While situation with epidemic of coronavirus COVID-19 is developing in Dubai, more and more people and businesses are getting affected, in particular, with their tenancy arrangements. I receive questions from my clients, both landlords and tenants in Dubai, whether tenancy contracts could be terminated and, if so, could tenants leave the premises without any penalty or could they be evicted? On the other hand, questions have been asked regarding reduction and postponement of rent? Could tenant ask to reduce and/or postpone the rent and is the landlord obliged to satisfy such request?
I attempt to answer some of these questions in the article.
Dubai legislation on Tenancy Contracts
Dubai Law No. 26 of 2007 (as amended by Dubai Law No. 33 of 2008) regulates the relationship between landlords and tenants in the emirate of Dubai (the “Dubai Tenancy Law”). Basic principal of this law is that the relationship between the landlord and the tenant are regulated by the Tenancy Contract that shall specify parties, property, term of the contract, rent and payment terms.
The contractual relationship between Landlord and Tenant will be regulated by a Tenancy Contract detailing, in a manner allowing no room for uncertainty, a description of the leased Real Property, the purpose of the tenancy, the term of the Tenancy Contract, the Rent and payment method, and the name of the owner of the Real Property, if the Landlord is not the owner.
It is customary that majority of Tenancy Contract in Dubai are for a period of one (1) year. Both Tenant and Landlord shall adhere to their agreement and any attempt to terminate the contract prior to its expiry is an exception that usually leads to refusal of such early termination by the judicial authority and/or sanctions. I will discuss it in details further in the paper.
Amendment of Tenancy Contract
There is no right of any party to amend the Tenancy Contract during its term and limited right with several conditions on amendment upon renewal, unless both parties agree with such amendments. In particular, party wishing to amend shall notify the other party 90 days prior to expiry of current term (Article 14 of the Dubai Tenancy Law).
Unless otherwise agreed by the parties, if either party to the Tenancy Contract wishes to amend any of its terms in accordance with Article (13) of this Law, that party must notify the other party of same no less than ninety (90) days prior to the date on which the Tenancy Contract expires.
There must be an agreement of both parties regarding amendments to the tenancy contract including the rent (whether increasing or decreasing it) and should the parties fail to reach agreement, the Rental Tribunal may determine fair rent (Article 13 of the Dubai Tenancy Law).
For the purposes of renewing the Tenancy Contract, the Landlord and Tenant may, prior to the expiry of the Tenancy Contract, amend any of the terms of the Tenancy Contract or review the Rent, whether increasing or decreasing it. Should the Landlord and Tenant fail to reach an agreement, then the Tribunal may determine the fair Rent, taking into account the criteria stipulated in Article (9) of this Law.
Based on the above provisions, there is no right of either party to request the amendment of the contract during its term, unless such amendment is made by mutual agreement of both parties.
My first recommendation to the Tenant is to notify the Landlord immediately, stating in details the circumstances that lead to inability to pay the Rent on time, provide documents confirming such circumstances. Thereafter, the Tenant shall try to engage into conversation with the Landlord in an attempt to find immediate and long-term solution. In particular, the Tenant may ask the Landlord to consider split payments, deferral of payments and even reduction of rent in return for advance payment of Rent for few months.
It is important to remember, that Landlord also has financial obligations and might also suffer the affect of the epidemic Covid-19 on personal and financial levels. Moreover, he/she/it has maintenance, service charge and tax obligations with regard to property and the rental received. The Landlord is not obliged to satisfy Tenant’s requests on reduction, postponement of rent or restructure of payments and might only do it on his/her own will on humanitarian grounds.
For example, a fair relief may constitute an agreement between the Tenant and Landlord that for the months through which the income of the tenant is affected, the rent will be decreased proportionally. For instance, if a commercial establishment was shut in compliance with the Government’s order as part of preventive measures against epidemic of COVID-19, a commercial tenant’s revenues in these months could decrease by up to 100 percent, the Landlord might agree to 30-70 percent rent reduction for those months and review the situation depending on the its development. The Landlord is not obliged to do so, but if it values the Tenant and does not wish to lose it for future rentals, it might agree on one of the following measures:
- postponing rent payments by a period of up to six months,
- facilitating instalments for payments,
- refunding security deposits and guarantees,
- cancelling penalties for both companies and individuals,
- reducing or waiving the rent for few months.
We must stress, that if the parties agreed on some changes to the Tenancy Contract, they should put in writing any amendments that they agreed and to do their best to comply with these new provisions. The amendments shall be registered with RERA (in EJARI system) in the same manner as the principal Tenancy Contract (Article 4.2 of the Dubai Tenancy Law).
Right to terminate Tenancy Contract
Could the Landlord or the Tenant terminate the contract during its term? The answer is no, unless the contact is terminated by mutual agreement of both parties or in accordance with the provisions of the Dubai Tenancy Law. See Article 7 below:
Where a Tenancy Contract is valid, it may not be unilaterally terminated during its term by the Landlord or the Tenant. It can only be terminated by mutual consent or in accordance with the provisions of this Law.
Termination by Landlord
The Dubai Tenancy Law stipulates several reasons for terminating the Tenancy Contact by the Landlord and eviction of Tenant prior to the expiry of the term. Among such reasons, the most relevant for the subject of this article is failure of the Tenant to pay the rent.
1. The Landlord may seek eviction of the Tenant from the Real Property prior to the expiry of the term of the Tenancy only in the following cases:
a) where the Tenant fails to pay the Rent or any part thereof within thirty (30) days after the date a Notice to pay is given to the Tenant by the Landlord unless otherwise agreed by the parties;
It should be understood that simply not paying rent to the Landlord even during financial difficulties sustained by a person or a business during COVID-19 would lead to Landlord’s right to request the eviction pursuant to Article 25.1(a) of the Dubai Tenancy Law. Moreover, such Tenant must pay the rent for the whole period during which the claim is considered and until the award is rendered and executed. See Article 31 of the Dubai Tenancy Law below:
Filing a claim to evict the Tenant does not exempt the Tenant from paying the Rent for the whole period during which the claim is considered, and until an award is rendered and executed.
That is why stop paying the rent is not an option for the Tenant. I reiterate the importance of negotiating between the parties and reaching the agreement.
Historically, only in some exceptional circumstances where the Tenant died or lost his job and was obliged to leave the country, Dubai Rent Tribunal agreed to terminate the residential tenancy contract prior to its expiry with or without penalty (usually two months’ rent) and, hence, refrain the Landlord from claiming payment of rent for remaining period of the tenancy term including presenting cheques to the bank. In most cases, the Tenant was obliged to pay the rent until the expiry date agreed in the Tenancy Contract. Financial difficulties as such were not considered as sufficient reason for early termination of the Tenancy Contract, as it is responsibility of the Tenant to properly estimate his/her financial ability to pay rent at the time of entering the Tenancy Contract.
Termination of Tenancy Contract for Commercial Properties
In addition to non-payment of rent specified above, Article 25.1 (c) of the Dubai Tenancy Law provides, that the Landlord may terminate the Tenancy Contract for commercial property where the Tenant leaves it unoccupied for no reason for thirty (30) consecutive days or ninety (90) non-consecutive days within the same year.
1. The Landlord may seek eviction of the Tenant from the Real Property prior to the expiry of the term of the Tenancy only in the following cases:
c) where the Tenant of commercial Real Property leaves the Real Property unoccupied for no valid reason for thirty (30) consecutive days or ninety (90) non-consecutive days within the same year, unless agreed otherwise by both parties;
We would expect that a direct order of the Government to close particular commercial establishments during UAE measures against epidemic of COVID-19 would be considered as a “valid reason” for the commercial property to be unoccupied. I believe that for the purposes of the above Article 25.1(c), no eviction would be permitted if such commercial establishment remain close during lock-down period, provided the rent is paid by the Tenant. But I shall live and see the position of the Rental Tribunal on these cases.
There are other reasons when the Landlord can terminate the Tenancy Contract during its term. In particular, where the Tenant uses the property or allows others to use it for any illegal purpose or for a purpose which breaches public order or morals (Article 25.1(b)) or where the Tenant makes a change to the property that renders it unsafe (Article 25.1(d)) or where the Tenant fails to observe any obligation imposed on him by the Dubai Tenancy Law or any of the terms of the Tenancy Contract within thirty (30) days from the date a Notice to perform such obligation or term is served upon him by the Landlord (Article 25.1(g)).
Termination of Tenancy Contact by Tenant
Can tenants terminate Tenancy Contracts prior to their expiry and without paying penalty?
The Dubai Tenancy Law does not provide for Tenant’s right to terminate the Tenancy Contract during the term, hence, the tenant must comply with the payment and other obligations during all period of the contract (usually one year). It is customary for Dubai Tenancy Contracts to include provision that Tenant would notify the Landlord in advance of Tenant’s intention not to renew the contract by giving 60 or 90 days prior written notice. Moreover, some contracts contain provision of early termination with 60 days penalty. The implementation of these provisions vary much depends on parties’ relationships and their abilities to be fair and reasonable. Usually parties to the Tenancy Contract prefer to negotiate and reach a mutual understanding rather than referring dispute to the Rental Tribunal and incur additional costs.
Many commercial leases address force majeure, market disruption and/or extraordinary circumstances and it is therefore important to establish whether there is a right to delay performance of obligations or for the contract to be terminated in each of these cases.
Considering that there is no Tenant’s right of early termination of the Tenancy Contract, there is a debate in Dubai legal community whether Tenant can request the judicial authority, i.e. Dubai Rental Tribunal to look at the exceptional circumstances and make a decision by application of Article 249 of the UAE Civil Code, which states:
Article 249 of UAE Civil Code
If exceptional circumstances of a public nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void.”
Article 249 of UAE Civil Code is usually used by a party where contractual obligations become impossible or burdensome and the continuation of the contract is threatened directly as a result of unforeseen circumstances for causing a huge loss. A party may ask the judiciary to reasonably balance the interests of the parties to the contract by easing the burden of their obligations. This balance may include decreasing the value of the contract, allowing a grace period or any other remedies that a judge may, in his discretion, determine. The mere existence of financial difficulties or economic adversity does not relieve the party from non-performance of obligation since the parties of the contract are expected to have reasonable business insight and are expected to have estimated the economic risks before committing themselves with any obligations of a particular contract.
If the Tenant’s income had been reduced due to COVID-19 and the Landlord does not agree to reduce or postpone the rent, then the Tenant could apply to the Dubai Rental Tribunal and ask for a fair level of rental relief under Article 249 of the UAE Civil Code. The Tenant may ask for decrease or rent, rental postponement or restructure of instalments, but I shall live and see whether the Tribunal will make such an order to oblige the Landlord to act accordingly.
Another legal discussion is with regard to application of Article 273 of the UAE Civil Code to the Dubai rental disputed during COVID-19. Article 273 stipulates that if a force majeure event makes a contract (fully or partially) impossible, all contractual obligations will cease, and the contract will be automatically (fully or partially) cancelled and the parties are to be restored to the position they were in before they entered into the contract; if that is not possible, damages may be awarded by way of compensation to a party that has suffered a loss as a result of the inability to unwind the contract.
Article 273 of UAE Civil Code
(1) In contracts binding on both parties, if force majeure supervenes which makes the performance of the contract impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled.
(2) In the case of partial impossibility, that part of the contract which is impossible shall be extinguished, and the same shall apply to temporary impossibility in continuing contracts, and in those two cases it shall be permissible for the obligor to cancel the contract provided that the obligee is so aware.”
The UAE Civil Code does not define “force majeure”. Hence, it is up to the judge to decide whether COVID-19 made the obligation of the relevant party impossible to perform and decides to cancel the contract.
With regard to tenancy relationship, if the Tenant’s income dropped to a level that makes it impossible to pay the rent or the Tenant lost the job, and all negotiations with the Landlord on early amicable termination failed, the Tenant may file a case at the Rental Tribunal with reference to Article 273 of the UAE Civil Code stating how COVID-19 has made him/her impossible to pay the rent. The Tribunal will then decide whether the tenant’s situation qualifies as force majeure and the tenancy contract could be cancelled without penalty.
The above legal assumptions are theoretical and shall live and see what approach the Dubai Rental Tribunal takes.
The best approach is to negotiate and come to fair amendments of the Tenancy Contracts. The Tenants that cannot pay the Rent due to COVID-19, advised to negotiate with Landlords a fair rental relief if their income dropped temporarily, or terminate the Tenancy Contract in case the loss of income is permanent due to COVID-19. Present the Landlord a fair proposal supported by documents indicating loss of salary (for residential properties) or comparison of revenues (for commercial properties) to showcase the percentage drop in sales, seeking a proportional relief on rent from the Landlords. For example, re-schedule of rental payments to monthly basis, rental holiday, reduction of rent could be negotiated. In case the agreement with the Landlord was not reached, the Tenant might wish to file a case before the Dubai Rental Tribunal and request either a fair relief from the obligations of the Tenancy Contract or to cancel the Tenancy Contract without paying any penalty to the Landlord as force majeure made the payment burdensome or impossible.
As there are no precedents available to us at the moment that would indicate the position of the Dubai Rental Tribunal on eviction of tenants of either residential or commercial properties, as well as providing relief under the Tenancy Contracts where the contractual relationship were affected by coronavirus COVID-19 or protective measures of the UAE or Dubai Governments against epidemic, it is hard to indicate which view the Dubai Rental Tribunal will take. We shall live and see.
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