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Here’s a fairly long question to go through. A tenant, a large U.S. corporation, gave me notice for early termination of their tenancy agreement for a two-bedroom apartment. They gave the requisite two months’ notice as per our contract and moved out at the end of June this year. The tenancy expiry date was February 2018. The tenant now wants reimbursement for July to February, less three months as a penalty for early termination.
So far, so good. However, the contract states the following:
“In the event of a 12-month tenancy contract being terminated early by the tenant, they agree to give two months’ notice, and the rental monies will be paid to the landlord until the release of the apartment to a new tenant for the same rental amount received or more.”
I have not, and will not, be able to replace the tenant with anything close to what I was getting—$187,000 a year versus the current market rate of $140,000.
The landlord is asking whether the court would apply this clause or consider three months of alternative reimbursement more reasonable. My family and I are moving into the apartment as a result. What do you think?
Ludmila Yamalova
There are a number of points to highlight here. Let me first answer the question and then offer some general observations.
The question relates to the legal principle of liquidated damages, which refers to penalties for early termination of a contract. This could apply to any contract, including a tenancy or commercial agreement.
From your explanation, the penalty clause in the contract is quite broad. It allows for you, the landlord, to collect rent until you find a replacement tenant willing to pay the same amount or more. If this clause is interpreted literally, it could mean the tenant remains liable for the full rent indefinitely, which is highly unreasonable and would not be enforceable in court.
Even though liquidated damages clauses are legal in the UAE, courts have the discretion to reduce them if they are found to be excessive or disproportionate to the actual loss incurred by the landlord. In this case, the court would likely consider a reasonable penalty, such as the three months offered by the tenant, rather than enforcing the broad terms of the contract.
The fact that you, the landlord, are moving into the apartment further reduces the claim for damages. The court might argue that you’ve mitigated your losses by using the property yourself.
The clause you shared is problematic in its current form as it could imply an obligation to pay indefinitely. This would not hold up in court. Instead, the tenant’s offer of three months is already reasonable.
Host
It also seems like market conditions and the landlord’s choice to move into the apartment would further limit their ability to claim losses.
Ludmila Yamalova
Exactly. The tenant is not responsible for fluctuations in the market or the landlord’s personal decisions. While the landlord might argue for the sanctity of the contract, courts will often favor reasonable solutions.
In this case, the two-month notice plus a three-month penalty is generous and aligns with typical expectations. Rather than pursuing legal recourse, both parties should aim for an amicable resolution to save time, cost, and effort.
Host
Another factor to consider is that the landlord already had five months’ worth of time—the two-month notice period and the three-month penalty. Even if the apartment was rented out during this period at the lower market rate, the landlord could have recouped some of the difference between the original and current rental value.
Ludmila Yamalova
That’s an excellent point. If the property was rented out within this five-month window, the tenant’s liability would be further limited. For example, if the apartment was rented for AED 140,000 within those three months, the AED 47,000 difference over the full year would likely not apply because the landlord was compensated during that window.
Ultimately, if the landlord claims the loss of AED 47,000 annually due to market fluctuations, it’s unlikely the court will accept that as the tenant’s responsibility. Market risks are part of property ownership, and landlords must accept fluctuations in demand and rental rates.
Host
So, Ludmila, is it safe to say that the landlord would be best served by accepting the three months’ penalty and moving forward?
Ludmila Yamalova
Absolutely. Pursuing this further in court could result in an outcome less favorable than what the tenant has already offered. The legal costs, time, and emotional energy involved in litigation may not justify the potential financial recovery, especially when the tenant’s offer aligns with what the court might deem reasonable.
This situation underscores the importance of drafting fair and reasonable contracts. A more specific clause with a clear cap on liquidated damages—such as three months or a percentage of the rental term—would prevent disputes like this.
Host
Great advice as always, Ludmila. If you’re a landlord or tenant, it pays to review your contracts carefully to avoid these kinds of headaches later.
Host
Now, let’s move on to some of the other questions coming in. A reminder to everyone listening—you can text us at 4001 or use the free Dubai Eye app to send in your queries. Ludmila, this one is about security checks related to commissions.
Listener Question
“My company is asking me to provide a security check against commissions I’ve drawn. This is an insurance commission-based job. Is this legal?”
Ludmila Yamalova
That’s a great question. To answer simply—yes, it is legal for a company to request this if both parties agree to the terms. However, the context here is crucial. If the commission was advanced—meaning you were paid before fully earning it—then the company may view this as a loan and request a security check to ensure repayment if you don’t meet specific targets or leave the company.
From a practical standpoint, though, this isn’t standard practice in an employment arrangement. Commissions, especially in the insurance sector, are typically considered part of your salary package. It’s quite unusual for an employer to ask for a post-dated check in such cases.
Host
So if this listener doesn’t feel comfortable providing the check, what should they do?
Ludmila Yamalova
First, they should clarify the purpose of the security check in writing. If it’s tied to a loan or advance commission, the employer should outline the repayment terms and conditions clearly. If this isn’t the case, the employee can refuse to provide the check and request alternative arrangements.
If the company insists, the employee can seek legal advice or file a complaint with the Ministry of Human Resources and Emiratisation. It’s worth noting that courts generally frown upon employers using post-dated checks as leverage in employment disputes, especially if the check exceeds what the employee genuinely owes.
Host
That’s an important clarification, Ludmila. Always get things in writing and seek legal advice when something feels off.
Now, here’s another question, this time about service fees for property owners.
Listener Question
“I’m a homeowner, and the service company assigned by the developer keeps raising fees without explanation, even though the service level is dropping. I’ve tried reaching out to REERA, but I’m not getting anywhere. What can I do?”
Ludmila Yamalova
This is a common issue, unfortunately. Service fees for jointly owned properties must be approved by the Real Estate Regulatory Agency (REERA) before they can be enforced. Your first step should be to request documentation from the service company proving that the new fees have been approved by REERA.
If they can’t provide this, you’re within your rights to refuse payment for the increased amount until they produce the proper approvals.
Host
What if the fees were approved, but the service quality is declining?
Ludmila Yamalova
If the fees are approved, but you’re dissatisfied with the service quality, you and other homeowners can collectively file a formal complaint with REERA. As a homeowner in a jointly owned property, you have the right to voice concerns through the Owners Association. This body can also propose hiring a new service provider if the current one isn’t meeting expectations.
However, be mindful that resolving these disputes can take time, so patience is key.
Host
Excellent advice, Ludmila. It sounds like collective action is the way to go in this case.
Host
Thanks for that, Ludmila. We’re going to squeeze in one more question about visas, then circle back to some of the property-related questions.
Listener Question
“Can dependent visas be transferred without cancellation when transferring employment visas from DIFC to DIC?”
Ludmila Yamalova
Yes, transferring dependent visas without cancellation is generally allowed, particularly between free zones like DIFC (Dubai International Financial Centre) and DIC (Dubai Internet City). However, you’ll need to confirm the specifics with both free zones because each has slightly different procedures.
In most cases, you’ll need to ensure that your own employment visa transfer is seamless, as dependent visas are linked to your primary visa. To avoid any complications, it’s a good idea to submit the dependent visa documentation for updating as soon as your new visa is issued.
Host
What if there’s a delay in the employment visa transfer? Will the dependent visas automatically get canceled?
Ludmila Yamalova
Not automatically, but there’s a risk if your own visa lapses before the dependent visa transfer process starts. If your employment visa isn’t renewed or transferred in time, the dependent visas could be at risk of cancellation. My advice is to be proactive—communicate closely with both free zones and start the process as early as possible to avoid any lapses.
Host
Great advice. Let’s move back to property-related issues now. This next text is about a bounced check tied to a business loan.
Listener Question
“I gave a business loan to a company, and they’ve stopped paying interest for the past two months. When I deposited the check for the principal amount, it bounced. Aside from the checks, I don’t have any other agreement or documentation about the purpose of the loan. What are my options?”
Ludmila Yamalova
This is a tricky but common situation. The key here is that you have a bounced check, which is a standalone legal instrument. In the UAE, a bounced check is a criminal offense under the Penal Code, regardless of the context in which it was issued. This means you can file a criminal complaint with the police or the public prosecutor.
The advantage of pursuing the bounced check route is that you don’t need additional documentation to prove its validity. Once a criminal case is filed, the issuer will face legal consequences until they clear the amount owed.
Host
What about the loan itself? Is there a way to pursue that without a written agreement?
Ludmila Yamalova
It’s more complicated. Under UAE law, business loans are typically regulated, and only licensed financial institutions are authorized to issue them. If the loan wasn’t documented properly or structured as a private investment agreement, the courts may not enforce it.
Your best bet is to focus on the bounced check, as it gives you a strong legal advantage. If the issuer pays the amount owed, the criminal case will be closed automatically.
Host
That makes sense. It’s a good reminder to always document financial transactions properly, especially when large sums are involved.
Host
Here’s one more question about property management before we wrap up.
Listener Question
“My tenant gave two months’ notice and moved out early, but they’re now asking for reimbursement for rent from July to February, less the three-month penalty for early termination. My tenancy contract states that rent will be due until a new tenant is found at the same rental rate. Market rates are much lower now. What should I do?”
Ludmila Yamalova
This is a classic case of liquidated damages in a tenancy contract. The clause in your contract is broad, stating that rent is due until a new tenant is found at the same rate. However, UAE courts tend to prioritize fairness and reasonableness over rigid enforcement of overly broad clauses.
The tenant has already agreed to pay a three-month penalty, which seems fair under the circumstances. If you try to enforce the clause as written, the court may find it unreasonable—especially since you’ve mentioned market rates are significantly lower and that your family plans to move into the property.
Host
So what would be your advice here?
Ludmila Yamalova
My advice would be to negotiate a settlement with the tenant. Accepting the three-month penalty is likely your best option because it’s reasonable, and pursuing further legal action may cost more in time and legal fees. If you’ve moved into the property yourself, the court could also view this as mitigating your losses, which further weakens your case for claiming additional rent.
Host
Thank you for that, Ludmila. It seems like a practical solution is often the best way forward in disputes like this.
Host
We’re almost out of time, but I want to remind listeners that Ludmila will be back next week to answer more of your legal questions. Ludmila, as always, it’s been a pleasure.
Ludmila Yamalova
Thank you—it’s always great to be here and help clarify these important issues.
Host
If you didn’t get your question answered today, don’t worry—send it in early next week, and we’ll make sure it’s addressed. Stay tuned for more on Drive Live, only on Dubai Eye 103.8.