If your salary has been reduced or you’ve been left without work due to the global COVID-19 outbreak, then here’s how to navigate asking for a rent reduction in the UAE while being aware of your rights
What started as a ripple in China, the outbreak of coronavirus across the world has now temporarily ruptured life as we know it. As well as the ever-increasing fatalities, citizens of the globe are now being asked to stay home and stay safe.
A consequential economic halt as businesses struggle to operate as usual means that many people have found themselves under immediate financial strain.
And a reduction in rent costs – with housing costs accounting for, on average, 30 per cent of an individual’s total salary – is high on many tenants’ money-saving agendas.
If you’re currently renting a property in the United Arab Emirates, you might be wondering what exactly your rights are when it comes to navigating a rent reduction or even terminating your housing contract, and how exactly you might go about asking for one.
To answer all your questions, we’ve called in the help of John Peacock, Head of Indirect Tax and Conveyancing at BSA Ahmad Bin Hezeem & Associates LLP – the Middle Eastern law firm with several offices across the UAE, including one in Dubai’s DIFC.
Legal expert John Peacock of BSA LLP answers all your rent reduction and contract questions:
Should I be asking for a rent reduction?
There is never a bad time to ask for a rent reduction. Although in the normal course of a tenancy contract, the landlord will be the sole determinator of whether or not a rent reduction will be granted.
That is unless the so-called “hardship” provisions – either as may be contained in a tenancy agreement or as implied by virtue of Article 249 of the UAE Civil Law – apply to the tenancy contract in which case a tenant may be able to obtain some relief from at least some of the rental obligations towards a landlord.
When it comes to my rental contract, do I have a case for “force majeure”?
There is much talk about “force majeure” however to be able to invoke “force majeure” successfully – which will result in the automatic termination of a contract – an event must have occurred that was not foreseen by either party (i.e. the landlord or the tenant) which event makes it impossible for them to carry out the agreed terms as obligated in the original agreement.
Something that would constitute a “force majeure” event would be unforeseen events such as earthquakes, volcanic eruptions, floods, heat waves and other unforeseeable natural-caused incidents.
More recently, the scope of the foregoing events extended to include wars, riots, chaos, slowdown and even including unexpected legislation being passed. It is however important that the event is unforeseen and if any event was in fact imminent and should have been foreseen, then it will not qualify as a “force majeure” event.
What counts as a “hardship” provision?
Like for the application for “force majeure” – which requires that the performance in terms of an agreement becomes impossible – for “hardship” provisions to be actioned, a case would need to arise where the circumstances are:
1) Of a public nature
2) Could not have been foreseen
3) Make carrying out the terms of the contract (i.e. paying the fixed rent sum on a fixed date) oppressive upon the tenant rather than completely “impossible.”
The factors which will determine whether a party to a contract can claim “hardship” will depend on each party’s particular circumstances, as determined on a case by case basis, and to this extent the interpretation can also differ between commercial and residential properties.
Does COVID-19 count under the “hardship” clause?
In taking the situation of COIVD-19, it is not the presence of the coronavirus that will allow a claim for “hardship” but rather the consequences thereof. Taking this further, if a person or business’s income has been diminished as a result of the lockdown due to COVID-19 then this would be a reason to claim “hardship.”
However this claim will also depend on whether or not the contract and associated obligations were agreed before or after the World Health Organization declared COVID-19 to be a “pandemic” on 31 December 2019, as in the latter case the parties could have foreseen that the virus could cause lockdowns and other restrictions on peoples movements and closure of businesses.
What is the main difference between a “hardship” provision and “force majeure”?
While “force majeure” would terminate the agreement between the parties, the “hardship” endured by a party would not necessarily result in the contract coming to an end.
Filing for alleviation from “hardship”, such as the reduction in rental would involve an application to the Dubai Courts for determination thereof by a judge unless the parties agree to an amicable settlement. When determining “hardship”, a judge would weigh up the interests of each party and attempt to reduce the oppressive terms in the interests of justice.
How can I approach my landlord?
Approaching a landlord should be done in writing and should set out the reasons for the request, the amendment requested to the terms and a statement of the ensuing terms after implementation of the request.
When alleging “hardship” then the event that created the “hardship” should be stated, such as a reduction in salary, retrenchment of the tenant or even of a member of the household in the case of a residential lease and in the case of a commercial lease a reason such as the closure of the mall in which the tenant operates a retail business, due to the emergency provisions implemented due to the COVID-19.
These events would have to have resulted in a change in the financial position of the tenant and as a result of the event giving rise to a party experiencing an oppressive “hardship”. In addition to the aforesaid, the tenant would also have to make a reasonable suggestion of how the tenant wishes to change the contract, i.e. reduce the rent, and finally also state a new proposed rent amount.
In explaining the situation to the landlord, it would be recommended that reference is made to the provisions contained in Article 249 of the UAE Civil Law upon which the tenant is relying.
Should the landlord agree to a reduction, then it is highly advised for the tenant to ensure this is agreed in writing and signed by both parties. It would not be required to resign an entirely new tenancy agreement and a written agreement that would serve as an addendum and clearly state the terms should be sufficient.
What are my rights as a tenant?
A tenant does not have an automatic right to a reduction in rental due to “hardship”.
If a landlord is unwilling to renegotiate the rental in the existing contract, then, as stated above, attaining a rent reduction would involve applying to the court. The tenant would have to submit sufficient evidence to support the case, which would hopefully convince a judge to rule in favour of the tenant.
It may be worthwhile to note that there is naturally a cost to a court application and this cost must be factored in when considering whether or not to proceed with this route. The judge will also be considering the landlord’s financial situation when assessing the request for relief by the tenant and after all, the courts would be looking to make a decision that is fair to both parties.
If the option of a reduction in the rent is not approved by the landlord and the application to court for relief may not be financially viable, then another option would be to ask the landlord to accept more lenient payment terms such as the replacement of your quarterly of semi-annually post-dated rent cheques for a monthly payment scheme.
Can I get out of a contract early?
It is important to know the terms of your tenancy agreement, as there may be a provision therein that allows for early termination in the event of a loss of employment or even may provide for termination in instances of a salary reduction.
Once again, negotiation with the landlord would be the easiest means for early termination however the landlord may not necessarily agree in which case other options should be considered and maybe even consider the early termination of the tenancy agreement and pay a penalty as this may result in a better financial situation and cheaper housing can be sought as a solution.
What are the penalties if I can’t pay rent or miss a cheque during this time?
Some tenancy agreements may have penalty provisions in the event that rent cheques “bounce” at the bank and remain unpaid due to lack of funds.
In addition, there is still a criminal liability in the event that a cheque bounces due to insufficient funds in that upon reporting such by the landlord to Dubai Police, a charge is generated by the Public Prosecutor and, in terms of Legal Order No.(1) of 2017, if the cheque value is less than AED200,000 then the following fines will be payable to Dubai Police:
Bounced cheque worth AED1 to AED50,000 – AED2,000
Bounced cheque worth AED50,000 to AED100,000 – AED5,000
Bounced cheque worth AED100,000 to AED200,000 – AED10,000.
The paying of the fine alone does not absolve the issuer of a bounced cheque as the initial debt is still payable to the claimant or landlord who may pursue the claim through the civil courts.
If the cheque is for AED200,000 or more, and also if a case needs more investigation, it will be forwarded to the criminal courts who may convict the drawer of the cheque and give the option to either pay the amount or to go to jail. Despite the jail term, the landlord making the claim may still pursue payment in the civil courts.
Have there been any key updates to UAE regulations on this?
UAE Ministerial Resolution 279 states that employees that receive a residential accommodation allowance must be paid this allowance by their employer despite reductions in salaries or other cuts.
Similar provisions exist in the DIFC to protect employees, and this even applies in instances of retrenchment where the employee is unable to be repatriated due to COVID-19 caused restrictions on travel.
Does a landlord have the right to move someone else into a shared home?
A landlord does not have the right to determine who is able to stay in accommodation where a tenancy agreement is entered into by a tenant for that accommodation without the consent of the tenant. There is no obligation for a tenant to allow co-occupation of the rented premises.
Does an estate agent have the right to be showing people around my house during sterilization?
Subject to compliance with the sterilization timings and rules, in the event that a tenancy contract allows for the landlord or his representative to show the property to potential tenants, then the landlord can ask that the tenant make the property available for a showing in accordance with these timings.
Access would however still be at the convenience of the tenant, at a reasonable time and should the tenant show reason that the access would be prejudicial to the health of the tenant, then the tenant may refuse access to an estate agent and/or potential future tenants.
Anything else key for renters to know at this time?
Negotiation is always the preferential means of securing an amicable resolution for rental issues.