June 20, 2016

Legal Corner: Planning Ahead for Resolution of Real Estate Disputes

businessman writing in notebook

When a landlord and tenant are negotiating a lease, they will probably not give much consideration to what happens when they have a dispute or disagreement. However, particularly where premises are large with a complex fit out, what happens in a dispute can have very significant (and very expensive) implications for both parties.

 

When considering a contract relating to real estate it is important to understand that any disputes will (with very few international exceptions) be governed by the law of the land in which the premises are located. If this is Dubai, the current position is that any leasing dispute (excluding the DIFC) will be heard in the Rent Disputes Settlement Centre (the RDSC). The RDSC is designed to have the following key features:

  • Whilst forming part of Dubai Courts, its procedures are simple and easy to understand;
  • It is intended to be low cost (fees being 3.5% of the claimed amount (minimum AED 500));
  • Lawyers are not required to present a case for either party; and
  • The parties will be encouraged to resolve their disputes amicably through mediation.

A case sent to the RDSC will be heard by experts who are not exclusively court judges. At all stages the RDSC will encourage parties to agree a settlement rather than continue with dispute proceedings.

 

Whilst the majority of cases arising from disputes in relation to tenancies in Dubai will be heard and settled by the RDSC, it is open for the parties in their lease to choose to have their disputes heard by a private arbitration rather than by the public courts system. There are a number of bodies which provide systems of rules under which parties may arbitrate. With respect to leasing, the most popular are the Dubai International Arbitration Centre or DIFC-LCIA. They are locally recognised within the judicial system of Dubai and the legal community is generally familiar with their use.

There are a number of key differences between resolving disputes by arbitration as compared to the hearing of disputes in the local court system:

  • Arbitration proceedings are private and are not open to public scrutiny;
  • The process of arbitration is more familiar to international companies; and
  • The language of the arbitration proceedings can be stipulated in the contract (by contrast, the RDSC is generally heard in Arabic).

 

It is important to emphasise that if parties want to utilise arbitration as a method of dispute resolution that they must expressly provide for this in the lease. The person signing the lease should also be specifically empowered in the relevant power of attorney to enter into agreements for arbitration. Also, arbitration is usually significantly more expensive than appearing at the RDSC with legal representation being almost certainly required.

 

Choice of the RDSC or arbitration is very much a question of commercial judgment and also preference. Many MENA head quartered companies are very comfortable with the local court system (i.e. RDSC). However, in the case of high value, complex leasing arrangements, the parties often elect for disputes to be resolved by way of arbitration.

 

This article is powered by Andrew Thomson, Head of Real Estate & Hospitality (Middle East & Africa) for the international law firm Gowling WLG, Dubai.

Contact Details: Andrew.Thomson@gowlingwlg.com / (+971(0)4 437 5100).

Topics: Legal Corner

Related articles

9 Credit Control Mistakes that Could Hurt Small Businesses in Dubai

Tax Audit in UAE - Know the procedure and how to be prepared for audit

Legal Corner: Mobile App Development