Tim Elliot: This is Lawgical, the U.A.E.’s first and still only regular legal podcast. Welcome. My name’s Tim Elliot. Lawgical comes to you from the Dubai-based legal firm, HPL Yamalova & Plewka, and as ever, here is the Managing Partner, Ludmila Yamalova. Good to see you.
Ludmila Yamalova: Good to see you too, Tim.
Tim Elliot: Here’s part two of four podcasts, and we’re looking at the cost of renting property here in Dubai specifically. We’re actually looking at the rent valuation certificate here in Dubai. Now this time, increasing rent based on that certificate. Once again, Ludmila, we’re back to one of the U.A.E.’s hottest topics. Property is dinner party conversation wherever you go. Everybody talks about it. It’s also very often everybody’s least favorite topic as well because for me, in my own life, it’s that time of year again and I’ve been playing that age-old game of just how high is my landlord going to try to raise my rent. You know the story well.
Ludmila Yamalova: Indeed. It has been a story that’s been on a lot of people’s minds and in a lot of people’s lives, and one that is hot on the one hand, and very sensitive and painful on the other hand. For the same reasons as we had discussed before, in the last year, property prices in the U.A.E. and in Dubai in particular, have gone up and shot through the roof, in many cases doubled and maybe even tripled. Certainly, with regards to rent in particular because if you recall during COVID, we experienced here quite a bit of relief, almost like a holiday. They called it, remember, rent holidays, the payment holidays, and that was the term that was used during COVID where landlords, for example, in particular for office space, provided commercial tenants with what was called a payment holiday or rent holiday. Since then, things have changed dramatically and for some quite favorably, that is for owners of properties. For tenants, it is a little less favorable. Yes, the prices are going up, on the one hand. On the other hand, both tenants and landlords, though I have to say tenants perhaps more so than owners of properties, have become a lot more educated and better informed about the laws in the U.A.E. and in Dubai, especially with regards to the rental and the real estate market. In the past, eight or nine years ago, whenever the landlord would send you an eviction notice as a tenant, in most cases, people would just take it at face value and move out.
In the last several years, and I’d like to credit perhaps even us for this podcast and other social media outreach, people have become a lot better informed about their rights and they are less scared because, don’t forget, that is a fairly significant factor as well in people’s decision making. Even if they know that the law is on their side, what does that mean? I tell my owner, the landlord that no, you cannot increase rent, but he disagrees with me, so what do I do? A lot of times people just do not know what to do. They are afraid to go to court. Also, even emotionally and psychologically, that was just too much for them to handle, so they would just move out. Well now, they are better informed, and they are less risk averse, I guess. They actually take their chances and go to court. I have to tell you, also I think COVID has helped a lot in that regard because it has made a lot of the government services, including judicial services and other regulatory services, available online, which means now you don’t have to go, as the case was before, to the rental court and stand there in line and appear before a hearings and wait for hours on end, and then be afraid and your little knees shaking every time you had to appear before a judge who only spoke Arabic, and then you were surrounded and overwhelmed with those people around you. These are real-life stories.
Tim Elliot: Sure.
Ludmila Yamalova: We’ve been there on that particular path many times over and for a lot of people it was not really worth it. Well now, all of these services are available exclusively in the digital format, which means you no longer can, even if you wanted to, go to the rental court and apply their physically or appear in the hearing physically. No. Everything is online. That’s been a great blessing for everyone, for owners and especially for tenants because they don’t have to leave work, for example, now to appear before a judge in the rent court. They can actually do it all from the comfort of sitting at work through Zoom or Microsoft Teams. That’s with regard to the appearance before the courts, but also submission of all the documents and also being able to trace or track your case because before, the only way to find out, you had to go and physically find out when is the next hearing and what has been submitted. Now, everything the parties submit in these cases is stored and accessible online. That’s been one of the greatest blessings of COVID I’d like to think. Now people are doing this a lot more. Therefore, owners similarly now know and find intelligent and well-educated tenants who know about RERA calculator, but are also equally better informed now and know that there is this valuation certificate that we can apply for though the Land Department and obtain the certificate or a valuation of our property that we believe is more representative of the current market value. Similarly, for them, that service is now is available online as well. We have discussed this before. It is a submission through the Dubai REST App of the property’s specifications, photos, and a description of the property, plus a 2,000-dirham fee for the valuation certificate itself. Then I have my valuation certificate, so if you said you were renting the property for 100,000 dirhams, I now have a certificate that states that same property is worth 150,000 dirhams. Now armed with this certificate in hand, that trumps or supersedes what the RERA calculator shows, which until you have the certificate in hand, becomes basically the benchmark upon which RDC or the Rent Dispute Centre makes its decision about whether a rent increase is allowed or not.
Tim Elliot: Well, the valuation certificate is an official document, isn’t it? That’s the point. You proved that your property is worth more than perhaps it was because obviously the market is hot at the moment. What kinds of percentages in terms of rent increases are allowed? Just give us an overview. I want to look at them specifically in the next episode. But just as on overview, what’s the banding? How does that work?
Ludmila Yamalova: The range is from 5% to a maximum of 20%. That is what’s allowed. Obviously, (1) this is if you want to apply the law, and (2) if you want to challenge it in court. Person to person, if you want to just do it outside of court, you can agree on whatever. If you can agree on a lower percentage, and say, okay, 5%, but I will give you 3% or I’ll take 3%. That too could also work, and equally so, for some tenants who think maybe 20% the maximum that is allowed is not fair to the landlord because the properties are so much more valuable or because they are paying so much less, they could offer a higher percentage. But by law, that is the range, 5% to 20%.
But interestingly enough, remember we are talking about the valuation certificates, so now I have this valuation certificate that gives me the right to ask you for higher rent. There are a number of other conditions that are attached to it, one of which is that first of all, you can only try to increase my rent for the next rent term. You cannot do it in the middle of the term, which is important because the property market is hot right now. Let’s say I’m in six months into my tenancy contract, and you as a landlord went and got a valuation certificate because you know that I am now paying a lot less than what the market, others around you are paying, for a similar property. You go and say, look, I got an evaluation certificate. (1) You can’t really do anything with it now because you can only exercise the right to increase rent for the next rental period. (2) You need to be closer to the renewal of the contract and then you still need to still serve the notice to the tenant that you want to increase rent. So, it is not just saying, look, I’ve got a valuation certificate and you have to pay higher rent. So, (1) it has to be for the new rent, for the renewal of the term, and (2) it has to be with notice and the notice has to be by law ultimately because an increase in the rent means you are changing a term in the contract, and the law states it has to be a 90-day notice if either party wants to change any terms in the contract. Therefore, three months before your tenancy agreement with your tenant is expiring, you need to submit notice to the tenant to notify them you will be increasing rent.
Let’s say the RERA calculator shows there is no allowable increase, but look, I’ve got a valuation certificate and I can increase rent, but then the most important element is that as a tenant, you still have to agree to that. Just because you, the landlord, shows me the valuation certificate, it is very official and it shows the RERA stamp and so on and so forth, that in and of itself, does not change the contract. Ultimately, (3) for the rental contract to be changing, and changing the price is changing one of the material terms of the contract, the parties still have to agree, i.e., the tenant still has to agree. In other words, just because you are a landlord armed with this very fancy looking valuation certificate that shows your property is now 30% higher, the value for rent, that is, is higher than what I’m paying, does not automatically entitle you to increased rent. I still, as a tenant, need to agree to it. This is important. If I don’t agree to it, then where are we? We’re basically where we would be if you didn’t have a valuation certificate and you still wanted to increase rent. In other words, we need to take it to the authorities to mediate between us and to adjudicate our dispute, and that is the Rent Dispute Centre (RDC).
Tim Elliot: That’s a very important point. Just because you have, as a landlord, obtained a valuation certificate, that doesn’t automatically mean, alright, the rent’s going up. That’s not the case, is it?
Ludmila Yamalova: Exactly. That is not the case, and this is very important to highlight. Let’s go back to my example. I am paying. I’m your tenant. You’re my landlord. I’m paying you 100,000 dirhams.
Tim Elliot: That’s real likely.
Ludmila Yamalova: Yes. I’m sure it is. And now you’ve come back to me and say, look, I’ve got a valuation certificate that now shows this property value is 120,000 dirhams, so it’s a 20% increase in the value of the rent, so I am going to increase your rent by 20,000 dirhams, or 20%. That is not the case. That’s not how it works. The valuation certificate only sets the base for the market value of that property. But as we will talk about later in terms of the percentages that are allowed for an increase, it’s not based on the actual market value of your property or rental value of your property today, but rather how much the margin between my current value and the current market value. Let’s say in this case, the property is 20% below the market value. This means that by law it only allows you to increase rent by 5%. Let me rehash this again. Here it is. I’m paying 100,000 dirhams. You just got a valuation certificate that shows that the same property is now worth 120,000 dirhams in rent. That does not give you the right to increase it by 20,000, but rather, the rental RERA index is not directly related to what the current rent is, but rather the margin between, the difference between what the current market rate is and what you are paying. It is based on the difference. If it is within 11% to 20% below the current market rate, then the allowable increase in that case is only 5%. In this case, as much as you want to be the landlord and exhibit your intelligence and being well informed and armed with your fancy valuation certificate from the Land Department with all the relevant stamps that show the property is now worth 120,000 dirhams, by law you can only increase it 5%, which means 5,000 dirhams, and not 20,000 dirhams.
Tim Elliot: Yeah. Again, it’s important to note that because in certain areas, some properties are 200,000, some very similar properties are 100,000, but they’re rented at different times at different points in a cycle, bought at different times, sold at different times, tenants are at different stages of their life, if you like, in the property, so apples are not always apples, are they?
Ludmila Yamalova: Exactly. It’s interesting. This particular point struck me because just recently I had a client who came in and he was talking about this. This is one of my clients who is a well informed client and he knows about the valuation certificate. He said, well, I’m renting out this office, and I am trying to increase rent. The tenants are being very smart and telling me I cannot increase rent because the RERA calculator does not allow for it, but I know about the valuation certificate, so I am going to get a valuation certificate which will show that the property – because I have done something similar for a similar property in that same neighborhood, or even the same floor, so I know now, it’s 20,000 dirhams, basically this example, the number I’m using, is more or less the same example. It is a real-life example. My client was very proud of himself and says, I can now increase by 20,000 dirhams and if they don’t want it, they can move out. I said, well, not exactly. You can’t actually increase it by 20,000. You can only increase 5% from their current market value. As small of an issue as it may be, actually I realize, it’s a lot more significant for both landlords and tenants to understand, and hence, why we are doing this and zeroing in on this specific issue.
Tim Elliot: The rental valuation certificate is an official reference document, but there is a lot more here. We’ll looking at the banding and the ranges in a future podcast in this series. That’s the second of four in this series, looking at the rent valuation certificate here in Dubai. We’ll look at a real-life rental dispute committee case example later in the series. We’ll also look at the percentages I mentioned there just not, exactly how much you can increase rent in part three in the next episode. As always, thanks for watching, listening, or both. Thanks to our legal expert, the Managing Partner here at Yamalova & Plewka. That’s Ludmila Yamalova. Thank you.
Ludmila Yamalova: Always wonderful to be chatting with you, Tim.
Tim Elliot: Find us at LYLAW on social media: Facebook, Instagram, TikTok, LinkedIn, YouTube. You can find all our podcasts at LYLawyers.com. If you’d like your legal question answered in an episode of Lawgical or you’d like to talk to a qualified U.A.E. experienced legal professional, click the Contact button, once again, LYLawyers.com.
