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What You Should Know About Real Estate in the U.A.E.

What You Should Know About Real Estate in the U.A.E.

Lawgical with LYLAW and Tim Elliot

20 August 2019

Tim Elliot:  Welcome to Lawgical, the Gulf Region’s first and still the only legal podcast.  Lawgical is a regular weekly podcast from the Dubai-based law firm, HPL Yamalova & Plewka.  I’m Tim Elliot, I’m here at the firm’s offices on the 18th floor of Reef Tower in Jumeirah Lakes Towers with the Managing Partner, Ludmila Yamalova.  Nice to see you, as ever.

Ludmila Yamalova:  Same to you.  Great to see you.

Tim Elliot:  This time we’re going to be talking real estate and specifically, Ludmila, residential retail properties here in the U.A.E., not where to rent or what to rent.  That’s a very personal choice, probably for another discussion.  What we’re going to consider is the current state of the market and the things you need to know and what you need to have in place before you take the plunge and rent an apartment, a villa, or a palace, budget depending.  Let’s start with how things are now.  I’m going to solicit an opinion from you during this podcast, broadly speaking, your opinion on the rental market as we sit here in the mid-summer heat in July of 2019.

Ludmila Yamalova:  My opinion depends on whose view we will be commenting on.  From a landlord’s standpoint, the market has a lot more choices.  There is a lot more availability.  There is a lot more inventory, so therefore, there is a lot more competition for landlords to deal with.

From the perspective of the tenants, it’s a very good time because of all those reasons.  From the resident’s perspective, those who are here and holding regular jobs and having families, it’s good news because there is a lot more inventory that has come on the market over the last few years and continues to come into the market.  There are a lot more choices and because of all this, the prices are obviously softening.  In my personal opinion, that’s a great benefit for not just the residents, but for the society here in general, and that is because Dubai is, once again, becoming more affordable.  Once it becomes more affordable, it allows many more ordinary people to live here and continue to live and to move and enjoy so many great benefits that this emirate and the country in general have to offer.

From an opinion standpoint, the market is ripe for tenants to perhaps review their current arrangements.  If they’ve been here for a long time and have been renting a particular property for many years, this is a good time perhaps renegotiate either with the same landlord or look elsewhere.  This is also the time where we’re seeing families, couples, individuals perhaps who are renting either farther away or smaller properties and are now having the options of renting closer, perhaps to where they work or more convenient to public transport, and cheaper.  They can rent bigger properties, so instead of a family living, for example, in a studio, suddenly the family can afford to rent a two bedroom.  I personally consider these very good signs.  It is healthy and it is part of a very healthy and ever evolving economy.

From the perspective of the landlord obviously, it changes their paradigm because many landlords for many years had certain expectations of what the market price was, and many of them held and still continue to hold onto these properties, many of them vacant properties, because they don’t want to rest for less.  So, from that side of the equation, you can imagine it’s a little frustrating for them and perhaps more difficult because they’re not getting the rents that they were expecting to get.  But from the overall society perspective, I think these are good times.

Tim Elliot:  It’s a renter’s market, no doubt about that.  It is a tough time for landlords.  It’s a tough time from an economic standpoint.  We’re in Dubai.  There is no doubt there are deals to be had.  But let’s go back to what you need to have in place.  You have looked around.  You’ve found a perfect flat, villa, house, whatever it is.  What do you do first?

Ludmila Yamalova:  Let’s start even a little earlier.  How do you find that perfect house?  Historically and perhaps many people still believe today, that you can only do so through a real estate broker.  Well, it is not so.  A broker certainly is a convenient tool to use to look at many different choices, and if you find a competent broker it’s a great service.  That being said, it’s not a requirement.  I make this point on purpose because in my practice I’ve heard many, many times from many different people this assertion that somehow brokers are required to be used by law.  It is not so.  There is no law that requires parties to use brokers.  You can directly engage with the landlords, and you can yourself roll up your sleeves and go look at properties and avoid dealing with brokers altogether.  That’s (1) Decide whether you want to do it on your own, directly with the landlord, or you want to do it through a broker.

Number (2), and related to that same point, make sure right away, early on, that the broker that you’re dealing with actually is authorized to represent that property.  Once again, this is a point I make because of our extensive experience where parties go through the motions dealing with a so-called broker or representative of the landlord, only to find out at the end of the negotiation process that perhaps that person did not have the right authority to represent the landlord.  To avoid wasting time and just to ensure that all parties are on the same page, my advice is to early on request those documents from the broker so that you know you’re actually dealing with somebody who has legal authority to deal with the landlord.

As I say that, I will also add one more and that is, it is not so that this particular request is abnormal or somehow unreasonable.  Once again, we hear this quite often.  The brokers will say, well, no, we will not give this to you because it’s too early on, or you don’t need this.  Well, if you are considering parting with money for the purpose of, let’s say, renting this property and the money that you would be parting with is not just the rent money but also the broker’s commission, so before you do that, absolutely, it is a reasonable request to request all those documents and receive them timely.  Then, that’s your second element is to ensure that whoever you deal with, because often also, even if it’s not a broker, but a landlord’s representative who often hold themselves as the landlords themselves until you actually sit down and start looking at the documents, they actually may not be the actual landlord.  The stories you often hear is, I’m a brother, I’m an uncle, I’m a sister, some sort of relative.  Once again, legally speaking, just because somebody says that they’re a spouse, for example, that does not give them the authority to bind that particular property on behalf of the owner unless there are documents to that effect, and the document in this country is the power of attorney or the POA.  Make sure that those are current.

Now, moving on down the list of what else to consider, obviously, the location is important.  An important element that many do not consider is just find out early on, for example, what all the services that are important to you and that you are relying on being available to you when you’re at the property.  For example, a pool, a gym, because we often hear as well residents or tenants that have moved in and then x number of months later, they complain, well, the pool wasn’t open and therefore they want to terminate the agreement because they were relying on that pool being open.  But if it’s not part of the agreement, then you obviously cannot contractually use that as a ground for a valid termination.

Tim Elliot:  That’s actually a really good point to make as well, particularly in Dubai, but across the emirates now.  In facilities in residential areas and buildings and villa compounds, very often they may be a tennis court, a pool, perhaps a gym.  It’s a good idea to really understand what entitlements you have to use.

Ludmila Yamalova:  Yes.  It’s important to understand what’s important to you.  If you’re renting a particular property, sit down and highlight to yourself what is it that attracts you to this property.  Because if specific facilities, for example, are important to you and that are part of your consideration, then you need to make sure those facilities will continue to be available to you.  Now, we’ve had cases, for example, where somebody rents a property along the beach, only to find out a month or two later there’s construction that starts on the beach and now the beach is no longer accessible.  Well, unless the beach is part of the property, contractually you cannot argue that not having the use of that facility somehow gives you the legitimate right to terminate the agreement.  Just understand what things are important to you and make sure that either they are available or, even better, to include in the agreement that those particular facilities are important to your decision to rent this property, and if the event that they are not available that will somehow give you a material reason to terminate the agreement.

As I say that, that kind of brings me to the next point on the form of contract because what we do have in Dubai in particular is a template lease agreement.  It’s a template that is provided by the Land Department.  It is a standard form, if you will.  That’s the form that, ultimately, you’ll need to register with the government authority.  Now that form is fairly limited in scope in terms of what parties can insert into the provisions.  But it focuses just on the particulars, the term of contract, the price, names of the parties, and the form of payment.  Now that form presupposes, and this is a common practice and this is a highly advisable practice, you can additional terms and conditions to that lease agreement.  It will be in this additional addendum to the lease where you can spell out all these other terms that might be important to you as a tenant.  Don’t except perhaps the assertion by someone that this is not standard.  This is a standard form and it’s not possible to add or vary terms.  Certainly, the law in Dubai says that this is basically what you do unless parties agree otherwise.  Parties are able to contractually agree otherwise.

Now you’ve found a property that you like.  You’ve figured out who represents the property.  Now you’re going through the lease agreement, so obviously rental price is an important element.  Ensure that you are comfortable with that price because in a changing market, like we have right now, we’ve seen a lot of people reaching out, asking if they can either negotiate down the rent or somehow back out of their agreement because now the rent continues to soften and perhaps prices are going down, not up.  In the past it was very important for tenants to be able to secure a particular property because the prices kept going up from year to year, and in Dubai in particular the legislators introduced a new law limiting the ability for landlords to increase rent.  Well, now we’re having a difference where the pendulum has swung in the other direction.  The prices keep going down, and we’ve had a lot of interested tenants wanting to negotiate with the landlord to renegotiate the price down.  Well, that’s not really contractually an argument that’s winnable in court, so don’t rely on it.  Obviously, you can always negotiate, but it’s more likely negotiating for the future, not for the current contract.  So just make sure that you’re comfortable with the price and then discuss with the landlord the form of payment.  In the past, because of the more limited supply and the market was hot for landlords, the practice that developed was that tenants would pay landlords rent a year ahead, so the full rent you pay in one go, which obviously was very difficult for many.  As the market continues to evolve, it’s become more two checks and now it’s quite common to actually have 12 checks.  That’s an important element of every negotiation, and in many cases, landlords prefer to perhaps rent for less, but get one payment, versus more checks and higher payment.  So that’s obviously a point to discuss.

Deposit is a very big issue in these kinds of relationships.  There is a customary, and again, it’s not required by law, it’s more about custom.  There is a customary deposit that’s given to the landlord and important to highlight that that deposit is cashed or cashable upon receipt.  Because a lot of tenants who come from outside of the U.A.E. recently, in their mind a deposit means you don’t really cash it, you don’t have use of it until the time comes.  Well, in this country, it doesn’t work that way.  Let’s say you give the landlord a check for a deposit, he or she will cash it, also for a number of reasons, but one of which is a check expires after six months.  The deposit is usually cashable right away.

Tim Elliot:  There’s another important point to make as well.  You mentioned checks a few times.  I think people coming to the U.A.E. would be unfamiliar with the reliance on the postdated check, but it’s worth just explaining that that’s really how things have traditionally worked.

Ludmila Yamalova:  Yes.  The use of physical checks is still quite common.  It’s interesting because a lot of the new economies, if you will, like in Asia and Eastern Europe, they’ve sort of leap frogged from the whole use of that financial instrument being called checks.  They don’t even know what a check is because they just haven’t really dealt with it.  In the U.S., for example, checks are still very, very heavily used.  In the U.A.E. they are used, but much less so, but in the context of real estate, yes.  They’re almost always still relied on.

There are different types of checks:  (1) One is a personal check and that is a checkbook that I have and I will to you, for example, checks that you will cash on whatever date in the future, but if I don’t have funds in the account at that point in time, then you have a bounced check.  That’s one form of check.  (2) The other one is called a manager’s check.  A manager’s check is as good as cash.  In order for me to issue that check to you, I actually have to go to the bank, and I have to withdraw that amount of money in order to issue the manager’s check.  There are two forms of checks.  In real estate transactions of rentals, manager’s checks are not common.  Personal checks are.  Because of that, we, as a law firm, we obviously see a lot of cases where checks are bounced, and parties now have disputes over dishonored checks.  That does happen but it is common for landlords to ask for checks, either undated or dated into the future.  I’ll make one more comment about checks.  Make sure that whenever you issue checks, you always fill in the amount.  My preference is always to fill in the date as well.  You see a practice here in the U.A.E., especially during the real estate boom, where checks were just handed over, signed, but undated and without an amount mentioned, and it created a lot of problems.

Tim Elliot:  Checks are a subject for another podcast, Ludmila.  We’ll do that at some point, for sure.  Let’s go back to agreements.  How long does a rental contract last?  I’m not trying to ask how long a piece of string is, but they are generally a 12-month annual contract?

Ludmila Yamalova:  Correct.  In Dubai in particular, this is important to emphasize because as of a few years ago there is a law now that all rental contracts are registered with the government authority called Ejari.  Ejari in Arabic means “my contract.”  So now, everything else, all the other services that may be connected to that apartment are based on that registered Ejari contract.  What I mean by that, for example, you want to now connect your internet or phone line or electricity, DEWA, which in Dubai is the Dubai Electricity and Water Authority.  Any one of these services, if you want to connect them, they will need to see your registered contract, not just a freely negotiated instrument, but actually a form that you get issued when you go to Ejari.  It’s a government registered contract.  That’s very important.  In Ejari, as of now, they only really accept contracts that are at least one year in duration.  Shorter term contracts are not yet registered in Ejari.  There is a different system to deal with in shorter term contracts, which perhaps we can discuss in another podcast, but as a standard rule the one-year contract is a standard and it’s because it’s also linked to the government authority that registers them and the requirement from them.  It’s interesting because in other countries we often see the practice of signing contracts for residential contracts for more than one year.  In this country still to this day, the practice is such that it’s usually limited to one year.  Even though you can do it for three years and five years, but for some reason, perhaps because historically it has sort of developed so, still most of the contracts and people mentally are only prepared to sign a contract for one year.

Tim Elliot:  You mentioned services just now, and I wanted to point out with relation to the Dubai Electricity and Water Authority, they will require a deposit and it depends on the size and location of where you are, plus there is also the 5% housing fee which is a municipality tax that’s collected against your registered Ejari  written contract.

Ludmila Yamalova:  Yes.  Two important points: (1) Whenever you connect any of these services to your property, it’s true that you need to establish accounts with the various service providers, and as part of that, there is always a deposit that’s required to be lodged with those authorities.  It would be DEWA, internet, or district cooling, which is Dubai’s form of air conditioning.  You always need to put a deposit.  That’s one important consideration for tenant to keep in mind, that you have a framework of what upfront costs will be for you to just move into a new property, and this is also perhaps why in many cases today it’s easier for tenants to renegotiate with their current landlords and move to different property because every time they move to a new property there is a new set of deposits that are required and you also need to go through the motion of trying to claim deposits back for the previous property.  In many cases for some tenants, it makes sense to just carry on so that you don’t have to go through the process of issuing new checks and payments.  Yes, the deposit is an important element that continues on for many of the services that we benefit here from.

The other one is, as you mentioned, (2) DEWA, which is the Dubai Electricity and Water Authority and the 5% that they apply.  This is a practice that was introduced many, many years ago and that is basically a municipality tax, if you will, and it’s being collected by DEWA.  It’s not really related to your usage of electricity.  It’s just being collected by this particular authority.  The municipality tax is 5% of your annual rent.  It is important to highlight that this 5% even applies if you own property.  If you own property, you still have to pay the 5%.  What is 5% of a property that you own?  In that case, it takes the market value of a similar property and applies the 5% on that basis.  It depends on the location of the property, but most of the time it’s being billed to you through your DEWA bill, so it’s not a separate payment that you have to pay, but on an ongoing basis you have to pay it to DEWA.  That’s an important element to keep in mind because we have also seen cases where certain communities are not yet subject to that 5% municipality, and the question often is:  Should we be concerned in the event once that service is introduced, will be responsible to pay retroactively for it?

Tim Elliot:  So, let’s assume that your electricity is switched on.  You have air conditioning.  Your high-speed internet is in place.  You’re happily ensconced in a new apartment.  You’ve got access to the pool.  Everything’s going swimmingly.  What if doesn’t go swimmingly?  Excuse the rather awful pun there.  What protection do you have as somebody renting an apartment if things do change in some way?  By the same token, what rights do landlords have if a situation turns up?

Ludmila Yamalova:  Generally speaking, both parties have rights and are protected under the law.  But obviously this depends on the underlying framework of the relationship because often the important element, as I mentioned earlier, the important elements of their expected agreement are not often documented in the underlying agreement.  Therefore, if a tenant now has an issue with a property and considers that particular issue to be a material element to their enjoyment of the property, but it’s not in the contract, it’s a harder argument to make.  In that case, they may feel that the law is not being just, but it’s not that the law is not being just, it’s that the agreement was not clearly or was not expressly drafted to reflect the intention of the parties.  But if you have agreements that were well negotiated and well drafted and the parties are on the same page, the law protects both parties.

From the tenant’s perspective, let’s say we are in the middle of the summer and the a/c has been switched off for whatever reason, there is an argument and it’s a valid and serious argument that in this part of the world in the middle of the summer when the a/c is switched off, you truly cannot use the property, so the property becomes uninhabitable.  Now there’s a provision in the law and it’s also subject to the federal law on the interpretation of contracts and the validity of contracts that when the objective of the contract is not met then you have the right as a party to it to withdraw from it.  Let’s say if I rented property, obviously, I expect for it to have air conditioning, and if doesn’t, then it does give me a legitimate right to terminate the agreement.  That is one example.

One other element for the tenant in particular is just in the agreement to agree on who pays for the maintenance because maintenance is always a big issue of a lot of properties, and this is where a lot of discontent comes from, from tenants and landlords, tenants in particular.  Well, you have this issue.  The landlord is like, well, we didn’t agree.  I’m not going to fix this issue.  Maintenance is a very big issue, and most of the time the provision on maintenance is not very well spelled out.  This is where a lot of discontent comes from.  Well, I don’t have, for example, a nice lobby or the lobby is still under construction, and I don’t like this.  I want the landlord to fix it, for example.  Again, if it’s not in the contract and if it does not interfere with your enjoyment of the property, it will be a difficult argument to make.  But maintenance in general, it’s really in the benefit of both parties that that particular provision and concept is clearly thought through, talked through, and agreed on, such as which maintenance issues the landlord should be responsible for and which ones the tenant, and in the event the landlord is not available there at that point in time to fix a particular issue, does the tenant have the right to fix it on his or her own, and how the compensation is going to work.  This is really important, and in most cases, we do not see that level of detail.  But otherwise, the tenant is protected.  The landlord cannot unilaterally change the contract.  The landlord cannot unilaterally not renew the contract, and the landlord cannot just enter the property physically.  These are just general protections the tenant would care about.

From the landlord’s standpoint, they also have protection based on, once again, the real estate laws and some contract law.  Whatever’s in the contract, obviously if you’re renting out your property, you’re renting for a certain amount on certain conditions, so if those conditions are not met at some point in time or the lease is not being paid, then you have the right to challenge that contract in court and perhaps rescind the contract and seek compensation.  That’s all very well provided for in the law, and in Dubai we have the rent court, the RDC, the Rental Dispute Centre.  It’s our version of rental court, and they’re quite efficient and approachable.  They’ve seen so many of these cases and so you can address your cases with them fairly efficiently.

The protection is there, but make sure that if you do have a case that you actually bring it yourself.  So often we hear complaints from both landlords and tenants:  Well, the landlord is not paying for the service fees and I’m going to go and complain to the regulatory authority.  Well, that’s not the right forum to complain.  If you have an issue with the other party, nobody else is going to bring a case on your behalf.  You have to go and you have to lodge a case.

One more comment from the landlord standpoint important to highlight:  Let’s say you have a tenant who is now in default of paying rent.  That, in and of itself, does not give you the right to repossess the property.  That’s where it’s important to understand, but it’s not unreasonable and it’s quite common in other parts of the world for many obvious reasons.  It’s really important, and we’ve seen a lot of landlords quite upset and for legitimate reasons.  They have just a rogue tenant who is squatting on the property and just not paying rent.  What do you do?  You cannot just come in and repossess the property and take the keys or change the key at the lock.  In order to evict properly, you need to have a court order.  That also applies if, for example, your tenant has left the property and you know the property is vacant.  If you want to do things by the book and if you want to be careful and cautious, then again, you cannot re-enter that property without a court order, and the court order will have to be combined with enforcement proceedings, which would include getting police involved when you do enter that property.  The reasons for that is, imagine, you don’t know what that tenant did in your property and what if the tenant had some valuables.  Now you go and you repossess the property and then you have a claim against you that they had some great valuables and you’ve stolen them.  How are you going to prove that?  Or, for example, if there are some kind of improper activities that took place on the property and you enter now?  You just want to make sure that you have somebody, an independent or a government official to document and to see the property when you go in there.  That’s the reason why the process is what it is, but it certainly provides a lot of discontent to the landlords when they’re not getting paid and they cannot rent out the property, and in the meantime, they have to pay additional money to lawyers and courts to try to secure this court judgment.  But that’s the system that exists in most other jurisdictions, so more or less, the rental laws in the U.A.E. are evenly drafted.

Tim Elliot:  Ludmila Yamalova is the Managing Partner of the Dubai-based law firm, Yamalova & Plewka.  As ever, thanks for your time.

Ludmila Yamalova:  Always a pleasure to be chatting with you, Tim.  Thank you.

Tim Elliot:  That’s it for another edition of the Lawgical podcast.  Don’t forget, if there is a specific question that you need an answer to, get in touch via Lylawyers.com or any of our social channels, and we’ll try to answer it in a future edition of Lawgical.  Now, next time on the Lawgical podcast, we’ll be discussing that most important of principles, estate planning.