Tim Elliot: This is Lawgical, the U.A.E.’s first and still the 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. It’s nice to see you.
Ludmila Yamalova: Great to be here with you, Tim, as always.
Tim Elliot: Now today, Ludmila, this I the first of four podcasts looking at the cost of renting property here in Dubai, a little bit about the market. But more specifically, it’s about the rent valuation certificate here in Dubai, and we’ll come to that in a moment. But I wanted to start with, I guess, to say that property is a hot topic, is the understatement of the millennium, really, isn’t it? Let’s face it. For the last couple of years, we’ve seen rocketing property prices once again. It’s really, I think it’s time to reiterate what a landlord can and what a landlord can’t do.
Ludmila Yamalova: Yes. You’re absolutely right. As we’re recording this podcast, it is May 2023, and as you said, in the last year in particular, there has been a tremendous increase in property prices in the U.A.E. in general and certainly in Dubai. This applies to the sale of properties, sales prices, as well as rental properties. Because the market is so hot, we can speculate the reasons for why it’s so hot, but this is perhaps beyond the subject of today’s podcast. But the reality is that certainly in many parts of Dubai, by some accounts, properties have gone up at least double, if not triple, and because of that, a lot of owners who have purchased perhaps at less lucrative times, for the sellers at the time, are not seeing this as an opportunity to sell their properties and obtain double or triple of the purchase price, which is happening all across. That is on the one hand. Owners want to sell properties because they think they can obtain much better prices, and they are thinking the time is now or throughout this year, 2023.
On the other hand, there are a lot of owners who want to increase rent or at least obtain much higher rents. In other words, they don’t necessarily want to sell the properties, but they certainly are very eager to increase the rent and milk more from their properties. As I’ve said, we’ve seen a lot of accounts of property prices for rental contracts increasing over the last year, double and even triple. As expected, there is quite a bit of turbulence that is happening in the market now in terms of owners wanting to evict tenants either to sell property or to evict in most cases to increase rent. In many cases, they are giving eviction notices on representations that they want to sell the property, but in fact what they really want to do is just simply increase rent. That is as far as the U.A.E. is concerned. Obviously, Dubai in particular, historically has been one emirate that has had the largest number of expats and therefore a lot more properties that are being bought, rented, and flipped in different ways.
As we have talked about before in our previous podcasts, as far as rental laws are concerned, every emirate has its own rental laws. When we are talking about the Dubai rental market, we are talking about the Dubai rental law. In Dubai there is a specific law that relates to rentals and tenant and landlord relationships in general, as well as a specific authority that is authorized to regulate the market and ultimately adjudicate the market. In Dubai, the authorities that are involved, there is one authority called the Dubai Land Department (DLD) and under it there is an authority that sits apart from DLD and that is Real Estate Regulatory Agency (RERA) that regulates the market and then under it is also the Rent Dispute Centre (RDC). These are the authorities that look after and regulate and enforce the rental issues in the U.A.E. With regard there are the Dubai rental laws and the law from 2007 and that was later amended in 2008 and then amended in 2013, so there are different amendments to that rental law, but ultimately there is Dubai rental law, and these different authorities, particularly RDC, the Rent Dispute Centre, are authorized to apply and enforce this law in the U.A.E.
Tim Elliot: Okay. We’ve got the Dubai Land Department, which is the head agency. Then we’ve got Real Estate Regulatory Agency (RERA), and when we then have – and I want to get into people who are renting because these four podcasts are really about rent valuation certificates, we have what’s known as the rent calculator and RERA is the head of the rent calculator, don’t they? They regulate the rental landscape, if you like, in Dubai.
Ludmila Yamalova: Yes. The Dubai rental law, in relevant terms, sets specific guidelines and regulations as to when landlords can increase rent, can evict tenants, and what conditions. With regard to rent increases in particular, so we will limit this to this specific part of the landlord/tenancy relationship, and that is if the landlord wants to increase rent. As you rightfully said, as per this law, there is a base and there is a framework within which landlords can increase rent.
- First of all, they can only increase rent once the term of the lease agreement is coming to an end. They cannot increase rent during the lease term.
- If they are going to increase rent for the next rental term, they need to give tenants proper notice.
- The tenant obviously has to agree to it because it’s a contract, and no party can unilaterally change the contract. For a contract to be amended properly, the landlord can try to increase rent, but in order for that rent increase to take effect, the tenant ultimately has to agree.
- As per the Dubai rental laws, the rent increase can only be on very specific conditions, and that is, if it is in line with the RERA calculator. Now RERA, as we said earlier, is the Real Estate Regulatory Agency, and it has on its website a calculator that guides or sets the parameters within which rent can be increased, if at all.
For anybody who wants to know whether their property will be subject to this rent increase, they have to go to the RERA calculator and input the area where they live, and then also the specifications of their specific property. For example, whether two bedrooms, three bedrooms, an apartment or a villa, and then they need to enter what the current rental price they are paying, and then on the basis of these factors that they input into the calculator, the RERA calculator will show whether there is a rent increase allowed to begin with, and if so, what percentage.
That is basically how the RERA calculator works. It’s a very effective tool for both parties because by now all landlords, most landlords and most tenants know about the RERA calculator, so whenever there is a discussion between the tenant and landlord about a potential increase in the rent, all the parties, not so much perhaps the landlords, but certainly the tenants, run to the RERA calculator and it’s all electronically accessible. It will do a print screen and send it to the landlord, hey, by the way, because remember, this calculator shows, once you have input the specifications of your property and also the current rental price that you have pay, it will tell you whether the rent increase is allowed at all. In most cases, there is no rent increase allowed. The tenants just do a print screen of that screen and send it to the landlord, and say, apologies, but you are not entitled to any rent increase.
Tim Elliot: As with everything, there are variables here. But that’s the helicopter view, isn’t it? I mean, historically the rent calculator is updated annually. As far as I’m aware, since COVID, it doesn’t seem to have happened, and there have been a few, I guess, changes. Since rents have increased dramatically since that time, and it really is the last couple of years, towards center of the pandemic, I suppose, rent started to really creep up and then they seem to still be going up. Where are we now in terms of the rent calculator?
Ludmila Yamalova: You’re right. The authorities have stated over the last year in particular, maybe even two years, on different occasions that they are constantly reassessing the RERA calculator and adjusting it, updating it, to make sure it is in line with the current market trends. There isn’t really a visibility to us, the public, in terms of what factors go into that revision or review of the RERA calculator from the standpoint of the authorities and when and how they adjust, but the presumption is that if you were to go on the RERA calculator today, more or less, the prices are reflective of the adjusted factors and numbers. We are not quite sure what the margin is, by how much the authorities are actually increasing prices, if at all, but perhaps from what we know, they are adding more nuances to the calculator. In the past, in terms of the areas you select, there would be one general area, the Marina, for example or the Palm. As time goes on, some of these geographic areas have become a little more nuanced, a little narrowing, a little more refined.
The adjustment is happening perhaps less in terms of increasing the market price, but more allowing users to input more factors that would take into account the specific property specifications and parameters that are more reflective of the actual value of the property. In other words, we have to take it at face value that the calculator is being updated. If you talk to landlords, maybe they will disagree because they think it is not being updated quickly enough or sufficiently enough, but constant efforts are taking place behind the scenes, and certain adjustments are being made. Perhaps it is not as visible to us because it happens on the backend.
Tim Elliot: The thing is, Dubai moves quickly, doesn’t it? It always seems to me you go away for a couple of months, maybe for a summer holiday, and you come back and drive down the road and there’s a building there wasn’t there two months ago. I’m kind of not exaggerating that. It does move really fast. The prices have increased exponentially in the last couple of years, so you can understand why landlords have something to say. Let’s take the position of the landlord. If you feel like your property value has increased – I’ll use that word again – exponentially, and that means that you should be charging a higher rent to reflect that, what you need to do is prove that, don’t you? You need to then go to the Land Department, and you have to get a rent valuation certificate. Is that the procedure?
Ludmila Yamalova: Yes. The same Dubai rental law that we discussed also has a provision that allows for landlords to request the authorities to provide a valuation certificate for that specific property. It’s in the event that the owner of the property, the landlord, believes that the specific property is not adequately represented by the RERA calculator. In those kinds of cases, the law provides an option for the owner of the property to approach the authorities and request the authorities to examine their specific property and perhaps treat it somewhat differently from the average value of the properties in that specific area. The law provides for it. Now in light of the recent trends and the recent increase in property values, there is a lot more interest in actually exercising this right under the law, and we are seeing a lot more cases.
The way the process is for landlords to do is, as you said, through the Dubai Land Department. They have a specific and official app, which is called the Dubai REST app, and landlords can download this app, or it could also be accessed through the website. Then there is a services menu in the app or on the website and there is a specific request to request a valuation of a property lease. You file this request. As part of the request, certain documents need to be submitted, such as the details and photos of the property in particular and then payment of the request for reevaluation fee which is 2,000 dirhams. Let’s say I’m an owner of a property that I have owned for the last 10 years. Let’s say in the last two years, I had a tenant for X number of years and they tenant moved out last year. Now I have owned the property for so long. It has always had tenants. Now, I know the market is heating up and even the property is a little bit dated, so I’m going to update it. Now is an opportune time. Let’s say last year or maybe this year is an opportune time to update it. Now I have repainted. I changed all the appliances. I changed tiles. By the way, there is an increase in this trend now because by now the real estate market in Dubai is at least about 15 years old and a lot of properties are getting to that stage where they need a little bit of an update, and owners are increasingly taking these initiatives, making these efforts in renovating their places.
In some cases, the renovations are pretty significant. They are removing walls, changing walls, and expanding certain rooms, extending other areas, opening up windows, and so on and so forth. As a result, you can see that certain properties, but not all properties, are being updated. In the same building, you could have 100 units and out of these 100 units, 10 have been updated. First of all, when you look at these 10 updated or upgraded units and compare them to the remaining 90 units, you can see that there has got to be a fairly significant difference in the value proposition in terms of the tenants enjoyment of the property. It’s often in cases like this that landlords believe that reevaluation, or a valuation certificate is relevant because their property stands out from the average property in that same neighborhood. That is one reason, for example, or factor, for reevaluation of the property value.
The other one is the specific parameters of that specific property, so for example, the view. Let’s say if you are in JBR, you could have properties, some that are bigger than others, but one smaller property is facing the sea and it has a beautiful view of the sea or the JBR Walk or the Marina. Then the other unit, that may even be bigger, maybe on the same floor, maybe more or less the same two or three bedrooms, whatever it may be, but that one looks into the building next door. Right away, there is a significant disparity in value between the two units that in terms of all other factors, seem to be equal except this one view. That is just one example.
For landlords who find themselves in those situations, either because they have upgraded the unit or because they think the particular property should not be bunched up or combined with all the others, as an average of other properties in the area, because let’s say of a unique view or some other value proposition, and they believe that’s not fair for them to be bunched into the same factors that go into the RERA calculator. On the basis of that, or obviously others who believe that in general their property should just be valued differently because they just bought it. That’s another reason, because they just bought it, they think, hang on a second, I just bought this for X million dirhams and the tenants are paying me the same as somebody else who owns a property they bought 10 years ago for half the price. There are a lot of owners like that.
As part of this service, they can submit the documents to RERA or the Land Department for them to assess as to what the current value of the specific property will be. It’s all done completely online. You submit through the Dubai REST app, or the Dubai REST website, submit the documents of your property, you pay the fee, and then based on the information that you sent, and in most cases by the way, it’s not that the authorities or representatives of the Land Department go and actually inspect your unit. That also is an option but so far, we haven’t really seen much of that. It’s purely based on the documents that owners submit to DLD as part of this request for a valuation of their property.
In some cases, at least in the past, specifically there were some representatives that would actually go and inspect the property physically. It’s a little less common now because I think the authorities have enough factors to rely on in their database, because they also look, for example, at the various properties that have been sold in that neighborhood or what other newer rentals are going for. Based on that information that you input as a tenant, the DLD may or may not issue a new valuation certificate. That is how the process works.
Tim Elliot: Okay. So, assuming you’re a landlord, and you prove the value of your property, the rent valuation certificate is an official referenced document, isn’t it? So that’s recognized, and what that means then, in theory, at the next appropriate opportunity, a landlord can raise the rent on a property.
Ludmila Yamalova: That’s the idea. This is exactly why landlords make this effort and follow this process. It is to ultimately get something official that is an alternative to the RERA calculator because right now the way the law allows for landlords to request an increase in the property value is on the basis of the rent calculator, so that is really your only point of reference. Now the valuation certificate gives you another, an alternative point of reference to rely on as part of your request for a rent increase. In other words, the RERA calculator in this particular case, is the superseding the authority as a reference. The rent valuation certificate ultimately takes precedence over the RERA calculator in these kinds of cases. This by the way is based on the Dubai Law 33 of 2008 and in particular Article 9.2 that specifically sets out criteria for landlords and for the authorities to potentially reassess the value of the property depending on the economic situation of the emirate, and that is a quote from the law itself, and the average rent from similar property in determining the current market value of the property.
Tim Elliot: Okay. The principle of property reevaluation is regulated and approved under Dubai law. The last question for you, Ludmila, what does it cost? There is a cost to getting this certificate, and if you own multiple properties, I guess you have to get one for each one?
Ludmila Yamalova: Correct. The certificate is not for the owner, but it is for the property, for each property, so if you own 10 properties, even if they are on the same floor and the same specifications, you would actually have to apply for a certificate for each one of these properties, if you want to use the certificate in particular with the authorities. Now, if you just want to, for example, let’s say you have 10 units on the same floor, and you have obtained this valuation certificate for one property, and you want to use it for the other properties, because they are all located on the same floor, you could certainly present it to your tenant, and say listen, my property has recently been reassessed. Here is the certificate. Will you please pay a higher rent on the basis of this valuation certificate? They may not agree. If they agree, that is all you need. You don’t need to obtain a specific for that specific property if your tenant agrees. In the event that the tenant does not agree and you end up going to RDC or the rental court, then that certainly is an argument, if you don’t present a certificate for that specific property, you can see that is an argument from the tenant that would challenge a certificate on the basis that it does not apply to their specific unit.
Tim Elliot: Next, increasing rents on the basis of 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, exactly how much you can increase rent, what the law says it should cost to rent a property here in Dubai, and the percentages that rent may be increased here in Dubai as well. That all will become clear.
Let’s jump straight in, Ludmila. Assuming a landlord has the requisite rent valuation certificate, that’s been done, the rent is going to go up. What kinds of percentages are permissible? What’s okay and what’s not okay?
Ludmila Yamalova: Yes. As you rightfully said and you reiterated several times, this applies to Dubai, and that is because in the U.A.E. with regards to rental laws, every emirate has its own rental laws. Dubai has its own rental laws which were initially were introduced in 2007 and then it was amended in 2008, and then the current version that we often cite is the 2013 Decree 43 and the name of the decree is the Determining Rent Increases in Real Property in the Emirate of Dubai, and Article 1 of that decree in particular deals with percentages of increase.
Just to remind everyone that just because you believe as a landlord that your property is worth a lot more money, maybe even double the value of what the current tenant pays, the rent increase in Dubai or for rent in general is regulated, which means there are only certain percentages of an allowable rent increase. These percentages are dependent on the authorities believe or deem to be current market value. The authorities in the case of Dubai – we have talked about this before. There is the overarching authority called the Dubai Land Department (DLD) and under it is the Real Estate Regulatory Agency (RERA) and the Rental Dispute Centre (RDC) or the Rental Court.
Basically, it is DLD or RERA that sets out the RERA calculator. RERA has created the RERA calculator which is accessible online for anybody who wants to determine what the current market value is of an allowed rent increase. The way the RERA calculator works is you go in and put in the current parameters of your property and how much you are paying to see if there is any allowed rent increase. It is obviously the authorities at RERA that create and input the factors that go into the RERA calculator.
Now, those landlords who believe the RERA calculator does not accurately reflect the current market value of their rental properties, they can obtain, as you rightfully said, this valuation certificate from the Dubai Land Department (DLD), and that is how the authorities play. As a landlord and owner of the property, once you have received that rent valuation certificate for your property, then you need to agree with your tenant to increase the rest. If the tenant does not agree with you about your suggested or requested increase in rest, then you end up in the third authority we mentioned, which is RDC, the Rental Dispute Centre or the Rental Court.
Here comes basically the law once you’re now in court. Because up until now, it had been the tenant and landlord just chatting between each other and trying to figure out renewed terms or revised terms of the arrangement. Then the landlord goes to DLD, gets the new rent valuation certificate, and what do you do now? Now basically as a tenant you would say, I do not agree with this rent valuation certificate either. Sooner or later, the case has to end up at RDC. Now you are at RDC. Your landlord is empowered with the new rent valuation certificate that shows the property is worth triple the value. If we go to the easy example, once again, I’ll be your tenant. You’ll be my boss. You’ll be my landlord.
Tim Elliot: Whoo!
Ludmila Yamalova: Yeah. It’s a fairytale really, but for the purposes of today’s discussion, we’ll entertain that scenario.
I’m paying you 100,000 dirhams and you now have a rent valuation certificate that shows the property is valued at 120,000 dirhams. You want to increase the rent by 20,000 dirhams because the rent valuation certificate shows that the property should be 20,000 dirhams more. I don’t agree, so now we are now in RDC.
In RDC, we have to cite laws. The law I would cite would be Law Decree 43 of 2023, the Dubai decree in particular, Article 1 of that degree, and as per that decree there are ranges, a formula that is set out in the decree in terms of what is an allowable rent increase. It is not based on what the current value of the property is, but rather, the difference between my current rental value and the market value as per the valuation certificate. In other words, the difference is 20,000 dirhams, between 100,000 dirhams as per the contract and the 120,000 as per the rent valuation certificate. The new revised market value is 20% above the rent price.
In such cases, when it comes to the parameters, the formula that is built into this law sets the ranges for increases from 5% to a maximum of 20%. This is very important. It is only 20% maximum that you can increase the rest and starting from 5%. Also, there is 0% that is also an option. There are five levels, if you will.
If the current market value of the property has increased by no more 10% from the contract value, then there is no increase in rent at all. Going back to my scenario of 100,000 dirhams, now, I am paying you 100,000 dirhams, and you have obtained your rent valuation certificate that shows the property is now value at 110,000. That is 10% more than what I am paying. According to that, even though your rent valuation certificate shows that the property is now worth 10,000 dirhams more, you by law cannot increase rent because it is within the 0% to 10% range that does not entitle you to an increase.
Between 0% to 10% of a difference between the market value and the contract value, there is no allowable increase.
If, however, you show that your property is now worth between 11% to 20% more, then you are allowed a maximum of 5%. To use the specific example, now your rent valuation certificate shows that your property is worth $120,000 dirhams when I am paying you 100,000 dirhams. In other words, I am paying you 20% below the market. In that case, this falls into the second level in the formula which is the market value of the property has increased between 11% and no more than 20% of the contract value, and then the maximum percentage of increase is 5%.
In that case, if your rent valuation certificate shows the property is valued at 120,000 dirhams, you can now legitimately request an increase in rent by 5,000 dirhams, which is 5%.
Now, at the next level, if your property market value is between 21% to 30% above the contract value, then the percentage of increase is 10%.
An example here is that your rent valuation certificate now show that your property is worth 125,000 dirhams. You want to ask me to pay 25,000 dirhams more, but I say no because you fall into the category between 21% to 30% above the contract value, and therefore, the percentage increase is 10%. All you can legitimately ask me to pay is 10,000 dirhams more.
Then if the market value of the property is now between 31% and 40% over the contract value, then you are allowed to increase the rent a maximum of 15%. Now the rent valuation certificate or the RERA calculator shows that the property is worth 135,000. You are getting very excited because instead of my 100,000 dirhams, now you can ask me to pay 135,000.
Tim Elliot: I can smell the money.
Ludmila Yamalova: I can see it. I can see it in your face. But let me bring you down to Earth. As per the index – it is less about the RERA calculator – and it more about the index that is the set out in the law, you can only request a 15% increase, which is, in your case, 15,000 dirhams. You can now legitimately ask that I pay 115,000 dirhams, versus the 135,000 dirhams which you were so excited to receive from me.
Finally, if the market value of the property is now more than 40% of the contract value, the maximum percentage of increase is 20%. Now let me take it really out there. I am paying your 100,000 dirhams and I am very happy. Now you are very excited because you just either received the rent valuation certificate or even in the RERA calculator it shows that the value of the property is 200,000 dirhams. You got very excited because you think you can get double the rent. Remember, the maximum allowed increase is 20%, so the maximum that you can request from me to pay you over the 100,000 dirhams that I have been paying is an extra 20,000 dirhams, which is the maximum of 20%.
By the way, let me take this even further. Let’s say that same property which I am renting to you for 100,000 and now your neighbor next door is renting for 300,000 dirhams. You are really excited to get the additional 200,000 dirhams. As long as I remain as your tenant, all you can do is increase the rent by 20%, which is 20,000 dirhams. I would only be paying you 120,000 dirhams, while my neighbor and your good friend, the owner next door, is receiving from his tenant 300,000.
That is the law in Dubai. I know this causes a lot of upset with a lot of owners and landlords because they feel they cannot benefit from the current increase in the real estate market. But these regulations were put in place a while back with the objective of making sure that the market does not get destabilized too much and to protect society and the residents of the U.A.E. who call this their home. Because otherwise people become too uprooted too often and it creates turbulence and an imbalance in society that does not benefit the country or, at least in this case, the emirate of Dubai.
It may seem a little dramatic. I will tell you, I remember, believe it or not. You would believe it because you’re even older and you’ve been here longer than me, but when I came here in 2008, that was before this law was introduced, by the way, and that was the case. I recall at that time, tenants would sign the tenancy agreement and then move in. The next day they would get an eviction notice, a 12-month eviction notice.
Tim Elliot: It was unbelievable.
Ludmila Yamalova: Yes. Just as you’re moving – you haven’t even moved in yet – you would already be preparing to uproot your family in the next year somewhere else. Obviously, back then Dubai did not have as many expats that were here for the long haul with their families, but now there is a lot more of us here, living here with our kids, and our kids are born here and go to school here. Here you are. If you’re renting a property with your kids, and presumably you would be looking for properties close to your kids’ school. You have the school in the vicinity of where you live, medical facilities, maybe your work, and so on and so forth. All of a sudden, you have to move again a year later. Imagine the imbalance that creates for so many families here. That is basically the rationale that is behind the Dubai rental law and this particular rent percentage rate increase formula that is embedded in the law.
I know there are a lot of people, the owners in particular of the real estate in Dubai who perhaps are upset, but for society, I think, as a whole, at least by some accounts, the rationale behind having this and a regulated real estate market is to make sure that there is enough stability and balance in the market.
Tim Elliot: It’s an effort to get a balance, isn’t it? The authorities moved pretty quickly to try to put some sensible regulations in because, for many landlords, property is an investment portfolio. But for the tenants, these are human beings. I think it’s fair to say as well, if you’re a tenant, your landlord has a right to have some return on his investment. You’ve got to try to find that balance in some way. It’s difficult, but you have to try.
Ludmila Yamalova: That’s it. Many would argue that the law has that exact effect in that it’s creating that balance because it does allow, as we’ve discussed in this podcast, it allows a rent increase. It also allows the landlord to request evaluation of their property if they believe that their specific property is not adequately valued as per the RERA calculator. There is also the option of agreeing with your tenant on a different price, on a higher price, above the margin, and ultimately if they want to benefit from the high real estate market now, they can also sell the property, and if they sell the property, there is an eviction notice of one year, but they can still sell the property and they can benefit from the buoyant real estate market today in that way, so not so much by higher rent, but perhaps by higher sale proceeds.
Tim Elliot: What can a landlord do in terms of increasing the rent? We’re going to look at a recent real-life rental dispute committee case, and in good old law and order fashion, I should state at the outset that names have been changed to protect the innocent. Ludmila, this is a real case you’ve had firsthand experience of. Over the last three podcasts, we’ve learned that a rent valuation certificate doesn’t automatically lead to a rent increase. In addition to serving the tenant notice, a tenant still has to agree to an increase. There has to be a contractual arrangement. In Dubai, landlords can’t just arbitrarily pluck a figure out of the air and say that rent is going to stand for you. With that in mind, just run through, if you would, the background for this example case today.
Ludmila Yamalova: It really perhaps stems from the role of the rent valuation certificate, as we have discussed before, the rental market in Dubai in particular is regulated by law, which is Decree Law 43 – among other things – of 2013, and that particular law sets rent increases and there is an earlier law from 2008, which is Law 33, the main law, the Dubai Rental Law, and then that law was further supplemented by the Decree 43 of 2013 that sets out the rent increase parameters for Dubai.
Basically, what we are talking about is there is a specific regulatory framework in Dubai that governs the rental market and the relationships between landlords and tenants. As per this law, landlords have obviously options and rights with regard to their properties, but they are also limitations in terms of what they can do with their rented properties. In particular, they cannot – among other things- they cannot just evict a tenant. They have to have reasons to evict and, similarly, they cannot just increase rent arbitrarily. As per the law, there is a very specific formula in terms of percentages of increase that are allowed based on the average market rate for that particular property as it determined or decided by the governing authority, which in this case is Real Estate Regulatory Agency (RERA) that sits under the Dubai Land Department (DLD) alongside the Rental Court or Rental Dispute Centre (RDC). RERA has designed a calculator that is accessible to landlords and tenants where they can go and input the data of their current rent to determine whether a rent increase is allowed at all, and if so, in what percentages. These percentages are based – again, as I said earlier – on the specific law, which is Decree 43 of 2013, which sets the ranges for increases between 5% to 20% maximum. But also, that same law allows for landlords who believe their properties have a higher value to increase rent based on a reevaluation of their specific property, and that is the rent valuation certificate that you mentioned.
We’ve known and, obviously by now, many have heard about the rent valuation certificate and have maybe even received them if they are a tenant and landlords have obtained them. But often what we hear is a misconception from landlords, but also tenants to an extent, that if they receive this rent valuation certificate, the rent has to be as per that valuation certificate.
For example, I’m renting property from you for 100,000 dirhams, and now you have received the rent valuation certificate for 120,000 dirhams, so there is this misconception that now you can request of me to pay 20,000 dirhams more or the value that is reflected in your rent valuation certificate, with it being 120,000 dirhams. That is not correct, as we’ve discussed earlier. There is still a margin of increase that’s allowed. Just because you have a rent valuation certificate and the valuation certificate shows a different figure, it does not mean that automatically the rent is increased or that your rent is the margin between my current rent, my contract rent and your rent valuation certificate.
People know about it. People use these rent valuation certificates, but not many can fully understand how the rent valuation certificate works. Obviously, some tenants perhaps are a little more informed than the landlords. More tenants are now starting to take these cases to the Rental Court (RDC) and challenging the owner’s request for a rent increase on the basis of the rent valuation certificate.
There is a specific case that basically brings all of this discussion we have had recently about rent increases in Dubai, the margin of increase, the RERA calculator, and the rent valuation certificate. This particular case is dated April of 2023 is very recent. Obviously, it is not the only case, but for the purposes of today’s discussion, it is perhaps one of the more interesting ones because it brings all of these elements into this one case, and it is quite recent, so it should be informative and insightful to many because it’s an actual case that shows how these different elements, not only come together, but more importantly, how the authorities or the Rental Court adjudicates them.
In this case, the specific figures, the owner was renting out his property. The contract value, the rental value was 175,000 dirhams, and they believed that the value of the property has increased, as we have seen before, increased significantly, and they obtained – the owner was smart enough or well informed to apply for the rent valuation certificate – and obtained the rent valuation certificate which shows that the property is now worth 200,000 dirhams, in other words, 25,000 dirhams more.
It sounds exciting. Obviously, the owner who believed that he was so well informed, said look, I have got a rent valuation certificate that shows a 25,000 increase. I give you notice of the rent increase as per the law. I’m very well versed in the laws. I give you notice, and it is based on the rent valuation certificate. Please pay me 25,000 dirhams more based on the valuation certificate.
The tenant disagreed and said the rent valuation certificate does not entitle you to the full difference in the price between the contract value and the rent valuation certificate.
The case went to RDC, the Rental Court, and it went all the way to the maximum level of appeal, so this is a final judgment. I will come back to the value of this judgment shortly.
The landlord asked for the rent increase of 25,000 dirhams, which would have been about a 14.3% increase over the current market value. The RDC did allow the rent increase. This is important because this brings our back our earlier discussion about the importance of the rent valuation certificate. RDC does consider the rent valuation certificate as an official document and official evidence of the market value, a benchmark value of your property. This particular rent valuation certificate supersedes whatever the RERA calculator might show.
RDC did accept the rent valuation certificate and did also allow a rent increase. However, it limited it to 5%, so not the 14.3% increase that the owner was asking for, but rather 5%.
If you recall, the owner was asking between 175,000, the contract value, and 200,000 dirhams in the rent valuation certificate, and asking for an additional 25,000 dirhams. When RDC authorized the increase, it authorized only the 5%, which was 8,750 dirhams. The difference between the requested 25,000 and the 8,750 is significant, as it is three times less. In other words, the rent valuation certificate is valid. It will be accepted, and it will be used for purposes of deciding on whether the rent increase is allowed. But that rent valuation certificate is only used with regards to the margin, in determining what the current market value of the particular property is, but still the margin of increase, as embedded in the law, still applies.
Just because your property is worth (63:01) has increased by 14.3% (three times the 5% allowed by law) of the value of what your current tenant is paying, you can only increase it as per the percentage of increase allowed by law.
In this case, since the percentage if increase was 14.3%, the maximum value of increase allowed was 5%, because, as we discussed before, anything between 0% and 10% of increase between the contract value and the market value does not entitle you to any increase in rent. But anything between 11% and 20% of an increase, entitles you to a 5% increase.
RDC in this case applied the maximum 5% increase, and the parties, I guess, both, to an extent, achieved a compromise. The landlord got his rent valuation certificate recognized and still got an increase, but the tenant here obviously limited the rent increase on the basis of applying the law. One way to look at it, there was a bit of a compromise. There was an increase allowed, but it wasn’t as much as the landlord wished for, but certainly it was in line with the law.
This was a very recent case. It was a real case. As I said earlier, it went all the way through appeal, which means that it is now governing authority, if you will. To that point, let me clarify one thing. Those who know anything about the legal system, the U.A.E. system, in particular, there is a common law system and there is a civil law system.
In common law, court precedents become binding. The common law jurisdictions are in the U.S. and England. These are common law jurisdictions where every one of these court cases ultimately becomes the authority and becomes binding. It is less about what the law states. It is about how the court interprets the law, and every court’s decision is basically the law and binding on the next similar case.
Civil law systems work a little differently. It is mainly based on what the law says. The U.A.E. is a civil law system. There is this – and for a lot of people still to this day, and certainly for a long time, there was this perception which is understandable and logical that these cases, okay, fine, there is this case where it shows that RDC only increased rent to a maximum of 5%, but it only applies to the one case. You cannot use it as precedent for other cases.
The U.A.E., being the U.A.E., it is always very unique and creates its own path in the world, and it has become a little bit more of a fusion system. It is still a civil law system, but in our experience, and I’ve been practicing law here for 15 years now, it is more of a fusion system. It does actually give importance and effect and relies on court cases and decisions from other similar cases quite regularly, and judges cite those cases quite regularly in all of their decisions. While officially we cannot say it is common law, in practical terms and historically, judges routinely cite other case as bases for making their decisions in future cases on a regular basis.
In other words, this case – yes, it is not a common law system, and you cannot necessarily cite it as the law, but if you cite this to RDC, the same judges, by the way, who would have decided this first case, you can imagine they’re not going to interpret this same law differently in a different case only because the parties are different, which in summary means that this, for all intents and purposes, is a binding precedent. Therefore, if you are a party that is thinking of going through a similar dispute through RDC, you need to know that this case will be, or should at least be cited by the tenant, and most likely, if not cited, but certainly relied on, at least in the chambers it will be relied on by the same judges who ruled on this decision, or in this case.
Tim Elliot: It’s a great way to sum up this series of podcasts. That’s another episode of Lawgical, looing at the rent valuation certificate here in Dubai, and actual real-life case, what the law says it should cost to rent a property here in the emirate of Dubai.
As ever, thanks for watching, for listening, or both. And thanks to our legal expert, the Managing Partner here at Yamalova & Plewka, Ludmila Yamalova. As ever, your expertise is much appreciated. Thanks.
Ludmila Yamalova: Tim, always delightful to be chatting with you.
Tim Elliot: Find us at LYLAW on social media: Facebook, Instagram, TikTok, LinkedIn, YouTube. You can find us at LYLawyers.com. All the podcasts are there. 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 Contact at LYLawyers.com.