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. As ever, on the 18th floor, and here’s the Managing Partner, Ludmila Yamalova. Nice to see you.
Ludmila Yamalova: Good to see you too, Tim.
Tim Elliot: This is the final part of our four podcasts. We’ve been looking at what it really costs to rent property here in Dubai. We’ve specifically been considering the rent valuation certificate. This time 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 three times the value of what you are paying of 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, and that’s the last of four episodes looking at the rent valuation certificate here in Dubai, an 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 a 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.
