Ludmila Yamalova: Welcome and welcome back to Lawgical with LYLAW. This is Ludmila. We’re continuing on the general topic of real estate in the U.A.E. By way of recap, in the previous segment we focused on the due diligence for renting property in the emirate of Dubai specifically and in the U.A.E. in general. In this upcoming segment, we will be delving into more of the relevant aspects of the landlord/tenant relationship in renting a property in Dubai specifically and in the U.A.E. in general.
With regard to the relevant aspects of the tenant and landlord relationship, in Dubai there are a few specific areas and nuances which are important to consider and understand.
As of 2017, Dubai has introduced a mandatory standard tenancy contract that all parties that enter into a rental relationship must sign for that contract to later be registered with Ejari, which in Arabic is “my rent.” That is requirement in Dubai that all rental contracts are registered with Ejari and more and more other authorities also rely on the proof of Ejari certification for the purposes of providing other services. The standard rental agreement, however, does allow for parties to add additional terms, and they can be done either within that same agreement, there is a blank provision or paragraph in the agreement that allows parties to include additional terms, or it can also be done by virtue of and addendum where there is a whole new document or an additional document that is drafted outlining additional terms and conditions between the parties.
Also, it is not true that for real estate transactions, rentals, and investment, brokers are required. That is the common misperception, that brokers are required, and parties cannot deal independently or directly. That is not true. Parties can very much so deal directly. That is, the tenant can deal with the landlord. The landlord can reach out to the tenant. Therefore, the brokers are not a necessary intermediary unless the parties agree to have a broker, but in that case, make it very clear whose interest the broker represents and who is paying the commissions.
But it’s very important to highlight that irrespective of whether there is a broker and what authority the broker holds out to have on behalf of a landlord, it is very important that there is a direct connection or a direct relationship between the tenant and the landlord in a way that the tenant has copies of the landlord’s documents, such as passport copies or an emirate ID, and more importantly, phone numbers end email addresses. That is because in the event the tenant wants to reach out to the landlord directly and the tenant will always have a reason and a right to reach out to the landlord directly, those details will already be available.
Often brokers will represent that the landlords don’t want to have direct contact with tenants. That should not be the case because anyone who owns property and is allowing somebody else to live in that property should want to have direct contact with that party. Therefore, make sure that in whatever it is you do, you always have contact details of the landlord and you are able to communicate with them directly.
Some of the material terms that need to be included or considered in either signing the standard tenancy agreement or drafting the addendum are as follows:
- Obviously relates to the value of the rent, and that is payment, and usually the payment here is determined on an annual basis. Make it very clear what that rent is and whether it is for one year, for six months, or for whatever the term may be.
- The form of payment, whether it is going to be paid my manager’s check, personal check, or a bank transfer, and also the frequency of payment because while in the past it was a common practice to pay rent one year ahead, these days it’s much less so and more frequent payments, be it quarterly payments or monthly payments are much more common. Make sure that both parties understand when those payments are due and the form in which they need to be paid.
- The other material term to be included in the contract is one related to the term of contract. That is, when does the contract start and when does it end? There could actually be several dates because often we see contracts that have one start date but a different move-in date. Sometimes these dates vary because, in particular for commercial real estate or offices, the start of a contract is often different from the move in, and it is because either the landlord or the tenant needed additional time after the contract has commenced to finish the fit-out works. Make it very clear as to when the obligation to pay rent in particular comes in and how any particular payments may be delayed or deferred in the event certain milestones to which they are attached move, such as, for example if the first payment of rent is due on date x, then date x moves to date y, you want to make sure that all of the other payments correlate with that extension.
- One of the other important issues to address in the tenancy agreement is relating to maintenance, maintenance costs and maintenance issues. In the law, it’s the landlord’s responsibility to take care of major maintenance unless parties agree otherwise. This is very important to highlight that the law does allow for parties to agree otherwise, and it is not uncommon for landlords to include the provision of moving maintenance responsibility onto the tenant. As a tenant, be very mindful on what you are agreeing because the maintenance costs can be quite significant. Similarly, for landlords, if you want to include the responsibility on the tenant for certain kinds of maintenance issues, make it very specific as to how these issues are defined in terms of frequency or value and how they’re to be rectified and how they’re to be compensated. Often there is a clause in many of the agreements that limits a tenant’s responsibility or liability for maintenance costs to 500 dirhams, but it is often not clear whether this is per incident or per receipt or invoice. Make sure to outline those specifics in sufficient detail.
- One of the other aspects of the rental or tenancy agreement to address and pay attention to is one related to subleasing. Once again, the law in Dubai disallows subleasing unless parties agree otherwise. The parties are free to agree otherwise. If you’re a tenant, or a landlord for that matter, and you want to have the flexibility to sublease, make sure that it’s clearly outlined, but it is not true that subleasing in and of itself is not allowed. That is often a misperception in the market that subleasing is not allowed. Subleasing is not allowed if the parties do not agree. But if the parties do agree, then it is perfectly legal.
- The other material term in the tenancy agreement is one related to vacating the property. Vacating the property can happen at the end of the lease, or if there is an early termination then pre-mature moveout. Make sure to have that particular aspect clearly addressed and the particular payment obligations that may arise as a result of it.
- In particular, the issue of deposit is one that is most often disputed and most disputes that do arise over rental issues are related to the refund or the landlord’s refusal to refund the deposit. Make it very, very clear as to both parties as to what defines the deposit and upon which terms and conditions it will be released or not. In relevant terms, what parties need to do surgical intervention to a proper handover and the property report before moving in and before finalizing their contractual obligations. That is, as a tenant and as a landlord, you want to do a walkthrough and clearly document what issues are identified in the apartment and take pictures. Do a clear report and make sure there is a signature from both parties on that document so that later on, a year from now, whenever the tenant wants to move out that the parties are on the same page with regards to what needs to be rectified and what was there before so that there are no disputes about the deposit.
- Finally, an important clause to consider in terms of the agreement is one related to default, a nd that is what constitutes default in the parties’ agreement. For example, if the landlord is not paying service fees it could be a default, or if the landlord is not providing the tenant with particular documents that are required, or if the tenant is not paying or not paying timely. Whatever it is that you want to be considered as a default, make sure that you clearly spell out the definition of default and also what recourse you want to follow as a result.
These are some of the terms to be considered and included in the tenancy agreement.
With regard to Dubai rental laws and the practice, it is also important to highlight that all tenancy agreements, as of a few years now, have to be registered with the authority, which is called Ejari. That document is more and more required by also some other authorities, including tax authorities and various service providers and utility providers. The law says that the obligation to register the contract with Ejari is on the landlord, but as a tenant be mindful that the landlord may not always go to Ejari and actually register the contract. It is important to highlight the tenant also has the ability to go to Ejari and register the contract in the event the landlord does not. It is just a matter of a fee that needs to be paid. Clearly, it’s important to highlight in the tenancy agreement that in the event the landlord does not register with Ejari, then the tenant will do so and the fee for Ejari will be the responsibility of, let’s say, the landlord at the end of the tenancy.
In Dubai, there is a special judicial venue for resolving disputes between landlords and tenants. That is called RDC, Rental Dispute Centre. This is an alternative to court. For all intents and purposes, it is a court-like venue or forum, but it is housed under the umbrella of the Dubai Land Department. These days it is actually staffed with judges and it is much more like a court than it used to before, but it is considered to be a specific and separate forum for adjudicating rental disputes in particular. The idea with RDC is that it’s a lot more efficient and a lot more effective in terms of resolving rental disputes because the judges are much more familiar with the specific issues and the Centre can act a lot more swiftly because obviously rental disputes are less complex in general terms than most other commercial civil disputes and therefore can be and should be adjudicated in a more simplified fashion than perhaps more complex cases. That is the objective with which RDC was established, and it has proven to have that reputation and that effect.
One of the other things to consider in Dubai and just in all emirates is when you make payments, or as a landlord you accept payments, that you address the issue of if the payments are made by personal check and then those checks bounce that you have a recourse of protecting your interests. Equally so for tenants, if they want to continue the tenancy agreement or they just want to pay the landlord, but for some reason the landlord is not available to accept payment, that tenants also lodge those with the Rent Dispute Centre as proof that they have tried to pay to the landlord so that later on the landlord does not raise a claim of the tenant’s default, which one again happens here quite frequently.
Finally, one other aspect of rental laws in Dubai and that is one related to property based in the DIFC. The DIFC is a separate free zone and freehold in Dubai which has, unlike all the other free zones, its own laws and has its own jurisdictions. It has its own court, particularly its own property laws. Therefore, all the other aspects that we discuss in the segment under the Dubai rental laws will not equate the same way to the DIFC because the DIFC has its own laws. However, the same general terms, the same material terms apply in the DIFC laws and the DIFC properties, but it is important to highlight that for example there is no mandatory standard of a tenancy contract in the DIFC, and that in general the DIFC properties are not subject to the same limitations or restrictions as the properties outside of the DIFC. It’s very important to highlight that any issues again related to disputes over rental issues in the DIFC area are also subject to the DIFC courts, and not the Rent Dispute Centre. In general, in the DIFC parties have more freedom of contract. Therefore, it is that much more important that the parties spend more time and more due diligence in discussing the relevant terms and conditions to include in the contract because those contracts are more eagerly and more seriously enforced in the DIFC courts than they would be otherwise in RDC.
This concludes our episode on the tenant/landlord relationship. Thank you for listening in. Please tune in for the next segment next week where we’ll be talking about due diligence in buying and selling real estate.
