Tim Elliot: This is Lawgical, the U.A.E.’s first, and still the only, legal podcast. Welcome. My name’s Tim Elliot. Lawgical comes to you from the Dubai-based legal firm, HPL Yamalova & Plewka, and as ever, I’m with the Managing Partner, Ludmila Yamalova. Nice to see you again.
Ludmila Yamalova: Great to be here with you, Tim, as always.
Tim Elliot: Now this is the third episode of four podcasts. We’re looking at the cost of renting somewhere to live here in Dubai. Specifically, however, we’re looking at the rent valuation certificates here in Dubai, and this time, 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: That is the third of four podcasts looking at the rent valuation certificate here in Dubai, what a landlord can do in terms of increasing the rent. As ever, thanks for watching, listening, or both, and thanks to our legal expert, the Managing Partner here at Yamalova & Plewka, Ludmila Yamalova. Nice to see you. Thanks for your expertise.
Ludmila Yamalova: Thank you, Tim.
Tim Elliot: In the next episode, episode four, we’re going to look at an actual property rent valuation certificate dispute case. That’s coming up. You can find us at LYLAW on social media: Facebook, Instagram, TikTok, LinkedIn, and YouTube. Find all our podcasts at LYLawyers.com or wherever you find your podcasts. If you 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 the Contact button at LYLawyers.com.
