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My Tenant Stopped Paying Rent & Became Unresponsive, What Should I Do?

My Tenant Stopped Paying Rent & Became Unresponsive, What Should I Do?

Lawgical Lite with LYLAW & Tim Elliot

05 November 2019

Tim Elliot:  Welcome to another Lawgical Lite, the bite-sized podcast from the legal firm, Yamalova & Plewka, here in Dubai.  I’m Tim Elliot.  Once again, I’m at the Jumeirah Lakes Towers district with Ludmila Yamalova, the Managing Partner.  Nice to see you again.

Ludmila Yamalova:  Great to see you too.

Tim Elliot:  The question today.

Sophia:  Hello.  My name is Sophia.  I have a commercial property in JLT. I have been paid rent by my tenants, but suddenly she stopped paying and I cannot reach her.  My agent informed me that I cannot rent the property out until I clear my current contract, either I terminate, or I don’t know exactly what I need to do.  How can I proceed?  Since I’m not getting paid, I’m losing money.  How can I rent my property out?

Tim Elliot:  So, we’re going to be considering what you need to do if you are a commercial property owner, you have an office for example, and your tenant isn’t playing ball.  I own the office.  I have spare keys.  I’m just going to take it back.  Surely, that’s what I need to do.

Ludmila Yamalova:  It sounds easy enough, isn’t it?  However, it’s not so easy in the U.A.E. in particular.  It’s understandable why so many landlords as the default reaction would just want to go and take that set of spare keys and re-enter the property and re-let it to the next tenant.  But it’s not possible here for a number of reasons.

One is legally and, two, in practical terms.  From a legal standpoint, first of all, the law requires that to legally repossess the property, because that’s what it would be, you need a court order, and not just a court order, but also a court order with the right people at the door when you actually want to re-enter the property.  The right people at the door actually, in the U.A.E., would be the police.  In brief, you need a court order and the police staff to come to your office and re-enter the property and have the police document the state of the property and obviously whatever the items that might have been left behind in the property.  This is, in short, the proper process for repossessing the property from a tenant.

I will elaborate on the process itself shortly, but in the meantime, from the practical standpoint, it’s also not so easy to repossess the property and re-let it to someone else.  This is because of the U.A.E.’s rather unique way of incorporating companies.  So in this particular case, the office would have been linked to a trade license and this is why most people actually rent offices, not necessarily because they need a physical office, but because in order to have a trade license they are required to have an office.  In this case, I would imagine that the tenant rented the office and right away registered that office with the relevant authority.  For example, if you want to open a company, let’s say in the TECOM free zone, to apply for a license you need to identify an office.  Once you have identified or presented that office to the TECOM authority, not that particular office will be registered with them as having been occupied.  But before you do that, you need to register the office with Ejari, which is the government system in Dubai where all commercial and residential units or rental agreements are registered.  Now that same office has been registered with Ejari and has been registered with, let’s say, TECOM.  Also, as part of the process, you need to reconnect or connect all of the utilities.  For example, DEAWA, that’s Dubai Electricity and Water Authority, Du or Etisalat, which is the internet and phone provider, and District Cooling, which is Dubai’s air conditioning or a/c system.  Here you have three other contractors, three other service providers, all of whom now have your office registered.  That office, by the way, when it’s registered, it’s registered to the tenant, and the tenant being the company.  Now, if you want, as a landlord, to re-enter the property, just because you want to re-let it or you want to release it to someone else, you can’t really do anything with it until you’ve cleared all of those accounts, until you’ve deregistered from Ejari, until you’ve cleared and deregistered all the utilities from the name of the previous tenant, and until you have deregistered it from the authority where it’s registered.  In this example, it’s the TECOM authority.  Now any one of those agencies will not just deregister the contract or the property from the tenant’s name only because you, the landlord, came to them and you said, well, I no longer want this property to be registered.  Because for them, there is a legal relationship that exists between the tenant and that particular service provider, so until you have shown to them that either that contract or the lease agreement has been terminated or that there is a court order terminating the contract only then they will deregister or clear the account from the name of the tenant.

Tim Elliot:  Okay.  So I can’t just barge in with my spare keys and take the property back forcefully.  That I understand.  So I then have to go to court.  What’s the procedure?

Ludmila Yamalova:  Yes.  In Dubai, the system where all rental agreements or rental disputes are adjudicated is called the RDC, which is the Rental Dispute Centre.  At RDC, the process is just like it is in the courts except that here the judges are more specifically versed and experienced in rental disputes.  There is a fee to be paid to the court which is 3.5% of the annual rent and/or capped at $20,000 dirhams for filing a case with RDC.  If you’re a landlord and you want to file in a particular case, you have to pay.  Let’s say if the rental amount is $200,000 dirhams, you have to pay 3.5% of that to RDC just to file the case, and then as is the case in all other judicial forums in the U.A.E., all of the pleadings, everything has to be presented in Arabic, then you have to serve the tenant, in this case the defendant, with the proceedings.  Often that is the lengthiest part of the process, in particular in cases where let’s say if the tenant is not around because the court needs to be convinced that you have properly notified the other party that there is a court proceeding or a court case that has been filed against them.

That ultimately is the process, and then you have to prove to the court whatever it is that you want to prove.  In this case, for example, you have two potential claims.  (1) One is for compensation for all the months for which you have not been paid rent and perhaps you could also tack on a claim for damages as part of that.  (2) The other one is a claim for eviction because not only do you want to get paid for unpaid rent, but you also ultimately want to evict this particular tenant because he or she has proven to be unreliable.

Tim Elliot:  You mentioned that very often you have to prove to the RDC that you have served your tenant with notice.  But what if your tenant isn’t in the country?  What if the tenant has run away and it’s just impossible to serve them notice?  What do you do then?

Ludmila Yamalova:  There are two problems related to that particular issue when the tenant is not in the country.  One is, as you rightfully said, (1) the service process that is more challenging and perhaps leads to a longer period of time to initiate the court case only because of that, and (2) the other one is a practical issue about claiming compensation to begin with.

Let me start with the first one.  In terms of service of process, there are ways by which you can serve someone when they’re not in the country.  Ultimately, it comes down to publishing in the local newspaper.  However, before you can do that, you need to prove to the court that you have tried to serve the person or the company personally and that you have failed.  It’s not like you can right away publish in the newspaper and, voila, you have a valid service.  No.  You need to have tried to serve by the usual means.  In the case of individuals, it in person.  In the case of companies, it is the company’s address.  You need to have proved that the party on the other side has received that service.  Then you need to show, for example, you’ve tried to do it a few times and it’s failed, and after a few tries the court will ultimately allow you to publish in the newspaper.  Usually the request to publish is in more than one newspaper.  It’s about three newspapers just to make sure.  The idea is to make sure that the person or the party really is aware of the notice.

That’s the current process although the civil transaction and procedure rules or laws have recently been amended and in theory courts will now be more at liberty to serve the other side by email or by electronic means.  But for now, it’s still in a physical form.  That’s one problem with the service process.  Obviously because the tenant is not here, it will take some time to case.

The other more practical issue, and that is, okay, you’ve filed a court case and now you have a judgment for compensation, but the person is not here, or the company is not here.  Now you have a judgment for compensation but if you know the party is no longer in the country and they have no assets, do you even bother spending the resources and time arguing this particular claim if you know ultimately, it’s going to be of no value?

Tim Elliot:  At what point along the process are you able to, if you are even able to do it, can you cancel a lease in order to move on?

Ludmila Yamalova:  It’s no simple.  You can cancel the lease if you have the other side’s agreement.  The best thing to do in this particular case is get that tenant to sign onto the lease cancellation or an early termination.  But when the tenant does move out, you can imagine that’s not always easy and particularly if it is a tenant who has defaulted and perhaps has been threatened by the landlord before, so even if you as a landlord now reach out to the tenant and says, okay, listen, I forgive you for all of the money you owe me for the previous months, please just sign this cancellation, chances are the person may not want to even open your email, let alone respond to it, so it’s difficult.  Therefore, the safer and legally the only correct way of doing it is through the courts.  It will be the court that will cancel ultimately that lease and then as part of the enforcement proceedings you will get the police involved, and they will examine the property and will allow you to reenter it, and then with that court judgment you can go to the relevant authorities and have them update their records that the previous tenancy agreement has now been cancelled.

Tim Elliot:  So Ludmila, you get the judgment from the court.  You then head to the property.  The police are leading, of course.  I guess that’s the proper way to put it.  You then enter the property, but it’s kind of likely that the previous tenants’ belongings are there.  That surely going to be a legal minefield as well.

Ludmila Yamalova:  Exactly.  This is why there is this requirement of reentering the property with the police by your side.  That is exactly to do that, to document what is on the premises because, remember, it could be some property that’s left behind, but it could also be, let’s say, the scene of a crime, or for example, there could be valuables there that ultimately you want to make sure that it’s been documented that you have not taken these valuables because we have heard of claims where later when the tenant comes forward and says, well, in fact, I had a some valuable items left behind and you have now stolen them.  The only actual proof that you can show that there was nothing of value that you personally have taken is by having the police witnessing the process.  So now, if you come here with the police and then the police now are there to document exactly what’s going on with the property.  If there are no suspicious activities, that is one issue off the list.

Now, there could be some property left behind.  There could be furniture.  There could be computers, phones, files.  The police have to document all that.  Now, what do you do with it?  Well, the proper way of disposing of the property, because once again it’s possible the tenant will later come and want to claim that property and they have full legal right to do so.  The fact that they haven’t paid you is a separate legal claim.  They will have a claim against you for having seized their property and not compensating them for it.  The proper way of disposing of this property is, for example, through an auction.  If there is enough property there that is of value, then that property should be auctioned off.  In Dubai it’s called the Emirate’s Auction, which is a government-related auction site where in such court proceedings all the items are auctioned off and so that would be the proper way of doing it.  Then whatever proceeds that are raised through the auction would ultimately reside with the court in the event the tenant ever shows up and claims anything, they’ll be able to claim it from that source.  That is one way of doing it.

The other way, and that is the police, for example, can offer and would need to bring in someone to evaluate the value of the property, and then they can offer it to the landlord to buy it and just to document that the property has not been seized without compensation.  You can see it’s not so simple.  This is why a lot of landlords are fairly disenchanted or disappointed by the process, but really the reason that process exists is to protect them as well.

Tim Elliot:  Can I just get back to the auction site for a moment?  Assuming that the items do go to auction, where do they reside until they’re auctioned?  You can’t move them from the office I’m guessing.

Ludmila Yamalova:  Well, you could.  Yes, you could.  Ultimately, the police would ensure that the property is being taken out of the office and stored in whatever relevant facilities, but at that point it is no longer your responsibility.  But you do want to make sure that the property is out of your premises so that you’re not later held accountable.

Tim Elliot:  Okay.  One final question.  Is there any kind of stipulation that timing could, or maybe might, have a role?  Is there a specific period of unresponsiveness from a tenant?  Are there any obligations under the law that you could employ legally to get the property back earlier?  Is that something that’s been thought legislatively?

Ludmila Yamalova:  The only obligation that exists is for the landlord to notify the tenant of the default.  So in this case when the tenant stops paying, the landlord should notify properly through a legal notice that the default has occurred and give the tenant 30 days to remedy their default.  After 30 days, if the breach continues, then the landlord can file the court proceedings to either claim compensation or eviction or both, but that’s really the only timeline that is in the law that requires the landlord to wait before they can file formal proceedings.  But other than that, it doesn’t matter whether the tenant has defaulted only for three days or three months.  As long as there is that 30-day notice, the landlord can file a court proceeding.

Tim Elliot:  The question today:  I have an office that I rent out.  The tenant is unresponsive or appears to have run away.  What should I do?  That was another edition of Lawgical Lite.  If you have a legal question you’d like answered in a future podcast, if you’d like a consultation with a qualified legal professional, all you have to do is click on the Contact button at Lylawyers.com.  Don’t forget, every week we try to answer your legal questions either in a Lawgical Lite bite-sized podcast, like this one, or in our slightly more detailed, full length Lawgical podcast.