Commercial Lease Agreements during Covid-19 in the UAE
Posted: Oct 18, 2020
With the unprecedented COVID-19 pandemic permeating into the economy leaving a considerably downturned state of liquidity worldwide, the question arises whether lease agreements can be enforced when all other businesses have come to a standstill?
This article by Property Lawyers of Dubai seeks to explore various provisions made available for commercial and residential tenants during the pandemic and what are the possible relief measures.
Legislative & Judicial Provisions
The Government of Dubai, as a relief measure, suspended all eviction judgements and cheque dishonor complaints and actions temporarily in the months of March and April. In its first stimulus package, the government decided that part of the service charges (DEWA) would be mitigated by 10% whether the rent is private or commercial with a pre-payment reduction of 50%. In the second stimulus package, the Free zone Council (association of various free trade zones), including the Dubai Airport Free zone, the Dubai International Financial Center, the Jebel Ali Free zone, Dubai South and the DMCC, has decided to suspend rent payments for a period of six months.
In the case of DIFC, the Dubai Judicial Council has laid out measures like suspension of rent till six months, facilitating payments in installments, refund of security deposits and guarantees and cancellation of fines for both companies and individuals From April to June, retail tenants in DIFC's Gate Avenue, Gate Village and Gate District were not required to pay basic rent.
The DIFC also allowed deferred rental payments with respect to all properties owned by DIFC Investments for a period of up to six months. In the DMCC, tenants benefitted from a waiver of rent for two months for commercial tenants impacted by the Dubai Economy Directive requiring them to temporarily close. Sharjah Asset Management waived commercial rents for all tenants of Haraj and Jubil markets for three months from March.
The Abu Dhabi, Administrative Resolution 92 of 2020 grants tenants in the restaurant, tourism and recreational sectors a refund of 20 per cent of the rent value collected during 1 April 2020 to 30 September 2020.
The tenants can seek relief through "force majeure" or "material adverse effect" clauses in the lease agreements. The protection via force majeure is granted by Article 273 of the Civil Code. The force majeure clause is not exhaustive in nature and the interpretation depends entirely on the wordings of the contracts. Hence, judicial precedents regarding the same differ on a case to case basis. The lessor might try to incorporate a narrow force majeure clause while the lessee would vouch for a broader interpretation.
The tenants can claim "exceptional event" under Article 249 to argue oppressive performance in order to escape payment. In order to successfully argue oppressive performance, tenants would need to demonstrate that the current events were unforeseen, fall outside of their control and the economics of the current situation are oppressive to the extent that the contract should be re-opened.
The obligation to pay rent ceases under Article 782 of the Civil Code when it becomes impossible for a tenant to have full or partial enjoyment of the leased property. This results in cancellation of the contract which in turn results in any payment obligations ceasing, not a temporary suspension of rent.
What Should You Do?
The landlord may pursue a claim against the tenant for unpaid rent through the Dubai Rental Disputes Settlement Centre. A landlord may also seek eviction under Article 25 of the Dubai Landlord and Tenant Law which permits eviction of the tenant where the tenant fails to pay the rent within 30 days of notice being served.
In order to escape payment and claim relief, the tenants must be aware of the contractual provisions of the lease agreements. The lease agreements must be carefully drafted with the help of legal professionals in order to incorporate relief under adverse circumstances such as the force majeure class If the landlords persist you to pay the rent, you may seek legal advice from top lawyers and approach Rental Dispute Committee and register a complaint.
Dr. Hassan Elhais is a legal consultant in Dubai, specializing in the drafting of all statements of claim, memos and consultation on litigation of all manner.