14 Apr 2020

COVID-19: Can UAE tenants demand rent waivers? Do landlords have to oblige?

Authored by: Michael Lunjevich

As several UAE residents continue to face salary cuts or layoffs, or have been asked to take unpaid leave, calls are increasing for landlords to temporarily reduce or waive rents. While commercial and retail landlords in Dubai have taken the lead in announcing rent relief measures for their embattled tenants, residential landlords have not been as sympathetic to occupier demands.

“It is not a tenant’s ‘right’ to demand termination, rent reductions or waivers any more so than it would be a landlord’s right to demand eviction or rent increases,” said Michael Lunjevich, Partner and Head of Commercial & Property, Hadef & Partners.

“The key thing to keep in mind is that a tenancy contract is a contract and therefore it cannot be altered or terminated unless by mutual agreement, by court [Rental Dispute Committee] order or by operation of law,” he added.

Downward pressure is expected to persist in Dubai’s residential rental market, estimates real estate consultancy CORE. Tenants, particularly those with immediate rent renewals, are increasingly looking to negotiate with their landlords to reduce their rent.

According to CORE’s Q1 2020 report, Dubai house rents have dropped faster than sales prices, resulting in lower returns for investors and landlords. Jumeirah Park saw the steepest fall in villa rents at 11 percent whereas Dubai Sports City registered the biggest drop in apartment rents at 16 percent in Q1, the report added.

Tenants must pay rent

Lunjevich said tenants cannot terminate the tenancy contract because of force majeure and walk away.

Force majeure is a reference to an external event, outside of the parties’ control, which the parties cite as a reason to withhold performance of their contractual obligations.

“Most landlords have cheques and will simply keep banking those and the tenant might find they are eventually facing criminal prosecution along with a civil claim for the rent from the landlord if those cheques bounce,” warned Lunjevich.

“If the banking system was completely closed down by government order, then one might argue it’s impossible to pay, but losing one’s job or being put on leave without pay is not force majeure in the conventional sense. In respect of a residential tenancy, the tenant still has access to the property and in fact under current lockdown regulation, the tenant is confined to that space 24 hours a day, so the tenant must pay the rent,” he said.

Rent waivers

A few developers and property management firms are offering support for tenants. Wasl Asset Management has announced deferral of lease payments for residential units by three to six months. Sultan bin Ali Al Owais Real Estate, a Sharjah-based property management firm, has also announced a 45-day rent waiver for all tenants.

“All residential leasing customers will receive a 10 per cent discount on cooling charges for three months, as per government directives. We are also waiving administration charges and being flexible with tenants’ requests where possible. All requests are handled on a case-by-case basis,” a Nakheel spokesperson told Zawya.

Options for tenants

Lunjevich said tenants could use the extraordinary circumstances provisions of the law (i.e. Article 249 of the Civil Code) as well as other tenant specific provisions in the Civil Code (i.e. Article 783 or others) to negotiate with landlords on the basis of hardship or loss of use. But, those will be considered based on each tenant’s particular circumstances.

Landlords might ask tenants to provide evidence of hardship such as evidence of loss of job or insufficient funds before they commit to granting rent delays, waivers or reductions.

“There is no obligation on tenants to provide such information but likewise there is no obligation on the landlord to cede to the tenant’s rent demands either, so it is a negotiation and it should be approached as such by building trust and creating goodwill, so everyone takes a little bit of pain now but wins in the long run,” he said.

“If no compromise can be reached, then tenants have to take the matter up with the Rental Dispute Committee and file a case to see if they can be released from the contract early,” Lunjevich added.

Depends on landlord’s discretion

Simon Boden, residential leasing manager, Savills said residential rent waivers are solely dependent on individual owners who would like to express their empathy with the current situation.

“Landlords need to show compassion and support by being flexible with their lease/rental agreements. Some landlords are requesting tenants to share a proof of salary reduction or a change in their current conditions. However, each is dealt with on a case-by-case basis,” he said.

Brokerage firms report that some landlords are offering rental incentives by allowing to increase the number of cheques, extended rent-free periods and contribution to utilities to help tenants during these challenging times while also maintaining occupancy of their units.

“The feedback that we are getting from tenants is that while rent deferrals help them right now, a full rental waiver would be a more significant solution as some tenants are looking at salary cuts, leave without pay or lay-offs,” said David Abood, Partner at CORE.

Boden from Savills said: “One of the trends we expect to grow in the upcoming months is seeing more owners adjust their rental terms to monthly installments instead of quarterly payments to allow a better cash flow for tenants.

#Covid19  #Tenants #landlords #property #UAE

This article was written by and published in Zawya on 14 April 2020 - https://www.zawya.com/mena/en/business/story/COVID19_Can_UAE_tenants_demand_rent_waivers_Do_landlords_have_to_oblige-ZAWYA20200414072202/ 

Credit: (Writing by Disha N, editing by Seban Scaria)