Ludmila Yamalova: Welcome and welcome back. This is Ludmila with Lawgical with LYLAW. By way of recap, in the previous segment we discussed the role of insurance coverage in the real estate sector in the U.A.E. In this upcoming segment, we will talk about rental deposits, otherwise known as security deposits in the U.A.E.
In general, rental laws are specific to each emirate. Certain emirates have provisions related to security deposits or guarantee deposits in the context of rental transactions. But in most cases, those provisions are very general and, more importantly, none of these provisions make it obligatory or mandatory for tenants to issue security deposits. Therefore, the issuance of a security deposit is largely contractual. The dispute related to a security deposit is therefore also subject to the U.A.E. contract law.
In practice, however, it has become customary to issue a deposit of 5% for properties that are unfurnished. For furnished properties, the deposit is higher and can range up to 10%. In general, and unexpectedly for many, the security deposit is cashed at the time of issuance. In many cases, the tenants expect the security deposit will only be cashed at the end of the lease and only in the event the landlord needs to be compensated for the damages for which that security deposit would otherwise apply. In practice, however, landlords expect to cash the deposit immediately.
Another nuance about rental deposits in the U.A.E. is related to the requested timing as to when it should be issued. In most cases, brokers and landlords request that tenants issue a security deposit to them prior to actually signing a tenancy agreement itself. In a way, they look at security deposit as a guarantee deposit to secure that particular property. This is a dangerous practice because there are no terms and conditions attached to that security deposit in so far as the tenancy agreement itself has not yet been signed. Therefore, the tenant who signs a check for a security deposit or pays in cash has no specific terms and conditions outlined attached to the deposit, and therefore it will be virtually impossible to claim it back in the event the transaction does not go forward. In those cases where the deposit is required, the usual practice has developed such that the deposit itself or the check is issued in the name of the landlord but is held by the broker until the parties have signed a tenancy agreement. At that point, the broker will hand over the security deposit to the landlord.
Most disputes in connection with a security deposit arise on the basis of a misunderstanding as to the scope of that deposit. Therefore, it is in the interest of both parties to clearly outline the conditions for the security deposit, and they should include those in the tenancy agreement from the beginning. Certain emirates, such as Dubai and Sharjah, for example, have standard tenancy agreements. Those agreements do not include specific provisions related to a security deposit, but there is a space to add additional conditions or parties can also add an addendum to this standard contract whereby they should clearly specify the conditions for that security deposit.
In general, however, the purpose of a security deposit is to compensate the landlord for the damage related to the tenants’ use of his or her property. In some cases, landlords may wish to add other reasons for the deposit, such as, for example, unpaid rent or any other fees that the landlord might incur as a result of the tenants’ occupation of the property. But in the event the landlord wishes to use a deposit for those other purposes, it’s essential that the landlord specifies those reasons in the contract. The best way to ensure that both parties are on the same page with regard to the purpose and conditions of the security deposit is to do what’s called a handover report.
Because in most cases the security deposit serves the purpose of compensating the landlord for any damage related to the property, it is essential that both parties document at the outset the conditions of the property and therefore establishing a benchmark against which then the landlord can claim compensation. The best way to do this is to document, perhaps in pictures, the conditions of the property where clearly parties know issues may arise. Such examples could include a broken tub. If there is a broken tub or if there is any apparent damage to the property, it is in the tenant’s interest to clearly document that damage at the outset, and the best way to do so is through pictures. These pictures should be attached to the tenancy agreement and signed off by the landlord. The agreement should clearly state that these were pre-existing damages and therefore the security deposit of this particular tenant will not be used to cover the repair of those pre-existing damages.
Also, parties need to specifically address conditions for offsetting from the deposit. One example, of course, is that if the landlord wishes for the property to be repainted afresh, the landlord may wish to offset the cost of repainting from the deposit. However, the tenant may challenge the value of that repainting job as being exorbitant. Therefore, the parties should address that particular issue in the agreement. They can do this by, for example, setting a cap on the value of the repainting job or for giving the tenant the opportunity to repaint the property himself or herself. If there are any other costs or fees that the landlord may wish to offset from the deposit, it is in the interest of the landlord to specifically state what those other conditions might be. For example, if the tenant had lost an access card or a set of keys and the landlord wants to have the ability to offset the cost for requesting the replacement of those items, then it is in the landlord’s interest to include those provisions as conditions to the security deposit.
Equally so, it is very important to highlight the grounds and the conditions for refunding the deposit. The general understanding amongst tenants is that once they exit the property and the property is in an acceptable condition, they are entitled to the full deposit. Landlords often expect to hold onto the deposit and often they expect so because they will have cashed the deposit long ago and, as far as they’re concerned, there is no more deposit. Therefore, it is in the interest of both parties to clearly outline the timing of the refund and the conditions upon which that refund should be addressed.
Generally, there is no law requiring landlords to refund at any particular time. Many disputes arise exactly on that basis. Tenants have vacated the property, and they have handed over all the items and keys to the property to the landlord, but they have not received the deposit yet. In many cases, this is not an indication that landlords are not willing to give their deposit, but tenants may feel so because they think there is a law that requires landlords to refund the deposit at a certain time, but it is not so. But it would be beneficial for both parties to address this particular issue in the contract to avoid any misunderstanding.
With regard to any conflict between the tenant and the landlord on the basis of a deposit, and there are many of those, the best way to address this is obviously first is to try to amicably negotiate. But in the event that fails, and there are many cases related to disputes over a security deposit, the only remedy for tenants is to bring the case in the appropriate forum for resolving such a dispute. In certain emirates, such as in Dubai and recently in Abu Dhabi, there have been set up special committees or centers for dispute resolution, so the tenant would bring a case for a refund of a security deposit in those forums, and in other emirates it would just be the court.
Generally speaking, in emirates such as Dubai an in Abu Dhabi the specialized rental dispute centers and committees are set up so that they can address these very issues at a fairly economical fee to the tenants and fairly swiftly. Therefore, usually cases related to security deposits can be resolved fairly quickly and without the involvement of lawyers.
This concludes our segment on rental or security deposits for properties in the U.A.E. Thank you for listening. Tune in next week to learn about residence visas related to ownership of properties in the U.A.E.
Hanan: Hello. This is Hanan Arab. Thank you for listening to our Managing Partner, Ludmila Yamalova from HPL Yamalova & Plewka, DMCC. If you have any further questions or would like any specific clarifications, feel free to contact us at info@Lylawyers.com. You can also find other ways of contacting us on our website, www.Lylawyers.com. That’s all for now. See you next week.
