1) Dubai Tenancy Law

What’s this all about… in a nutshell?

There are two laws that need to be referenced when looking up matters on Dubai tenancy; law no. 26 of 2007 and law no. 33 of 2008. This addresses everything from eviction, landlord & tenant obligations and rent disputes.

In Dubai to evict a tenant upon expiration of a contract, a landlord must give a tenant a 12-month written notice sent through registered mail. If however, the landlord wishes for the tenant to leave before the expiration of his/her contract he also must submit the notice via the notary public or registered mail, and state one of the reasons as mentioned in Article 25, clause 1 – these include reasons such as a tenant not paying the rent due or if the tenant is caught subletting the property.

When it comes to rental price increases, there have been different decrees issued since 2007 by RERA, the Real Estate Regulatory Authority. The most recent being decree no. 23 of 2013, issued to regulate the rental value by putting different percentage increase caps based on the difference of a property’s current price on a tenant’s contract compared to actual market price. The percentage increase that applies for a particular unit can be checked through the Rent Increase calculator on the RERA website. It’s important to note that these percentage increase caps only apply to properties that are already being rented out. Therefore brand new properties can be put on the rental market for any price the landlord sees fit.

 

The Dubai Rental Market is governed predominantly by two laws, that must always be read alongside one another. To better understand this we will refer to the Tenancy Law as the combination of the following two laws:

  1. Law No. 26 of 2007 regulating the relationship between landlords & tenants in the Emirate of Dubai; and
  2. Law No. 33 of 2008 amending some provisions of Law No. 26 of 2007 Regulating Relationship between landlords & tenants in Dubai.

 

The above laws govern the relationship between landlords & tenants for both residential and commercial properties. The main points that the Tenancy Law addresses are as follows:

  • Both the landlords’ & tenants’ obligations as per the Tenancy Contract
  • The period of tenancy and renewals
  • Cases in which the landlord may demand eviction from the tenant prior to the expiration of the Tenancy Contract
  • Cases in which the landlord may demand eviction from the tenant upon to the expiration of the Tenancy Contract
  • General rules regarding rent disputes and settlement.

 

Since 2007 the Dubai rental market has witnessed various fluctuations, which led to a few decrees being passed to regulate the rent prices. Such decrees include Decree No. (1) of 2009 and Decree No. (2) of 2011 on the Rental value in the Emirate of Dubai. Each decree that was issued specified a new maximum rent increase percentage of property units, which the Real Estate Regulatory Agency “RERA” have named The Rent Index.

The latest decree on regulating the Rental Value in the Emirate of Dubai is Dubai Decree No. 43 for 2013, which specifies the following:

The percentage of maximum increase for a rental property in the Emirate of Dubai shall be determined upon renewing the tenancy contract as follows:

  1. With no increase in the rental price of the property, if its rental price is less than 10% of the average market rental rate;
  2. 5% increase if the earlier rental price is 11 to 20% lower than the average rental price for a similar property;
  3. 10% increase if the rental price is 21 to 30% lower than the current rental price for a similar property
  4. 15% if the rental price is as low as 31 to 40% than comparable ones; and
  5. 20% if a property’s rental price is more than 40% less than the average.

 

It must be noted at this stage, that due to the changing trends in the real estate market coupled with macroeconomic factors such as the increasing influx of expats, and with Dubai Expo 2020 right around the corner,  the Dubai property law will be expected to develop and evolve for the betterment of all parties including developer, agents, landlords and tenants and the overall health of the country’s economy.

2) Procedure

The procedure for rental contracts starts at the moment the landlord and the tenant agree to form a contractual relationship between each other.

This occurs when the parties agree on:

  • The period of the tenancy: There is no prescribed period for tenancy as per the law. This is completely between the landlord and the tenant. The norm for residential properties is that the period is for a duration of one year. The tenancy contract is automatically renewed for a similar duration unless :
    • Otherwise prescribed in the contract between the landlord and the tenant. For example, the landlord may clearly stipulate in the contract that at the end of the tenancy he wants the tenant to vacate the property.
    • The landlord or the tenant fails to fulfill their obligations under the Tenancy Law. For example, the tenant fails to pay the rent due or the landlord fails to hand over the property in a suitable condition.
    • The landlord sends a Notice for Eviction “NOE” to the tenant at least 12 months prior to the expiry of the Contract through the Notary Public or by registered mail as per Article 25(2).

 

For commercial properties, it is advisable for the parties to sign Tenancy Contracts that are more than one year in duration so as to allow for enough time to complete any necessary fit outs required, and so the time invested in set-up of business operations may truly be enjoyed by the occupant for an extended period.

The tenancy contract should also state:

  • A rent price, within the range of the Rent Index
  • Whether the property is furnished or unfurnished
  • Payment terms: The standard payment terms are usually one, two or quarterly payments depending on the preference of the landlords. Having said that, many landlords are more likely to agree to a lower rent price if the tenant makes one full payment for the property in advance.

Once the initial terms are agreed upon, the parties will then sign a Tenancy Contract.

 

Regulation of Tenancy Contracts in Dubai

The authority that is responsible for regulating the Tenancy Contracts is RERA. In addition, article 4 of the Tenancy Law requires Tenancy Contracts to be drawn up in writing and registered with RERA as the law forbids the Rent Dispute Settlement Committee “RDSC” and other government entities from considering any matter arising from a Tenancy Contract that has not been registered with RERA.

Hence, RERA has developed the Ejari system. Ejari is a web-based Tenancy Contract registration system. Moreover, only landlords and property management companies and real estate agencies can register through this system. An Ejari registration fee of 195 dhs is payable by the landlord. If the landlord does not perform the Ejari registration, he may be liable for a fine.

 

The birth of Ejari has allowed for:

  • Standardization of all Tenancy Contracts and rent receipts with RERA
  • Quick registration of rental disputes with the Rent Dispute Settlement Committee in order to determine a speedy judgment.
  • Clears out any inconsistencies with properties as all properties have to be registered and approved by RERA before creating Ejari contracts.

Helps RERA clearly understand rent fluctuations so as to produce an accurate rent index for each area in Dubai.

 

Landlords must provide:

  • Title Deed to the property
  • Original tenancy contract
  • Passport copies/Emirates IDs
  • Dubai Electricity and Water Authority “DEWA” bill

3) Eviction

The topic of eviction is arguably the most inquired and debated subject when it comes to Tenancy Contracts. This classic dispute arises usually because the landlord wants the tenant to vacate his property either before or on the expiry of the contract against the tenant’s will. The RDSC is full of rent dispute cases dealing with eviction of tenants both from residential and commercial properties.

This is why it is important to understand the cases in which a tenant can be evicted and when the landlord does not have the right to evict the tenant.

  • Article 25(1) deal with cases where the landlord may evict a tenant from the premises before expiry of the Tenancy Contract
  • Article 25(2) deal with cases where the landlord may evict a tenant from the premises upon expiry of the Tenancy Contract

Although the difference in the wording of the sub-articles is subtle, the conditions associated with each one are completely different.

Article 25(1)

This article provides that the landlord may demand eviction of a tenant prior to expiry of tenancy contract  in the following cases:

  • If the tenant fails to pay rent value, or part thereof, within thirty (30) days of the landlord’s notification for payment; unless parties agreed otherwise.
  • If the tenant subleases the property, or part thereof, without the landlord’s written approval and in such case eviction shall be applicable to the tenant and the subtenant, and the subtenant’s right to refer to the tenant for compensation shall be reserved.
  • If the tenant uses, or allows others to use, the property for illegal or immoral activities.
  • If the rented property is a commercial shop and the tenant left the same without occupation and without legal reason for 30 continual days or 90 non-continual days in one year; unless the parties agreed otherwise.
  • If the tenant causes changes that endanger safety of the property in a way that it cannot be restored to its original condition or if he causes damage to the property intentionally or due to his gross negligence to take proper precautions or if he allows others to cause such damage.
  • If the tenant uses the property for purposes other than the purpose it was leased for or if he uses the property in a way that violates planning, building and land using regulations.
  • If the property is in danger of collapse, provided that the landlord must prove such condition by a technical report issued by Dubai Municipality or accredited by it.
  • If the tenant fails to observe legal obligations or tenancy contract conditions within (30) days from date of notification by landlord to abide by such obligations or conditions. For example, if the tenant fails to pay the rent due or sublets the property to a third party without the prior written consent of the landlord, he may be face eviction if such default is not remedied within 30 days’ notice from the landlord.
  • If development requirements in the Emirate require demolition and reconstruction of the property in accordance with government authorities instructions.

And for the purpose of this clause (1) of this Article the landlord must notify the tenant through the Notary Public or by registered mail.

 

Article 25(2)

This article states that a landlord may demand eviction of tenant upon expiry of tenancy contract limited to the following cases:

  • If the owner wishes to demolish the property for reconstruction or to add new constructions that prevent tenant from benefiting from the leased property, provided that necessary licenses are obtained.
  • If the property requires renovation or comprehensive maintenance which cannot be executed while tenant is occupying the property, provided that a technical report issued by Dubai Municipality or accredited by it is to be submitted to this effect.
  • If the owner of the property wishes to recover the property for use by him personally or by his next of kin of first degree provided that he proves that he does not own a suitable alternative property for that purpose.
  • If the owner of the property wishes to sell the leased property.

And for the purpose of clause (2) of this Article, landlord must notify tenant with reasons for eviction at least twelve months prior to the determined date of eviction subject that such notice be sent through the Notary Public or by registered mail.

Article (26)

This article states that if the landlord wishes to evict the tenant under Article 25(2)(c), then he shall not rent the property to others for at least two years for residential properties and three years for non-residential properties from date of recovery of the property. If the landlord does not abide by this condition, the tenant shall have the right to apply to the RDSC to be compensated as a result of his eviction from the property premises. It’s important to note that it is practically difficult for the tenant to apply to the RDSC to get compensated as it is a costly matter which may not yield a large compensation to the tenant unless in circumstances where the tenant rented out a large office and has expended a great deal for fit out purposes.

4) Rent Increases

From January 1st, 2008 the rental cap was set at 5%. This meant that landlords could not increase the rent higher than 5% of the existing rental agreement for a period of 2 full years starting from the period of the commencement of the lease. However, based on the latest decree No. 43 for 2013, different rent caps now exist according to the current contractual rent value of the property. Unless otherwise agreed, landlords are not at liberty to demand any increase in rent during the tenancy period and, on renewal.

The law makes it clear that any increase in rent, if not mutually agreed, shall be in accordance with the rental increase calculator maintained by the Real Estate Regulatory Authority. Although this was not previously the case, the law does allow the landlord to increase the rent after one year if the rent calculator allows. The rent calculator can also be found on the Dubai Land Department’s website http://dubailand.gov.ae. In any case, all notices for increase in rent must be made at least 90 days prior to the expiry of a Tenancy Contract.

If the landlord chooses to increase the rent beyond the prescribed rate as per the rent calculator, the tenant may choose to negotiate with the landlord to reduce the amount of the rent to fit the rent bracket for the property. Should the landlord refuse to lower the rent, then such matters shall be referred directly to the Rent Dispute Settlement Committee.

5) Rent Disputes

The Dubai’s Rental Dispute Settlement Centre (RDSC) located at the Dubai Land Department has now replaced the earlier Dubai Municipality Rent Committee effective from November 2013. The establishment of the new RDSC has come about as a result of HH Sheikh Mohammed Bin Rashid Al Maktoum’s Decree No. 26 for 2013.

To settle claims and disputes brought about by landlords or tenants within 75 days.

  • The Centre will handle most rental disputes relating to properties located within the Emirate of Dubai including free zones.

6) Procedure

There are four stages that a dispute may go through with the RDSC. The disputing parties may choose to settle the case at any stage throughout the dispute:

  1. Arbitration & Reconciliation Department: This is the first stage where the landlord and tenant convene to resolve rental disputes amicably. The maximum period allocated for this stage shall be 15 days after which the RDSC will refer the dispute to the next stage.
  2. Department of First Instance: This court will hear the claims brought out between in the Parties in a hearing format. The Parties will bring forward their claims in the form of a memorandum. The Department will attempt to settle the dispute within 30 days of the lawsuit being lodged.
  3. Department of Appeal: only for claims worth more than AED 100,000; and issue a verdict within 30 days.
  4. Enforcement Department: to enforce decisions of the First Instance and Appeal Departments. This is the stage where the winning party may be able to pressure the other party to pay the adjudged amounts through various legal means.

7) Fees & Required Documents

  • Claimant to pay 3.5% of annual rent with a minimum of AED 350 and a maximum of AED 20,000
  • Other fees may be levied by RDSC on Claimant for summoning experts, payment of expert’s fee, fee for deposit of rent with RDSC etc
  • You may have to separately pay for a newspaper advertisement in a local newspaper, in case the defendant fails to show up for a committee hearing.
  • The Claimant will also need to submit his name with designation (either lessor, lessee, landlord or occupant) with current address.
  • The facts of the dispute, the Original tenancy contract
    Notarized PoA (Power of Attorney) in favour of person authorized to represent the Claimant
  • Copies of cheques, if any, that were submitted to the landlord.

Key Takeaways

For Dubai landlords:

  • Understand Article 25 of the Tenancy Law to learn when to increase rents and how to evict a tenant before or upon expiry of the tenancy contract.
  • Ensure the property is in a suitable condition for handover i.e. provide regular maintenance to the property and do not allow it to fall in disrepair.
  • Have a clear and simple Tenancy Contract encompassing all the standard terms and conditions.

 

For Dubai tenants:

  • Maintain a positive relationship with your landlord i.e pay rent on time, maintain the property by performing small repairs.
  • Keep an eye out for the remaining duration of the lease in the event the landlord wishes to increase the rent or send you a notice for eviction.
  • Have a clear and simple Tenancy Contract encompassing all the standard terms and conditions and make sure that the tenancy contract is registered with Ejari.