DIFC Rental Law (Leasing)

Leasing Law in the DIFC

“But land is land, and it’s safer than the stocks and bonds of Wall Street swindlers.”

                                                                                                                       -Eugene O’neill

Introduction

Property holding has been one of the most attractive markets in the world for the longest time. It is considered every man’s dream to own a piece of land, and every person’s end goal to have a nice home they can inhibit. While over the last decade, the number of property owners has skyrocketed, those that cannot afford to have always looked to the cheaper and less tedious option of leasing. Countries worldwide have long-standing drafted legislation in relation to owning, leasing, and other aspects of Property related transactions due to the constant long-standing high demand of market interest in the same.

Up keeping with the times, the UAE has also provided for ownership of the property through freehold for personal and business purposes as per specified terms and conditions. DIFC has provided for such regulations since 2007, which has been extensively amended as per new practices over time.

Real Property Law

DIFC, the free zone market in Dubai, has an established Property Law, which was implemented as Law Number 4 of 2007 that governs the ownership of freehold property within DIFC. In 2018, The Real Property Law Number 10 of 2018 was established, which repealed the aforementioned Law and was brought into force; which provides for guarantee title to Real Property, facilitating dealings with real property, and defined the powers and functions of the Registrar in relation to the Real Property.

While this major amendment provided for better-specified regulations and rules, the Law only had a subset of regulations in terms of leasing of Property in the Free Zone area under the new amendment. The regulations provided for as per the Real Property Law briefly states Leasing, Registration, Requirements, Variations, Expiry and termination, and a few other clauses in roughly over a page. The current law in place provides regulations for retail leases, but more explicitly for residential leases located in the area since provisions are detailed in the Real Property Law for retail.

Leasing Law 

Due to the attraction of leasing with Freehold area properties, DIFC introduced a new Leasing Law enacted by the Ruler of Dubai, Number 1 of 2020, which came into effect in January 2020. This law establishes various legislative changes in par with international practice standards. This law sets out in detail the statutory obligations on the lessee and lessor, condition report requirements, dispute resolution, and various other aspects as elucidated in detail below.

A lease shall not be considered legally valid as per the Act if it is not in writing, and it is required to state the following:

1. Lease Term; 
2. The rent payable by the Lessee; 
3. The dates of payment of rent; 
4. The permitted use of the Leased Premises; 
5. A description of the Leased Premises accompanied by a Lease Plan where available; and 
6. The identity of the Lessor and Lessee.

It is mandatory that the Lessor and Lessee make sure the above-mentioned terms are stated in the rent agreement as agreed between the parties, as this is the first step to a legally valid lease. There are various rights and obligations provided to the parties, dependent on the nature of the lease. Below mentioned are some in regards to the residential lease of property.

Security Deposit

As is the case with most provisions, various protections have been provided to the Lessee against abuse of power by the Lessor. While security deposits are not mandatory, the new Act provides for a maximum percentage in relation to the imposition of security deposits. The Lessor may not collect from the Lessee more than 10 percent of the annual rent as a deposit. If there is an increase in rent, the Lessor is entitled to demand a higher rate of a security deposit under the 10 percent bracket to reflect the hike. Whereas, in the event of a rent decrease, Lessee can demand part of his security as applicable, back from the Lessor.

It is required that the Lessor must pay the Registrar the security deposit within 30 days of receiving such amount from the Lessee, along with the form and written confirmation from the Lessee. Unless explicitly provided, Lessor may not convert the security deposit to payment of rent.

Rent 

The new Act also provides protection from sudden increases in rent, which eases the issue of a hiked price for the tenant. If the rent specified as per the lease does not provide for a time period, it is generally required that the Lessee pays in advance in four quarterly installments for every 12 months. In the event of a rent increase for the apartment, it is now obligatory that the Lessor informs the Lessee of the increase at least 90 days prior to the expiry of the existing lease so that the Lessee can adjust his finances accordingly or evacuate, as required. A lessor is also not entitled to increase rent before the lease ends. It is to be noted that the Law does not prevent the Lessor from collecting rent in advance if agreed upon.

Obligations of the Lessor 

A lessor is not permitted to disconnect utility services or preventing the Lessee of privileges provided with the leased premises. It is to be noted that a lessor could be liable for such actions as the Lessee could refer such a case to the police or before a competent court.

A lessor shall sign a release form as prescribed by the Registrar in the event of expiry or early termination of the residential lease.

It is obligated upon a lessor to make payments of: 

1. ¾ All charges in regards to supply or use of utilities such as gas, water, district cooling, and sewage disposal, unless agreed otherwise.
2. ¾ All installation in relation to a utility service of the premises.
3. ¾ All utility charges not based on the quantity of a substance or service that is supplied to.
4. ¾ All services charges under the Strata Title law and Master Community Service Charges.

In the event of a repair, the Lessor is liable to carry out specified repairs if there has been a written notice provided by the Lessee that such repairs are required, and a notice for such have been provided. If the Lessor does not do the needful within 60 days of the notice being provided, then the Lessee may obtain a court order mandating the Lessor to do so. In case of urgent repairs, a lessee may obtain a court order if the Lessor cannot meet the cost or refuses to pay or fix such repairs.

It is at the liberty of the Lessee to terminate the contract by court order if any material obligations to be made by the Lessor is not made within thirty days of notice for such obligations provided by the Lessee.

Obligations of the Lessee 

The Lessee shall sign a release form as prescribed by the Registrar in the event of early termination or expiry of the residential lease.

Two signed copies of a condition report specifying the state of repair and general condition may be provided by the Lessor, and it is mandated that the Lessee provides a response within 20 days as to whether he is okay with the condition of the residential space or if not, what needs to be changed as per him.

The Lessor has a right of entry in the event of him selling the property to showcase it to prospective buyers. If the lease is nearing its end and the Lessee is not in agreement on the renewal of the contract, then the Lessee has the right of entry to show the property during the last thirty days of the term.

No damages that constitute fair wear and tear shall be liable for by the Lessee. If damages were caused due to failure on the part of the Lessor, this shall not be the responsibility of the Lessee. If reasonable care has been taken by the Lessee to avoid damages, then the exclusion of liability is extended to the Lessee.

Fair wear and tear has been defined under definitions as “damage to carpets, decorations, fixtures, fittings and furniture that would reasonably be expected through ordinary day-to-day use during a tenancy for the term of a Lease in respect of the type of tenants, who do or did occupy the Leased Premises, in comparison to their state at the outset of the Lease.”

Termination

Termination of the lease has various conditions that have to be fulfilled to do so. While the Real Property Law has provisions wherein the Lessor may immediately terminate an agreement if there is a failure of rent payment within a span of 30 days post the mandated date of payment, the provisions are slightly different with the residential lease.

As per the residential lease, if the Lessee has not paid rent for the period of 30 days exceeding the agreed-upon date of payment, the Lessor is required to file for a court order to evacuate the Lessee.

The Lessor is required to do the same in case of the Lessee being insolvent, using residential permits for an illegal purpose, or having abandoned the residential premises for a period exceeding three months.

It is to be noted that these aforementioned conditions are exclusive to a residential lease, hence do not apply to retail leases.

Conclusion

These laws have been introduced to cover the ground in terms of leasing space in the Dubai Free Zone, and such explicit regulations leave no room for doubt for the tenants staying in the area. The provisions of this law help clear the air on any grey area that could be applicable to residential leasing activity. While these regulations have been introduced to attract foreign residents into this already lucrative area, this has also provided for guidelines and responsibilities to be taken care of by either party concerned. These laws provide a safeguard to tenants who might be in the dark in regards to the various aspects of leasing.