commencement date of the lease.

The tenants will usually bear the costs of maintenance and repair of the common areas (eg, parking areas, gardens, stairways and elevators) in the form of service charges, in proportion to the area of the premises occupied by each tenant, as compared to the total area of the property.

Generally, the service charge is agreed through a lump sum. It is still uncommon for lease agreements to provide for a clause under which the lump sum is revised annually or can be challenged by the tenant with regards to the actual costs incurred by the landlord for the maintenance and repair of the common areas.

The parties are free to decide which party will pay for operational expenses (eg, electricity, water, telecommunications and other utilities). However, the costs of utilities are usually paid by tenants on the basis of their specific needs and usage.

Most of the time, tenants will enter into agreements directly with the utility suppliers. However, in a building with multiple tenants, landlords generally enter into agreements with the suppliers of utilities, pay the related costs and recharge the expenses to the tenant according to metered individual consumption, or with a lump sum calculated according to a formula based on the size of the units relative to the total rentable area of the property.

Leases generally contain a clause requiring the tenant to take out an insurance policy covering any damage caused to third parties or to the property as a result of the tenant’s activities on the premises, or due to external events (fire, explosion, water damage, theft, etc). Landlords can take out insurance policy for the building itself but this is quite unusual.

The leases usually specify the permitted use, which is narrowly defined, and any changes require the landlord's consent. Related to commercial leases, Law No 49-16 provides that the tenant is not allowed to use the premises for an activity other than the one permitted under the lease without the written consent of the landlord. If the tenant decides unilaterally to change the use of his premises, the landlord is entitled to refuse the renewal of the lease and the payment to the tenant of the eviction allowance (indemnité d’éviction).

However, the tenant may be authorised by the judge (even after a refusal of the landlord) to carry out one or more ancillary activities or activities related to the initial activity, as long as they are not incompatible with the purpose, characteristics and situation of the building, and as long as they are not likely to affect its security.

In addition to the restriction imposed by the lease, the use may also be restricted by zoning or planning law.

Law No 49-16 governing commercial leases does not refer to any specifics regarding work initiated by the tenant. Law No 67-12 governing residential and professional leases provides that the tenant is not permitted to alter the premises without prior approval from the landlord.

In any case, parties to a lease agreement are entitled to agree on the preferred tenant’s works regime, and it is generally provided that a tenant may not alter or improve the real estate without the prior consent of the landlord, especially if the work is significant and has an impact on the structure of the building. Leases usually provide that, upon their expiry, any improvements automatically become the property of the landlord without compensation, unless the landlord requests their removal and/or the reinstatement of the premises to their original state.

As mentioned above, residential leases are submitted to the same law as professional leases (Law No 67-12). Industrial leases come under the same law as commercial leases (Law No 49-16). Specific regulations also apply to financial leases (credit bail), lease agreements for the use of agricultural land (bail à ferme), authorisations to temporarily occupy publicly owned land (autorisation d’occupation temporaire du domaine public), etc.

Insolvency proceedings are governed by Dahir No. 1-96-83 promulgating Law No. 15-95 (as amended by Law 73-17 published in April 2018). The Law does not provide for a specific regime or mechanism applicable to the lease in the tenant's insolvency. As a general rule, in the case of insolvency proceedings that do not lead to liquidation, the court may decide to appoint an administrator, who may decide to keep the lease running if the lease is considered necessary for the tenant's business operations.

The main forms of security provided to a landlord to protect against a failure by the tenant to pay rent are as follows:

  • cash security deposit for an agreed amount (limited to two months of rent for professional and residential leases);
  • bank guarantees substituting a cash security deposit;
  • prepaid rents; and
  • for significant lease agreements, the payment of rent and service charges are also often secured by guarantees given by a bank guarantee or a parent company.

With regards to commercial leases, and with certain exceptions specified by law (eg, when premises are to be totally or partially demolished for health and safety reasons, or extension works planned by the landlord), the tenant has the right to renew the lease for a similar term to that initially agreed.

The landlord must pay compensation (indemnité d'éviction) to a tenant for a refusal to renew, unless the refusal is due to serious and legitimate reasons, usually resulting from a default by the tenant under the lease (eg, unpaid rent, sub-letting without consent), or in certain other circumstances provided for by law (eg, in order to perform construction work).

A tenant is not entitled to continue to occupy real estate after the expiry or termination of a commercial lease, and the landlord may obtain a court order to recover possession if the real estate is not vacated on time. In addition, further penalty clauses may be provided under the lease agreement for occupancy without right after the expiry date of the lease.

According to Law No. 67-12 governing residential and professional leases, the landlord may go to court for the termination of the lease agreement and the eviction of the lessee, without prior notice, in the following cases:

  • use of the premises for a purpose other than the permitted use, or contrary to morality or public order or the law;
  • alteration of the premises without the prior approval of the landlord;
  • abandonment of the premises in such a way as to cause damage to it; or
  • non-payment of the rent despite a formal prior notice.

Law No. 49-16 governing commercial leases provides that the landlord may request a judicial termination of the lease if the lease provides for a termination clause (clause résolutoire) and at least three months' rent remain unpaid by the tenant despite 15 days' formal prior notice.

In addition, in several cases the landlord also has the ability to deny the right of the tenant to the renewal of the lease without paying an eviction allowance (indemnité d’éviction). These include:

  • if the tenant is in default of payment (by at least three months of rent);
  • if the tenant proceeded to make unauthorised alterations of the premises that could jeopardise the safety of the building;
  • if the tenant uses the premises for an activity other than the originally agreed use;
  • if the premises are facing collapse;
  • if the tenant is subletting the premises contrary to the terms of the lease; and
  • if the tenant loses its clientele after the premises are closed for a minimum of two years.

As mentioned above (see 6.18 Right to Terminate Lease), Law No 49-16 and Law No 67-12 entitle the landlord in certain cases to request from the Court an early termination of the lease agreement and the eviction of the tenant. However, in practice, it is a fairly long and difficult process.

Legally speaking, except in cases of state expropriation (see 2.9 Condemnation, Expropriation or Compulsory Purchase), third parties cannot terminate a valid lease agreement. Law No 49-16 provides that any public authority may terminate the lease if it is in the public interest, in which case the landlord is not bound to pay an eviction allowance (indemnité d’éviction) to the tenant.

The price for a construction project can be agreed by the parties using various mechanisms. There are two main types of price construction (which are sometimes combined):

  • lump sum price construction contracts (marché à prix forfaitaire), where the contractor performs the work for a fixed and non-revisable price agreed when signing. Except for limited cases, such as modifying or additional works requested by the client, the contractor is not entitled to request additional payment or compensation; or
  • quantity construction contracts (marché au métré), where the contractor carries out construction works for a price that depends on the quantities actually used for the works.

In connection with off-plan sales, Law No 44-00 sets the maximum percentages to be paid by the buyer for each of the following milestones:

  • 5% when signing the preliminary sale agreement;
  • 75% divided into the following three stages: i) completion of the foundation work of the ground floor, ii) completion of the structural works and completion of the finishing works, and iii) the issuance of the certificate of conformity or occupancy permit); and
  • 20% upon signing the final sale and purchase agreement and handing over the keys.

Various types of contractual schemes can be provided.

The owner can enter into separate contracts with the design team (architects, engineers, etc) and the contractor in charge of the construction works. In this case, responsibility for the design will be held by the design team, while the contractor will be liable for the works.

The owner can also enter into a single design and build contract (contrat de contractant général) with a contractor, under which the contractor in charge of the works will also take responsibility for the design.

In any case, the use of a Moroccan architect is compulsory when a building permit is requested, and said architect is responsible for preparing the conception plans and the application file for the building permit, controlling the correct performance of the works and assisting the principal during the handover of the works, as well as issuing the completion statement so as to obtain the conformity certificate or occupancy permit.

The devices that are generally used to manage construction risk under a private construction contract (and freely negotiated by parties) are as follows:

  • representations and warranties from the contractor in relation to the feasibility of the project, its awareness of the technical, environmental and legal framework applicable to the project and its ability to carry out the works under the conditions set forth in the contract;
  • holdbacks, whereby the owner retains payments of a certain amount (usually up to 10% of the contract price) of the works, in order to guarantee the remediation of any defects arising on the date of the provisional acceptance of the works. Generally, the contractor will request to replace this retainer with a bank suretyship (cautionnement bancaire);
  • performance bond: construction contracts customarily provide for performance bonds (usually from 3% to 10% of the contract price). This guarantee usually secures the payment of any penalties that may be imposed on the contractor for a delay or breach of contract, and is normally returned to the contractor or cancelled following the final acceptance of the works (occurring 12 months after the provisional handover of the works);
  • penalty for breach: the rate of the penalty for a breach of a contractual obligation can be as agreed. Although such provisions are enforceable in principle, a court may revise the amount of the indemnity if it is deemed to be obviously excessive or insufficient; and
  • insurance: construction risks are also covered through insurance policies with respect to professional constructing activities (such as civil liability insurance of contractors; professional insurance of architects, experts, engineers) and the protection of certain goods (such as all-risk insurance for a construction site and a decennial ten-year warranty due by contractors). It should be noted that the specific provisions on construction insurance, as provided for by Dahir No 1-16-129 of 25 August 2016 promulgating Law No 59-13, are not yet in force in Morocco as its corresponding implementing decree has not been issued.

Generally, schedule-related risk on construction projects is managed by including provisions regarding penalties for delay in the event that the agreed milestones or completion dates are not met (unless the delay was due to force majeure or another unforeseen event, or was the fault of the owner). Delay penalties are often capped at a certain percentage of the price of the contractor agreement.

Pursuant to Article 264 of the Moroccan Obligations and Contracts Code, the amount of contractual penalties may always be assessed and then reduced by the judge.

It is common for owners to request security from contractors to guarantee both timely completion and the correct performance of the works. A completion guarantee/performance bond and holdbacks (usually replaced by bank guarantee) are commonly provided by the contractor to the client (see 7.3 Management of Construction Risk). Finally, it is also usual for the client to request an advance payment bond, payable on first demand, to secure the repayment of any advance payments paid by the client at the beginning of the works.

Moroccan law is actually silent on whether or not contractors and/or designers may place a lien or otherwise encumber a property in the event of non-payment by the client. As the real estate property is generally owned by the client, the client is therefore the only subject entitled to use the property as collateral.

Generally, in the event of a breach of a payment obligation by the client, the contractor and/or designer is entitled to a monetary penalty for the breach or actual damages incurred due to the owner’s breach, and to legally suspend the construction works (based on the exceptio non adimpleti contractus doctrine (exception d’inexécution) whereby a party that commits a fundamental breach of contract is not entitled to compel the other party to fulfil its counter obligations).

Generally, the construction contract will include conditions precedent to be satisfied before the handover can take place.

In practice, upon completion of the works, the parties will acknowledge a provisional handover/acceptance (reception provisoire) of the works, even if there are some minor defects or snagging still outstanding, which the contractor undertakes to make good within the guarantee period (normally lasting for one year). Once the guarantee period has elapsed, a final handover/acceptance takes place (reception definitive).

In any case, upon the completion of the construction, the owner must obtain an occupancy permit (permis d’habiter) or, if the building is not dedicated to private lodging, a certificate of compliance/conformity (certificat de conformité), certifying that the building erected is in accordance with the provisions of the building permit. This certificate is a prerequisite to the use of the erected building. Use of the building without such permit may give rise to fines and criminal liability.

VAT is not payable on the sale or purchase of real estate. Pursuant to Article 89-I 4° of the Moroccan Tax Code (MTC), VAT is only payable on real estate work, subdivision/allotment operations and real estate development transactions (the sale of plots in a real estate project are subject to VAT at the rate of 20%).

Acquisitions of large real estate portfolios do not generate different tax consequences to the purchase of a single real estate property: if they consist in the direct purchase of assets, they are subject to registration duties and the property registration fees (see 2.10 Taxes Applicable to a Transaction).

The only way to mitigate the tax cost is to purchase shares in a company that does not qualify as a real estate company. In this case, the transaction would be exempt from registration duties and no property registration fees would be due (see 2.10 Taxes Applicable to a Transaction).

Two main municipal taxes are paid on the occupation of business premises: business tax and the tax on municipal services.

Business Tax

In accordance with Article 6-II-1° of Law No 47.06 on the taxation of local authorities, all newly created professional activities benefit from a total exemption of business tax for a period of five years from the year in which the activity begins. Business premises benefit from this exemption.

In principle, the taxable basis for business tax is based on the gross annual rental value of all the assets at the company's disposal (including assets purchased and on rent).

Companies that do not own the premises they occupy must also include in the taxable basis the amount of rent paid to the owner for all types of leases (real estate, leasing, etc).

The applicable rate depends on the nature of the activity and ranges from 10 to 30%, applicable on the annual rental value of assets used for the activity.

Tax on Municipal Services

The taxable basis for the tax on municipal services is determined by reference to the rules applicable to business tax. In principle, the municipal tax services taxable basis is the same as for business tax (the taxable basis is reported in the same return for both taxes).

The tax rate on municipal services tax varies according to the geographical location of the activity, as follows:

  • 10.5% for properties located within the perimeter of urban municipalities, delimited centres, and summer, winter and spa resorts; and
  • 6.5% for properties located in peripheral areas of urban municipalities.

Hence, companies that do not occupy the premises or buildings they own are not subject to business tax and municipal tax on such properties. The lessee is subject to these taxes relating to these properties on rent.

Distinction must be made between natural persons and companies.

Natural Persons

Real estate income of natural persons is subject to the following rates:

  • less than MAD30,000: exempt;
  • between MAD30,001 and MAD120,000: 10%; and
  • more than MAD120,000: 15%.

If the real estate income is paid by a professional (public or private legal entities or natural persons), the individual income tax is withheld by the latter on behalf of the real estate owner, though owners can opt for a withholding waiver and handle the filing and tax payment requirements themselves.

Capital gains on real estate properties are subject to individual income tax at the rate of 20%; however, in the case of capital loss, the minimum tax payable amounts to 3% of the sale price.

Exemption

The following are exempt from individual income tax:

  • the amount of the gross annual taxable real estate income that does not exceed MAD30,000; and
  • capital gains made by any person who, during the calendar year, transfers buildings with a total sale price not exceeding MAD140,000.

Companies

According to the MTC, foreign investors owning property in Morocco are subject to Corporate Income Tax on revenues deriving from that property.

The following rates apply, depending on the taxable income:

  • net tax income lower than MAD300,000: 10%;
  • net tax income between MAD300,000 and MAD1,000,000: 17.5%; and
  • net taxable income higher than MAD1,000,000: 31%.

Double Tax Treaties

Double tax treaties signed by Morocco generally provide that income from immovable property may be taxed in the Contracting State in which the property is situated.

Based on these provisions, the domestic treatment provided by the MTC is generally confirmed and the rental income derived by the foreign investor will be subject to corporate income tax in Morocco.

Legal entities such as companies that are subject to corporate income tax and that own real estate can benefit from depreciation deductions, which are deducted within the limits of the rates allowed, according to the practices of each profession, industry or branch of activity.

The rates recommended for the tax deduction of the taxable basis by the tax authorities are:

  • residential or commercial building: 4%; and
  • industrial buildings built on a permanent basis: 5%.

Furthermore, the main recent innovation regarding real estate ownership is the implementation of Moroccan REITs (OPCIs), which benefit from the following tax incentives:

  • full and permanent exemption from corporate income tax in respect of their activities and operations;
  • dividends received by OPCIs are exempt from withholding tax;
  • interest received by OPCIs is exempt from withholding tax, whether from Morocco or abroad;
  • OPCIs may benefit from the CIT exemption for capital gains on the sale of transferable shares;
  • acts relating to changes in capital and amendments to the statutes or management regulations of OPCIs are exempt from registration fees; and
  • dividends distributed by an OPCI to a foreign investor are subject to withholding tax at the rate of 15% (provided that a double tax treaty provides for a lower taxation rate).
Gide Loyrette Nouel Cuatrecasas

Tour Crystal 1, 7th Floor
Boulevard Sidi Mohammed Ben Abdellah
Quartier Casablanca Marina
20030 Casablanca

+212 0 5 22 48 90 00

+212 0 5 22 48 90 01

morocco@gide.com https://www.gide.com/en/regions/morocco
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Law and Practice in Morocco

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Gide Loyrette Nouel was one of the first business law firms to set up in Morocco, in 2003. The Casablanca office brings together about 15 Moroccan and French law practitioners, who can prepare documents in French, English, Spanish or Arabic. Clients include institutional investors, investment and commercial banks, leading Moroccan groups, public institutions and foreign investors operating in various sectors of activity (banking, insurance, telecommunications, agribusiness, real estate, tourism, utilities, infrastructure, etc). The firm benefits from a network of long-standing relationships with local counsels in most jurisdictions in Africa, including Bowmans for the South African region and Udo Udoma & Belo-Osagie for Nigeria; Gide is their main point of contact for African French-speaking countries. Gide is also an active member of the Lex Mundi network of independent law firms.