December 20, 2016

Legal Corner: Understanding Lease Renewal in Dubai

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The Rental Dispute Settlement Centre (RDSC) is frequently involved in disagreements relating to lease renewal. This article aims to help landlords and tenants to avoid these disputes, therefore saving unnecessary cost and inconvenience. The Tenancy Law (Law No. 26 of 2007 (amended by Law No. 33 of 2008)) regulates the relationship between landlords and tenants in Dubai. The Tenancy Law governs all types of leases including those relating to residential, commercial and industrial property.


Tenant’s Right of Renewal is Automatic

Subject to the exceptions listed below, automatic renewal is a public policy issue and therefore cannot be contracted out of. Where a tenant remains in occupation of a property after the lease expiry date with no landlord objection then the lease will automatically renew for the original lease term or one year (if shorter) on the same terms and conditions.


Can the Landlord Refuse a Lease Renewal under any Circumstances?

There are only four circumstances where a landlord can object to the renewal of a lease and request the eviction of the tenant on lease expiry:


1. Property Demolition

The RDSC will require the landlord to provide evidence to support its claim, such as a Dubai Municipality (DM) approval to the demolition methodology. Although this requirement protects the tenant, it can pose challenges for landlord in terms of delay and managing interfaces between Government departments.

 

2. Renovation or Extensive Maintenance

The renovation or maintenance should be so extensive that it could not be undertaken with the tenant in occupation. The landlord would be prudent to obtain a technical report from DM (or accredited by it) to support its case. Where a property is demolished or renovated, the tenant must be offered a first right of refusal in respect to re-occupying the property.

 

3. Personal Use

The landlord should provide proof that it does not own a suitable alternative property. This can be tricky in relation to commercial leases especially where a landlord owns several commercial properties and wishes to reclaim a property for commercial reasons. The RDSC is likely to unsympathetic in this instance as their view is likely to be that if the landlord owns alternative properties that one of those would be suitable for landlord use. This exception is therefore more applicable to individual, residential landlords who need to re-occupy their apartment. Where the exception is successfully applied, the landlord may not re-let the property for at least two years (in the case of residential properties) and at least three years (for non-residential properties) unless the RDSC agrees to a shorter prohibition period. Where the landlord breaches these restrictions, the tenant may claim compensation from the landlord.

 

4. Sale of Property

The landlord cannot simply state that it wishes to sell its property. It must substantiate its intention perhaps by providing a broker’s agreement or a memorandum of sale.


What Should a Tenant do if Illegally Asked to Vacate a Property?

A tenant can file a case against the landlord with the RDSC for a fee and with supporting paperwork. The judge will consider the issues of the case and may issue a new lease. The tenant can deposit the rent cheques at the RDSC and they can be paid to the landlord by the RDSC. It is however helpful if tenants are aware of their rights and can negotiate with the landlord before approaching the RDSC to save costs.


Notice Requirements

Where one of the four exceptions applies, the landlord may serve a notice of eviction on the tenant. The Tenancy Law stipulates strict requirements for the notice which must:
• be served on the tenant at least twelve months prior to the date of eviction;
• be served through the Notary Public or by registered mail; and
• clearly state which of the four grounds on which the landlord relies in respect to the eviction.

Where a notice fails to comply with these requirements then the validity of the notice may be challenged by the tenant and likely rejected by the RDSC. A further notice can be served by the landlord but this will result in delay.

Twelve months after the service of a valid notice, the landlord can apply to the RDSC for an eviction order. If the RDSC is satisfied that one of the four exceptions applies, the RDSC will issue an eviction order, and the tenant must vacate the property.


Conclusion

The Tenancy Law offers additional protection to tenants and helps to create stability in the Dubai rental market by limiting the grounds on which landlords can refuse to renew a lease. The challenges of applying the Tenancy Law to commercial properties should not however be ignored.


Melanie Collishaw is a development lawyer and has more than 16 years’ experience in the UK and Middle East. Currently located in Dubai, she heads GLS Law’s Middle East Real Estate and Construction practice. Melanie can be contacted on +971 (0) 52 728 3332. GLS Law forms part of the GLS Group.

The GLS Group delivers 24/7/365 access to world-class legal solutions for all businesses globally, whether big or small. By combining 'Big Law' legal talent with advanced technology and superior processes, the GLS Group has created a new support reality; time, cost and location are no longer barriers to accessing world-class legal support.

Topics: Legal Corner

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