Ludmila Yamalova: Welcome and welcome back. This is Ludmila with Lawgical with LYLAW. To recap, in the previous segment we discussed the application of the VAT on the real estate sector in the U.A.E.
In this segment, we’ll discuss the issue of insurance coverage as it applies to the real estate sector in the U.A.E. In general, there are two types of insurances: One that applies to owning properties and the other one that applies to renting properties. With regard to ownership insurance, there are differences in standalone buildings and those that are jointly owned. Standalone buildings are usually referred to as villas and standalone homes and any other properties, be it warehouses or any other commercial buildings.
Jointly owned properties are those that are owned jointly by a number of owners, most commonly known as apartment buildings, or office buildings where the units are already owned jointly by multiple owners.
In the case of standalone buildings, there is only really one type of insurance and that is owners’ insurance that is taken by the owner of the property.
With regard to jointly owned properties, there could be two types of insurances, that is (1) one that is held by the owner of the building itself. Usually in the U.A.E. that is considered to be either a developer or a homeowners’ association or a management company where the insurance applies to the building itself and coverage of all the common properties and common structures. Also, (2) there is nonowner’s insurance that covers the individual units within the commonly owned property.
For example, in the event of a commercial building, there is coverage in the event of flooding or fire, there is coverage for the building itself, and all the common structures. That would be the responsibility of the building insurance. But anything within the walls of a particular unit would be the responsibility of the owner. Therefore, if the owner does not take ownership insurance or property insurance for that specific unit, then they will not be able to claim coverage for rebuilding, for example, the content or rebuilding of the structures of an individual unit by virtue of the building insurance.
In the U.A.E., generally speaking, there is a presumption that all commonly owned buildings do have building insurance. However, the scope of that insurance policy needs to be carefully examined because the parties to the building insurance are often not the owners themselves, so they rarely have the visibility of the policies and the terms and conditions included in it. Therefore, all owners of properties are advised to also have their own property insurance that is based on their ownership of that property.
Surprisingly, today ownership insurance or property insurance is still not very common in the U.A.E. The hope is that it will become more common and as it becomes more common some of the relevant aspects that owners should look at in securing insurance should relate to the scope of insurance itself and obviously the nature of the insurer.
With regard to the scope of insurance, some of the relevant aspects the owner should look at is the price for rebuilding the unit and the value of that unit. These terms and conditions should be discussed with the insurance company early on and not just presumed by default, which tends to be the practice. Therefore, as an owner you should take an active interest in understanding the value of your property and what the insurance coverage includes with regard to the damage to your property. For example, there are potentially two types of coverage that can exist: (1) One regarding rebuilding your property and (2) replacement of the property.
For example, if your unit is subject to a building that was caught on fire and that building will take three to five years to rebuild, for which the building management insurance will pay. However, you will not have the benefit of your unit for the next three to five years while the building is being rebuilt. Therefore, depending on your insurance coverage, you may or may not have a choice. If you have negotiated your insurance policy well, then you might have, or you would hopefully have, a clause that would allow you to request the insurance company to pay you the value of your unit which is called the value of replacement, versus the value of rebuilding. Most insurance policies start with only offering you the value of rebuilding. In other words, they will only pay for the rebuilding of your particular unit. For you to receive that compensation, you would have to wait for the building to be rebuilt and only then you’d be able to get the benefits of the insurance coverage to have your unit rebuilt.
That is why it is helpful to negotiate an alternative kind of coverage where you have the right to ask for replacement value versus a rebuilding value. That is, should you wish to not maintain ownership in that property, you could ask the insurance company to instead pay you the value of the unit and you walk away from that property.
Also, as the owner of the property, you should also make sure that your insurance covers content insurance. This should not be presumed as being part of ownership insurance or property insurance. Usually content insurance is a separate clause to be negotiated along with the overall property insurance.
Now, in cases of rental properties, there is no law in the U.A.E. that mandates responsibility for content insurance either on the landlord or the tenant. There is general contract law that would logically shift the responsibility for any damage to the property to the landlord because the tenant could claim that there was a breach of contract by way of not having the virtue of the contract when the property is damaged and then can claim compensation, including compensation for the damaged contents by virtue of that argument. It’s more of a contractual argument. But it would be difficult to argue, especially under the circumstances when one has lost their home. Therefore, there should not really be a presumption that in the event of a disaster that the landlord will pay for the contents of your property. Therefore, as a tenant, you should presume that in the event something happens, the responsibility to replace contents would fall on you.
Increasingly so, landlords are starting to introduce a clause in the lease agreements clearly shifting the responsibility of content insurance on the tenant. As a tenant, it is your interest to take your own content insurance because ever if legally you could argue that it is the responsibility of the landlord to compensate you for the damages, such as in cases where it’s the landlord’s fault for causing the damage, but even in those cases if legally you do have an argument it will take time for you to argue that in court and in the meantime you do not have a home. Therefore, having insurance or content insurance at that point is very helpful because insurance generally speaking offers you immediate compensation, at least for the interim period.
Should you wish to take insurance either as the owner or as the tenant, some of the relevant aspects to consider in deciding which policy and which policy provider to take are as follows: (1) The value of coverage, (2) the compensation for temporary accommodation. As a tenant, it is very important because if there is damage to your property, you do not have a home. You may not even have access to some of the basic contents and items, and you have nowhere to live. Therefore, insurance that does offer temporary accommodation is essential, especially in this market.
For landlords, they may also consider including a provision that will cover them for the loss of rent. It is very typical for insurance providers to offer that sort of coverage, but you need to make sure that it is expressly included in the agreement and often needs to be negotiated separately. The loss of rent refers to, for example, in the case of ownership of commercial properties, in the event there is damage to your unit and the tenants have left as a result, you have obviously lost rent for that period of time while the property is damaged. This is where insurance can offer you loss-of-rent coverage to compensate you for that period of time.
Similarly, for tenants, it is possible to also take insurance for the loss of business. If you are a commercial tenant renting an office and there is damage to your unit to the point where you can no longer run your business out of that unit, if you have insurance that covers loss of business, you will be able to claim coverage for the loss of business for the period of time when the office is not available for you to run your business from.
In considering insurance policies, one of the other important aspects to review is one of exclusions. Insurance policies often include a very long list of exclusions, and the most common ones relate to natural disasters. The other example is one of self-inflicted damage. With regard to natural disasters, it’s also important to understand the context of the area where you live in and those natural disasters which are not common would be better to be excluded. Therefore, do not necessarily accept the terms and conditions at face value, but try to negotiate because often some insurance companies may include exclusions which they claim are natural disasters, but in fact may not be. Be very specific about the wording of exclusions.
One other important aspect for U.A.E. owners and residents to consider is perhaps insurance in other jurisdictions. Many U.A.E. residents also have homes and perhaps properties elsewhere and often insurance companies in their home jurisdictions have global insurance which may allow them to claim certain coverage and certain compensation even for their properties in the U.A.E. For example, let’s say if you own a property in the U.S. and you have property insurance in the U.S., often those insurance policies will include your content insurance, for example, at a different property in a different jurisdiction which could also include the U.A.E.
Finally, one last comment about insurance is one of dispute. In the event your insurance company does not offer you coverage or adequate coverage, there are two possible avenues to bring your claims. One is the U.A.E. insurance authority that has proven to be a fairly effective body. You just need to submit your claim with the relevant documents and have them try to mediate the dispute. Historically, they have been quite effective in resolving the dispute very quickly and with no cost. In the event that fails, the other remedy is through courts. Depending on the insurance coverage or the insurance policy, the forum for dispute resolution could be either locally in the U.A.E. or could be abroad, and it could be either local courts or it could be arbitration.
This concludes our segment on insurance in the real estate sector in the U.A.E. Thank you for listening. Tune in next week on the topic of rental deposits for renters in the U.A.E.
Hanan: Hello. This is Hanan Arab. Thank you for listening to our Managing Partner, Ludmila Yamalova from HPL Yamalova & Plewka DMCC. If you have any further questions or would like any specific clarifications, feel free to contact us at info@Lylawyers.com. You can also find other ways of contacting us on our website, www.Lylawyers.com. That’s all for now. See you next week.
