In Abu Dhabi, a lease is a personal contract of hire, more akin to a licence and not an interest in land. Most non-owner occupiers in both the residential and commercial sectors are lessees under leases. Non-UAE nationals (and companies owned in whole or part by non-UAE nationals) may only be granted long leases (being leases for a term of 25 years or more) within one of the designated investment areas. Alternative rights of occupancy that do create rights in property are:
These rights are investment interests allowing exploitation or development as well as occupancy. Non UAE nationals may only hold these interests within one of the designated investment areas for the limited periods of time which apply.
Abu Dhabi law does not provide a clear distinction between a lease (a personal right) and a usufruct (a right in rem). The law does state that long leases (being those with a term of 25 years or more) are property rights, however, it does not clearly define the characteristics of leases with terms shorter than this. In practice, Abu Dhabi Municipality (ADM) have deemed leases for a term of more than four years granted in favour of a non-UAE national (or a company owned in whole or part by a non-UAE national) in relation to land outside an investment zone and which contain rights to sublet to be usufructuary rights (and therefore not capable of being granted to a non-UAE national outside an investment zone).
Within the Abu Dhabi Global Market free zone (which geographically covers the whole of Al Maryah Island), the following occupational interests are also recognized:
There is an obligation to register all leases within Abu Dhabi. Failure to register a lease will result in the lease being considered to be not enforceable save for the personal obligations between the parties.
All Abu Dhabi buildings and units within them being leased are required to be registered under a system known as Tawtheeq. The lessor is responsible for the registration process and for the fees. The lessor is not permitted to pass on the costs of registration to the lessee.
The Tawtheeq system requires a number of details to be provided during the first phase of the registration. Once the details are provided, the application is submitted to Abu Dhabi Municipality (ADM) who will approve or otherwise, the registration.
If the registration is approved during the first phase, the fees are payable and completion occurs.
The associated registration fees are as follows:
Responsibility for the registration fees can be provided for in the lease.
The Tawtheeq online system will request a number of fields to be populated for the registration of a lease unit, including (but not limited to):
The ADM has clarified that the lessor may attach special terms and conditions to the contract during the account opening process, which are then referred to the Legal Affairs Section at the ADM of Abu Dhabi City. If the ADM considers that the special terms and conditions are inconsistent with the general terms of the lease and other applicable rules, the ADM may notify its rejection of those terms to the property owner. Renewal, surrender and termination are all carried out by way of the online Tawtheeq system.
Responsibility for the registration fees can be provided for in the lease.
All Abu Dhabi buildings and units within them being leased on terms of more than four years are required to be registered under a system known as Tamleeq. There are two different registration fees payable depending on the term of the lease:
Responsibility for the registration fees can be provided for in the lease.
The ADGM maintains its own land registration system (ADGM Land Register). It provides that:
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A one-year renewable term is the norm for residential properties, although leases of three to five years are increasingly being offered for commercial (retail and office) properties and longer for industrial properties.
In the Abu Dhabi Global Market free zone (ADGM), real property may be leased for up to 99 years renewable, such that the term does not exceed 198 years. For leasehold property not within the ADGM, there is no maximum duration for a lease set out in the applicable law. However, it is not common to see long leases (defined by statute as being lease with terms of over 25 years) being granted as:
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Yes (for property located outside of the Abu Dhabi Global Market free zone) and these are as follows:
There are specific rules relating to residential leases, such as maximum numbers of lessees who are permitted to occupy a single dwelling, which vary depending on whether the property is a villa or an apartment, and the number of rooms in the dwelling.
Two months’ notice for renewal or termination is required for residential leases.
Commercial leases have similar rules to those which are applicable to residential leases, with minor exceptions such as the absence of rules concerning the maximum number of individuals who can occupy the leased premises.
Three months’ notice for renewal or termination is required for commercial leases.
The number of villas that can be used as offices is restricted. Evidence that the villa can be used for office purposes should be obtained (in the form of a certificate from the Abu Dhabi Municipality). If this cannot be produced, the Abu Dhabi Municipality could take enforcement action during the term (and a rent refund might not be available).
Three months’ notice for renewal or termination is required for office leases.
These do not fall within the ambit of landlord and tenant legislation and regulations specific to hotels are awaited.
These also do not fall within the ambit of landlord and tenant legislation and regulations specific to furnished apartments are awaited. In the meantime, there is limited guidance as to the required specifications/amenities for furnished apartments, being that:
Falling outside the landlord and tenant legislation may allow the parties more flexibility in terms of avoiding the security of tenure features of the legislation generally governing residential lettings.
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As of November 2013 (provided the relevant new law is published – which it had not been at the time of writing), leases no longer automatically renew at the end of the term for the same length as the initial term (as they did up until then). If a party does not wish to renew or wishes to re-negotiate the terms of the lease, three months’ notice is required for commercial property and two months’ notice is required for residential property.
During the term of a lease, the only grounds for removing the lessee are:
In the Abu Dhabi Global Market free zone, there is no security of tenure – meaning that a tenant does not have a statutory right to renew their lease at the end of the term. There are no provisions in ADGM law regarding eviction.
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The current position under Abu Dhabi law on lease renewals is not clear. Previously, the law stated that a landlord was prohibited from serving an eviction notice upon expiry of the lease term on a tenant and that, unless a tenant was ordered by the Lease Disputes Resolution Committee to leave the leased premises on the basis of one of seven grounds set out at law (See Early termination), a tenant had the right to remain in the leased premises and insist on a renewal lease (on the same terms as the existing lease but subject to a 5 percent increase in rent) at the end of the contractual term.
We understand from various reports that, with effect from 22 November 2013, the Abu Dhabi Executive Council disapplied this prohibition, however, no law amending the above position has yet been promulgated.
To terminate the lease at the end of the term, notice of non-renewal should be served by the lessor on the lessee (three months for commercial property and two months for residential property) prior to the end of the term.
In the Abu Dhabi Global Market free zone, there is no security of tenure – meaning that a tenant does not have a statutory right to renew their lease at the end of the term. [There are no provisions in ADGM law regarding eviction.]
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Under Article 23 of Abu Dhabi Law No 20 of 2006 concerning the Letting of Property and Regulation of the Letting Relationship between Lessors and Lessees, the lessor may ask the lessee to vacate the premises only for the following reasons:
In all cases, the RDRC may give the lessee a suitable respite before he must vacate, provided that it does not exceed six months.
There are no guidelines as to how long the process would take.
In the Abu Dhabi Global Market free zone, there are no regulations setting out grounds for termination, which means the parties are free to contract as they wish.
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The Executive Council can pass a law dealing with any property that it needs to acquire for the purpose of ‘public benefit’. The property should only then be expropriated in return for ‘just compensation’ and in accordance with the provisions of the applicable law passed by the Executive Council. This would also deal with any third party interests over the property in question and the termination of any leases. Whether compensation would be due to lessees would be dealt with in the applicable law.
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Parties are free to contract as they wish. The lessor may ask for a guarantee from the lessee’s parent company or a bank, or require a deposit to be paid (usually only one of these). Deposits for breakages and damage are not normally provided in the case of commercial lettings.
Although it is common for a landlord to take a security deposit from a tenant, the law does not provide clear provisions on how such deposits must be held, when they can be utilized and when they must be returned. It is important, therefore, to ensure that a lease contains detailed provisions on dealing with the security deposit.
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Leases normally specify the permitted use.
If the lease is silent, the use should be consistent with the purpose for which the property was built or according to common practice.
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Most leases limit a lessee’s right to alter or improve property.
Under the legislation, changes are not permitted without the lessor’s consent (unless such changes will not damage the property). If the lessee breaches this stipulation, the lessor can compel the lessee to restore the property and pay compensation if necessary.
If the lessee cultivates or makes improvements to the property, the produce or improvements must be abandoned at the end of the term, unless otherwise agreed in writing.
Within the Abu Dhabi Global Market free zone the parties are free to contract as they wish.
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The law provides that a tenant cannot assign or sublet the whole or part of the property without the landlord’s prior written consent. The UAE Civil Code imposes a duty on the parties to act reasonably.
Consent does not need to be ‘prior’, and can be explicit or implicit, however, unauthorized assignment triggers a right of termination in favour of the lessor.
The terms of a sublease may differ from the terms of the lease provided that:
The Abu Dhabi Global Market laws are silent on this issue, and therefore the parties are free to contract as they wish.
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Rent is commonly calculated on a ‘per square foot’ or ‘per square metre’ basis. In relation to retail property, it is common to see an additional turnover rent element. Rents are generally reviewed annually.
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Rents and rental increases can be mutually agreed between the parties.
In 2006, Abu Dhabi law imposed an annual cap on rent increases to protect tenants against increases in rent. Such rent cap was, however, abolished by the Abu Dhabi Executive Council with effect from 22 November 2013.
Three years later, Abu Dhabi Executive Council Resolution No. 14 of 2016 on Lease Agreements of Premises re-introduced the 5% annual cap on rent increases, with effect from 13 December 2016.
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The United Arab Emirates introduced a VAT regime, on 1 January 2018.
VAT will be applied to leases concerning commercial real estate at the standard rate of 5 percent 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 of 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:
Then if prior to 1 January 2018, the landlord requested that the tenant confirm:
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 percent and appropriate VAT clauses should be inserted into the lease.
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Lessees are normally responsible for paying all utility charges and possibly the dues for registration of a lease with a contractual term of over four years (the responsibility being dependent on the outcome of contract negotiations). See Types of leases.
Lessors are however, responsible for the costs of registering leases of four years and under (and the applicable registration fees are different). In the Abu Dhabi Global Market free zone, the landlord is responsible for registering the lease (however, the parties are free to contractually agree responsibility for payment of the registration fees) with the Abu Dhabi Global Market real property Registrar. Registration fees are payable as follows:
Service charges for common services/repairs have historically been paid by the lessors out of rent received. Newer buildings are being let on net rents with typical service charge levies running at 15–18 percent of rents annually.
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The parties to a lease are free to agree who is responsible for the payment of utilities and telecommunications for a leased property. It is common for leased properties to be individually metered and for tenants to pay the consumption charges directly to a provider.
Many neighbourhoods in investment areas in Abu Dhabi are ‘master communities’ where property owners are obliged to pay a community service charge for the maintenance of the community. Again, it is up to the parties to a lease as to how this is dealt with. For example, a landlord may include its liability to community charges in its service charge or a landlord may charge separately for this. It is important for a tenant to have some practical recourse to a landlord in the event that the landlord fails to pay the community charge as ‘master developers’ in Abu Dhabi may take strong action when dealing with non-payment such as blocking access cards or preventing access to communal facilities such as car parking or swimming pools.
In the Abu Dhabi Global Market free zone, there are no regulations governing maintenance obligations between landlords and tenants, which means the parties are free to contract as they wish. However, the ADGM Strata Title Regulations 2015 provide for unit owners to pay such maintenance costs.
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The lessee is to carry out minor or agreed repairs. Lessors are required to keep the property fit for use and carry out repairs (excluding those that fall to the lessee) unless otherwise agreed.
If the lessor delays in carrying out repairs or cannot be contacted when the lessee attempts to notify it of the necessary repairs, the lessee can apply to the Rental Disputes Resolution Committee (RDRC) in Abu Dhabi to obtain permission to:
The lessee should not prevent the lessor from carrying out any urgent repairs necessary to conserve the property.
Should the necessary repairs result in the lessee being unable to utilize either the whole or part of the property, the lessee can apply to the RDRC to obtain permission to:
The lessee’s rights cease to have effect should the lessee continue to occupy the property for more than a month after the date of the loss of utility and fail to apply to the RDRC to exercise the remedies available to them, such rights are deemed to have been forfeited (unless a reasonable excuse is given).
In the Abu Dhabi Global Market free zone, there are no regulations governing repair obligations, which means the parties are free to contract as they wish. It is therefore important that such matters are adequately dealt with in the lease.
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Services such as electricity or water are normally purchased by the lessee directly from suppliers, although this may not be the case in a large development.
In the Abu Dhabi Global Market free zone, there are no regulations governing which party is to pay utility and communication costs, which means the parties are free to contract as they wish. However, the ADGM Strata Title Regulations 2015 provide for unit owners to pay such utility and telecommunication costs.
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A landlord will typically pay for property insurance (where the property is occupied by more than one tenant) and a tenant will pay for its own contents insurance. A landlord operating a service charge will then recover the costs of the property insurance through the service charge. Under Abu Dhabi law there is automatic cesser of rent following damage or destruction of the property.
In the Abu Dhabi Global Market (ADGM) free zone, there are no regulations governing insurance obligations between landlords and tenants, which means the parties are free to contract as they wish. However, the ADGM Strata Title Regulations 2015 provide for the relevant strata development management association to insure buildings against damage from fire, storms, explosion, and equipment malfunction. For leasehold property located within the ADGM, it is important that the lease provides for the situation where the building is fully or partially destroyed or damaged, since there is no cesser of rent provided for at law.
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Is VAT charged on rent?
The United Arab Emirates introduced a VAT regime, on 1 January 2018.
VAT will be applied to leases concerning commercial real estate at the standard rate of 5 percent 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 of 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:
Then if prior to 1 January 2018, the landlord requested that the tenant confirm:
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 percent and appropriate VAT clauses should be inserted into the lease.
Last modified 31 Aug 2020