Going by the property law in Dubai

Going by the property law in DubaiImage Credit: Supplied

The slew of new legislation that has come into force in Dubai over the past five years has provided welcome relief for the thousands of tenants at the mercy of the emirate's rental market, where rents have risen by up to 70 per cent in some neighbourhoods since 2010, and by up to 10 per cent over the last year alone. The introduction of a rental index at the end of 2013, restricting the extent to which landlords can raise rents, and the launch of a new commission that hears disputes between landlords and tenants has made the market far less the bear pit that it was pre-2008.

The result of the new laws, conversely, has been that tenants often fare better than landlords in Dubai. The latter have been increasingly complaining that they are not able to charge market rates during the biggest economic boom in the emirate since 2006, and in some cases are looking for ways around the new laws.

Manipulation fears

Tom O'Grady, a partner at the law firm DLA Piper in Dubai, says. ''The market today in terms of real estate and landlord and tenants is vastly different from 2005. Laws largely protect tenants from landlords and are more weighted towards tenants.''

However, that has not prevented landlords from trying their luck as rents continue to increase across Dubai. Brent Baldwin, a partner at Hadef and Partners, a law firm in Dubai, says he is aware of various schemes used by landlords to get rid of existing tenants in order to raise rents for new occupants. But few are successful.

''We've had a lot of landlords and tenants asking us about what is involved in terminating a lease, and creative thinking from landlords about ways they might be able to get around the restrictions,'' he says. ''But there aren't many ways to get around them. The law is very clear on the reasons that landlords can terminate a tenancy contract... The way the tenancy law is set up is very protective of tenants.''

But there have been some cases of tenants being manipulated by landlords into paying rents that go beyond the levels permitted by the government. In one case, a resident told Property Weekly that her landlord raised her rent substantially, but she calculated that to take him to the Dubai Settlement Centre (set up at the end of 2013), pay the lawyers' fees and other expenses would be more costly than absorbing the hike.

Such examples are frustrating, says Baldwin, as tenants don't need to accept increases. Without the permission of the authorities, a landlord cannot increase the rent outside of government restrictions, or evict a tenant for refusing to pay it.

''We're aware that a lot of tenants have chosen to accept higher rent rather than argue the point, but we have told those who are aware of the law or have gone to a lawyer that they don't need to accept it,'' he says.

''It is very difficult for a landlord to physically evict a tenant. If he tries to increase the rent beyond what is allowed, it is pretty simple to tell him or her that they are not entitled to do so, and ask to get a justification from the relevant tribunal.

''This puts the ball back into the landlord's court, and they know that the law doesn't allow them to do it.''

Despite a lot of publicity in the local media, there have been issues of tenants simply not knowing their rights, say experts. In an effort to combat this, the Dubai Land Department (DLD) issued the first English-language guidelines to property law in the emirate last June. The booklet can be obtained from the DLD office or downloaded from its website.

''There has been plenty of coverage of the changes to real estate legislation in the dailies, on online forums, and through broadcast media, including regular segments on Dubai Eye 103.8 FM dedicated to this hot topic,'' says John Stevens, Managing Director of Asteco.

''However, it can still be a woolly subject for many, with the nuances of existing or new legislation not always easy to understand.''

O'Grady agrees that while property law is tenant friendly and, for the most part, updated, more education is needed so tenants are aware of their rights, and landlords, developers as well as the officials tasked with mediating disputes and implementing policies are up to date.

''There is an education exercise both for people to understand the scope and depth of some of this legislation, and the way it has been implemented,'' says O'Grady.

''This is not a criticism of anyone; it's just that with the pace of legislative change, it sometimes takes the market and government officials time to catch up in terms of understanding and implementing regulations as they were intended.''

The new restrictions in Dubai have increasingly come under fire from landlords, who argue that the emirate's property legislation is weighted too heavily on the side of the tenant — especially given the rising prices of properties here. But Baldwin says that while the laws are undoubtedly tenant friendly, landlords also benefit from them.

''The market standard here is one-year leases, and I don't consider that tenant friendly. Having a one-year lease gives the landlord a lot of flexibility in terms of budgeting and collecting cheques upfront, [and] hooks tenants in for quite a long period.

''I think that has an impact on the market. In terms of tenants wanting to shift to another property or leave the country, a lot of decisions they make is based on the fact that their leases won't expire for another three or six months.''

New regulations

It is not only in the rental sector that new rules have been implemented over the past five years to correct imbalances of the past. Regulations governing off-plan sales are due to be tightened in a new investment law this year, giving buyers wide ranging powers to terminate agreements with developers if the finished projects do not provide what was promised. The aim is to prevent situations such as those that had arisen during the 2006-07 boom, when thousands of off-plan sales were made and then interrupted by the crash of 2008. In many cases, what was delivered to the buyers — who had paid substantial deposits — was far from the expected standard.

''[The new law] will give investors the right to a full refund if the developer fails to complete or hand over a property within a certain time frame, if they are defrauded or if the unit is subjected to [unauthorised] alterations of the original specs,'' says Stevens.

''Investors will also be eligible to claim compensation for the breach of any warranty or undertaking in the sales contract by the seller or the broker, misrepresentation by the developer, investor or broker, and violation of the sales contract, upon the provision of an expert report.''

Baldwin says developers have to be ''extremely careful'' once the law comes into force, not only in terms of the finished project but also their marketing strategy. ''They'll need to be careful about what they're representing in their brochures and other marketing information that's delivered.''

Despite such laws, there are still areas in Dubai's real estate sector where legislation is lacking, most notably in the shared ownership sphere. This has led to disputes between developers and owners over service charges and, in more extreme cases, owners — and increasingly tenants — being denied access to facilities on developments in Dubai.

Unaddressed areas

A year ago the government decreed that developers could not deny access or restrict services to either owners or tenants as a result of these disputes, but a law that would make tenants' associations legal — and therefore give them more power to arrange the payment of service charges and negotiate with developers — is still not in force despite being on the books since 2007.

''[The law] was designed so that owners could effectively control their own buildings, but we still have very few instances of it being implemented,'' says O'Grady.

The lack of enforcement has led to very high-profile disputes such as that of Tamweel Tower, which was almost destroyed in a fire in 2012 and is yet to be repaired. The insurance company that covered the tower told Gulf News in a November report that the delay was due to the fact that it didn't know whom to deal with — the developer that owns the tower, or the owners association, which, due to the delay in the implementation of the law, has no legal standing.

O'Grady feels that the laws governing the rental and buyers market in Dubai are up to date, and now it is time for the legislation to bed down and industry practitioners, officials, buyers, landlords and tenants to get used to it. He suggests that leasing agents could take a more hands-on approach as well.

''I don't think there is a need for any more legislation; it is now a matter of consolidation and the market maturing. The rules are relatively simple and straightforward,'' he says.

''Leasing agents sometimes aren't the best at informing people. You do have to rely on a lot of your own research and legal advice. In terms of letting agents, I guess it's no different to elsewhere—there are some very good ones, but there are also some poor ones who do not provide enough information to tenants about their rights.''

Stevens agrees, saying the laws that have come into force in Dubai stand the emirate in good stead, even as prices continue to rise and some warn of a new property bubble. ''The effects of the 2008 crash clearly demonstrated a need for additional regulation in this evolving market, and we have seen a raft of new legislation that benefit both landlords and tenants. In order to ensure that the real estate sector is sustainable in the future, legislation, as in other global markets, is mandatory.''

Read about getting on form in real estate in the UAE

Source: Orlando Crowcroft, Special to Property Weekly

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