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: Later in this series, we’ll break down by how much and the precise stipulations that apply if you do, as a landlord, have one of these certificates. For now, that’s the first of four podcasts looking at the rent valuation certificate here in Dubai. Next time, increasing rents on the basis of that certificate. That will be part two. As ever, thanks for watching, listening, or both. Thanks to our legal expert, the Managing Partner here at Yamalova & Plewka, that’s Ludmila. Nice to see you.
Ludmila Yamalova: Nice to see you too, Tim. Thanks for being here.
Tim Elliot: You can find us at LYLAW on social media: Facebook, Instagram, TikTok, LinkedIn, YouTube. You can find all our podcasts at LYLawyers.com. If you’d like a legal question answered in an episode of Lawgical, or if you’d like to talk to a qualified U.A.E. experienced legal professional, click Contact. Once again, it’s LYLawyers.com.
