REALWorld Law

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

If a lease expires and the tenant remains in occupation without objection from the landlord, the lease is deemed to be renewed on the same terms for the lesser of (i) the same term as the original lease and (ii) one year.

The law states that a lease comes to an end upon its expiry (ie there is no automatic renewal) but it is prudent practice for one party to the lease to notify the other party in advance (commonly, at least two months before expiry) that it will be vacating the property upon the expiry of the lease.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

As there is no automatic renewal, the landlord does not, strictly speaking, need to do anything to ensure that the tenant leaves on the expiry date, except to notify the tenant that he/she does not consent to the tenant remaining in occupation after the expiry of the lease term. In addition, in practice, a well-managed property will have an owner who agrees the precise arrangements for vacating the property in advance with the tenant and makes the necessary arrangements for inventories etc.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

There are certain circumstances in which a lessee can be required by the lessor to vacate the leased premises prior to the end of the term. These circumstances are set out in article 25 of Law No (26) of 2007, as amended and are as follows:

• If the lessee fails to pay the rent, in whole or part, within 30 days of the lessor notifying the lessee that payment is due (unless the parties agree otherwise) 
• If the lessee subleases the premises in whole or part without the landlord's written approval. In such a case, the subtenant is also evicted and may seek compensation from the lessee 
• If the lessee uses the premises for illegal or immoral purposes 
• If the premises are a commercial shop and the lessee has not occupied it for 30 consecutive days or 90 non-consecutive days in a year (unless the parties agree otherwise) 
• If the lessee makes changes to the premises which endanger the safety of the premises such that it cannot be restored to its original condition, or if the lessee intentionally or due to gross negligence, causes damage to the premises or allows others to cause such damage 
• If the lessee uses the premises for purposes other than those it was leased for or in a way that violates planning, building and land use regulations 
• If the premises are in danger of collapse (the lessor must provide the lessee with a technical report evidencing this issued by Dubai Municipality or accredited by it) 
• If the lessee fails to observe legal obligations or comply with the lease covenants, within 30 days of the lessor notifying the lessee that it is in breach of the same 
• If development requirements in Dubai require demolition of the premises in accordance with the instructions of government authorities

In all the above cases, the lessor must notify the lessee through the Notary Public or by registered mail.

If the lessee disputed the grounds for early termination of the lease, it would be able to lodge a case at the Rent Disputes Settlement Centre (based at the Dubai Land Department), which determines landlord and tenant disputes in Dubai.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Under the Civil Code of the United Arab Emirates, property can be appropriated by the Government for the public benefit. In such circumstances, 'just compensation' must be paid. Whether, and to what extent, the compensation would cover any tenant's interests in the property is dealt with on a case-by-case basis.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A landlord and a tenant may agree to various forms of protection, such as a parent company guarantee, a bank guarantee or a security deposit.

Most common is a security deposit. The law specifies that this may be used for reinstatement costs. However, it is not clear whether it can also be applied towards a failure to pay rent or service charge etc. The law does not provide that the security deposit must be held in a separate account. Appropriately drafted leases can entitle the landlord to retain the amount of any interest earned on the deposit.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Leases in Dubai tend to specify the permitted use. In any event, a property must be used in accordance with the zoning authorised for such property. This is determined by Dubai Municipality and stated on an 'affection plan' for the property. Where a tenant is a company, the tenant’s commercial activities must accord with its ‘permitted activities’ set out in its trade licence. Therefore, the use of its leased premises must be consistent with its trade licence.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The law requires the tenant to obtain the consent of the landlord to all proposed works. The terms of a lease may also set out what kinds of works the tenant is permitted to carry out, when the landlord's consent should be sought for such works and whether any types of works (eg structural) are absolutely prohibited.

There is no requirement in the law for a landlord to not unreasonably withhold or delay its consent, but as tenants are increasingly gaining bargaining power, it is becoming more common to see such wording in a lease.

Certain works require the consent of government authorities such as Dubai Municipality and Civil Defence. In order to obtain such consents, these government authorities will require evidence of the landlord's consent to such works. In these circumstances, the law requires the landlord to give its consent to such authorities where the tenant is proposing to carry out non-structural works which require such third party approval.

The law requires the tenant to return the property to the landlord at the end of a lease in the same condition in which it was received by the tenant at the outset of the lease. In other words, any works carried out by the tenant need to be reinstated. 

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The law provides that a tenant is not permitted to sub-let the property unless otherwise agreed in the lease or by the landlord. There is no requirement for the landlord to not unreasonably withhold or delay its consent to a sub-letting.

A sub-lease must end on (or before) the date of the expiry of the lease, unless the Landlord agrees to renew it. Therefore, if a 'head' lease is terminated prior to the end of the term, the sub-lease will automatically end and there is no obligation on the landlord to grant a direct lease to the sub-tenant.

In practice, the provisions of a lease tend to cover sub-letting and therefore it is possible for a tenant to negotiate a more flexible approach to such arrangements.

The law requires any change in a contract (such as the assignment of a lease) to be agreed to by all the parties to it. Therefore, the assignment of a lease will require the landlord's prior consent. Again, there is no requirement for a landlord to not unreasonably withhold or delay its consent.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The rent must be specified in the lease and it is common to see rents reviewed every year up to every five years, depending on the duration of the lease.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The law requires rents to be revised in accordance with general economic conditions in Dubai and the rental amounts for similar properties, based on a sliding scale which is customarily notified by a Ruler's Decree each year. The law gives the Real Estate Regulatory Agency (RERA) the power to determine the criteria for revising rents in Dubai in accordance with general economic conditions.

Decree No. 43 of 2013 concerning the percentages of maximum property rent provides for the average market rent to be set according to the Rent Index for the Emirate of Dubai as approved by RERA.

The percentage of the maximum increase in the real estate rents in Dubai is determined on renewal according to the current annual rent amount compared with the average rent for a similar property.

Whilst these restrictions apply to both residential and commercial property, in practice, for commercial property, alternative terms agreed would probably be respected.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The United Arab Emirates introduced a VAT regime on 1 January 2018.

VAT is now applied to leases concerning commercial real estate at the standard rate of 5%, irrespective of where the parties are resident. If the property is partly commercial and partly residential, the rents payable on the residential are generally exempt but the rules can be complicated and advice should be sought.

VAT is due on each payment of rent as a separate supply triggered by the earlier payment or the issue of a VAT invoice.

The Executive Regulations provide transitional rules to deal with contracts entered into prior to 1 January 2018. In the context of a commercial lease, according to the regulations, if a lease is:

• Entered into prior to 1 January 2018, and
• Is silent on how VAT is to be dealt with in relation to supplies made in connection with the lease

then, if prior to 1 January 2018, the landlord requested that the tenant confirm:

• Whether the tenant would be registered for VAT as at 1 January 2018, and
• The extent to which the tenant expects to be able to recover tax incurred on the supplies

and the tenant responded to the landlord’s request within 20 days of receiving the request, then the landlord will be able to charge the tenant an amount of VAT equal to the amount the tenant is able to recover from its business.

If the tenant did not respond to the landlord’s request within 20 days of receiving it then the landlord may treat the rent payable under the lease as exclusive of VAT and request that the tenant pays VAT on top.

If the landlord failed to ask the tenant, then the rents are now inclusive of VAT, pending any variation of the terms. This means that the landlord has to pay the VAT to the Tax Authority out of the rents he receives.

For all commercial leases entered into after 1 January 2018, VAT is due on the rent at the standard rate of 5% and appropriate VAT clauses should be inserted into the lease.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A 'short-term' lease must be registered on the Ejari register. The fee to register a lease is approximately AED 160 and if a lessee registers through an authorized DLD typing centre, an additional AED 35 is payable.

Registration of a usufruct/musataha/'long-term' lease must be undertaken at Dubai Land Department. The fee to register a usufruct is 4% of the property value, for a musataha (a right to use and exploit land belonging to another person, along with the right to build on that land) 1% of the contract value and a long-term lease 4% of the rental value.

Tenants are usually responsible for paying all utility and telecommunications charges associated with the property and, generally speaking, a connection fee will be charged in each case. It is also common for a landlord to require an 'on account' payment of service charge.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Usually the lease will include an obligation on the tenant to pay a service charge to the landlord which should be used for such maintenance and repair costs.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

If the lease itself is silent on the issue of maintenance and repair of the property the subject of the lease, the law provides that the landlord is responsible for the maintenance and repair of any defect or malfunction which affects the use of the property. This would leave a tenant responsible for minor repairs and maintenance obligations only.

However, the law allows this position to be changed by agreement and, most commonly, such agreement will be contained in the lease. In practice, it is common for a tenant to be responsible for the maintenance and repair of the property leased to it, and for the landlord to be responsible for the maintenance and repair of the remainder of the development/building etc.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

This will depend on the nature of the property. As a general rule, the property occupied by a tenant will be individually metered and the common parts will be paid for through the service charge.

Last modified 3 Apr 2023

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

This will usually be set out in the lease. It is common for the landlord to be responsible for buildings insurance and for the Tenant to be responsible for contents insurance. The landlord is likely to recover the cost of its insurance through the service charge.

Last modified 3 Apr 2023