The downturn exposes the uncovered matters

In the Kuwaiti real estate market, many investors have grown accustomed to a seemingly simple yet legally complex arrangement: a group of individuals pool their funds to purchase a property—whether for investment, development, or leasing—and the property is registered in the name of one of them or their company, while the others retain their rights “by agreement” only. There are no official documents, no formal contracts—only promises, internal papers, and sometimes messages exchanged through phone applications.

This model, legally known as a Silent Partnership (or Partnership by Agreement), has become widespread in real estate portfolios and unlicensed funds, especially during the recent real estate boom before the downturn. Everyone wanted to enter the market, benefit from the rapid rise in prices, and “participate” without “showing.” The result was that properties were registered in appearances under fictitious names, while financed and managed by covert partners, some of whom have no official connection to the transaction.

But as usual, a downturn reveals the truth.

When prices began declining, and some portfolios considered exit strategies, the major issue emerged: who is the owner? Who decides to sell? Who is accountable? And how are profits distributed? Here, the hidden partners face a bitter reality: the law does not protect those whose rights are not documented.

In Kuwaiti jurisprudence and case law, a Silent Partnership in real estate is not regarded as a form of apparent joint ownership but as a concealed partnership that is not visible to third parties—unless registered or officially announced. In principle, the existence of a formal deed is not required to establish the partnership or to prove contributions; relationships among partners can be proven through all means of evidence—including testimonies and circumstantial proof—unless a specific legal text prohibits this.

However, the problem arises when disputes occur or a partner wishes to dispose of the property, request division, or withdraw. At that point, the rights of the concealed partners collide with the principle that “real estate transactions are only effective against third parties after registration,” according to the provisions of the Real Estate Registration Law. Consequently, those whose names are not registered cannot have their ownership recognized against third parties, nor can they seek judicial remedies related to disposal, sale, or division unless they first prove the existence of a genuine partnership with valid documents.

Despite some flexibility, Kuwaiti courts do not relax proof requirements when it comes to real estate because of the importance of social and financial stability. Widening acceptance of informal documents or evidence could open the door to disputes rather than resolve them.

Even more so, some assume that simply filing a lawsuit allows them to request the sale of the property by auction, based on “sale jurisprudence.” However, the reality is different. This is not an apparent joint ownership case but rather a “nominal ownership with internal conflicting interests,” which requires proving the right first, then the nature of the relationship, and finally participation in costs and risks—all without official documentation—in a legal environment that does not favor informal proof in real estate matters.

The downturn also exposed a flaw in real estate investor culture: neglecting documentation in favor of speed, personal trust, or the desire to avoid registration—whether due to financing controls or to avoid TAFIL restrictions. When properties are registered under names that do not reflect the true ownership, the result is a double loss: a partner unable to dispose of the property, and another unable to get rid of it.

The solution is not only in amending the law but also in fostering a culture of proper documentation, developing flexible legal tools such as formal real estate partnership agreements, and parallel land registers that protect rights without disclosing partnership details publicly. Moreover, the concept of Real Estate Silent Partnership should be reconsidered within Kuwaiti law, as it is a widely used investment model that currently lacks regulatory protection.

Real estate investment should not depend solely on trust but on transparency, proper documentation, and good faith translated into clear contractual terms. True trust, ultimately, does not eliminate the need for an official document… one that proves, protects, and safeguards rights during times of crisis.