April 27, 2017

Legal Corner: An introduction of Standard Form Tenancy Contract by Dubai Land Department

shutterstock_1249018027

The Standard Form Lease was introduced by the Dubai Land Department (DLD) and, effective 1 March 2017, is for use in relation to all new commercial, industrial and residential leases of property located in the Emirate of Dubai. The Standard Form Lease is mandatory in order to register a lease in the Ejari system.

The Standard Form Lease does not apply in relation to long leases (i.e. those of 10 years or more in length) which are registrable separately in the Real Property Register maintained by the DLD.

 

Why is the Standard Form Lease being introduced?

The Standard Form Lease furthers the DLD’s objective to create a transparent and professional real estate market in Dubai and to further enhance investor confidence in Dubai’s real estate sector. The Standard Form Lease further regulates the landlord and tenant relationship and provides safeguards in relation to parties’ respective rights. The intention is to provide greater certainty, particularly with forms of lease currently used in the market, which are often not well drafted or which otherwise conflict with existing laws.

 

What form does the Standard Form Lease take?

The Standard Form Lease is a short, bilingual document (Arabic and English). Lease particulars must be added relating to such matters as: landlord and tenant names and contact information; property location details, type and use of property; length of term; amount of rent payable (either on an annual basis or as a one off, lump sum premium); and method of rent payment.

The Standard Form Lease contains a number of standard terms and conditions (the Standard Terms and Conditions). These include:

  • the tenant acknowledging that it has inspected the property and that both parties agree upon the condition in which it is leased as at the commencement of the term;
  • the tenant agreeing not to use the property for any purpose other than the permitted use and that any assignment of the lease by the tenant must be in accordance with current laws;
  • the tenant agreeing to pay the rent in the manner and on the dates agreed with the landlord;
  • the landlord confirming it to be the current owner of the property or otherwise entering into the lease pursuant to a legally effective power of attorney on the owner’s behalf;
  • the tenant agreeing not to make any alterations to the property without the landlord’s written consent;
  • the tenant agreeing to be responsible for payment of all utility charges relating to the property, unless otherwise agreed;
  • the tenant agreeing to comply with all regulations and instructions issued relating to the management of the property and use of common areas;
  • parties agreeing that all disputes shall be settled by the Rental Disputes Settlement Centre (RDSC);
  • parties agreeing that the lease is governed by the relevant landlord and tenant legislation applicable in Dubai;
  • both parties acknowledging that the terms of the Arabic text shall prevail in event of conflict with the English text; and
  • parties agreeing that any additional terms and conditions will not have effect to the extent that they conflict with applicable law.

 

What is the effect on a landlord’s existing form of lease?

Leases of commercial property tend to provide parties with considerably more rights and obligations, and cater for a wider range of, often complex, commercial arrangements, than those covered by the Standard Terms and Conditions. To overcome this concern, the current form of Standard Form Lease allows parties to insert additional terms or append a more comprehensive, signed addendum varying the Standard Terms and Conditions.

For example, parties may vary the default dispute resolution provision which identifies the RDSC, to expressly state that any dispute may be referred to arbitration (as is permitted under legislation), subject to ratification and enforcement by the RDSC.

Any varied terms which are not strictly enforceable under Dubai law, will be treated as severable from the rest of the lease.

All additional terms or addendum, irrespective of length or complexity, are registrable in the Ejari system, allowing parties to rely upon those provisions in the event of a dispute. Significantly, the form of any such additional terms or addendum must be in both Arabic and English.

It is anticipated that the Ejari system and processes will gradually migrate online. The expectation is that this will allow landlords to register their own additional terms, to be modified and generated online for specific leasing transactions. Once this system is fully implemented, the anticipation is that separate addendums will not be accepted; the only acceptable, registrable form of lease being one generated through the online system.

The Standard Form Lease does not, at present, include space to enter a tenant guarantor’s details or for any guarantor to sign. Any guarantee arrangements may therefore need to be documented in a separate contract, outside of the Ejari system. The RDSC’s treatment of a tenant guarantor is largely untested.

 

Conclusions

Landlords should immediately start using the Standard Lease Form and should seek to modify their existing standard leases to correspond and dovetail with the Standard Form Lease. Landlords currently using an English-only form of lease should now use a bilingual format as the Arabic text will prevail if a dispute under the lease is brought before the RDSC (irrespective of any prevailing language clause in favour of the English text). Landlords should also consider drafting separate guarantee agreements where they require a tenant’s obligations to be guaranteed by a third party.

When negotiating leases, tenants should also be aware of these changes to ensure that they are captured in the form of lease that they are entering into, in order to avoid any potential conflict with the Standard Terms and Conditions.

The Standard Form Lease can be downloaded online at www.ejari.ae.

Ian Arnott, Senior Associate, Real Estate & Hospitality, Al Tamimi & Co.

www.tamimi.com

i.arnott@tamimi.com

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