Coronavirus: Dubai resident who lost his business due to Covid-19 wins legal ruling to end tenancy contract early

Dubai rent committee says job loss during pandemic was an 'emergency circumstance'

Dubai, United Arab Emirates - January 23, 2019: General View of skyscrapers and buildings for hotels and residential homes. Wednesday, January 23rd, 2019 at JLT, Dubai. Chris Whiteoak/The National

A Dubai resident left unable to pay his rent won a legal case allowing him to break his tenancy contract without incurring a penalty.

The Rental Dispute Settlement Centre, the judicial arm of the Dubai Land Department, cited the tenant's "exceptional circumstances" when delivering its verdict.

The disputed property is a commercial premises – but experts said the ruling offers hope to others facing financial troubles, including tenants in residential buildings.

In its ruling on June 7, the centre instructed the landlord to return two of four rent cheques paid by the tenant.

The landlord was asked to return the July and October rent cheques, each for Dh25,656, to the tenant who ran a healthcare business that suffered during the coronavirus outbreak.

The termination of the claimant is an event of emergency circumstances, which the claimant cannot mitigate nor predict

The tenant also did not need to pay a penalty, typically two months' rent, after he requested early termination of a one-year lease on a commercial property in a building in the Sufouh district near Dubai Knowledge Village.

The lease signed on January 5, 2020 was due to end in January next year.

The tenant, who cannot be identified due to confidentiality clauses, filed the case in April saying he could no longer pay the rent because healthcare services he provided to the elderly and the young in their homes were affected by the pandemic.

The Rent Committee ruling allowed the landlord to keep the first two rent cheques.

“The termination of the claimant is an event of emergency circumstances, which the claimant cannot mitigate nor predict," the judgment stated.

"The lease has become burdensome to the tenant to the extent that it is impossible to continue with the lease agreement.”

Wael El Tounsy, head of real estate dispute resolution at Baker & McKenzie Habib Al Mulla, who represented the tenant, said the government’s rent centre relied on Article 795 of the UAE Civil Code.

He described the judgment as significant since it acknowledged termination of business and employment met the “exceptional circumstances” criteria as per UAE law.

“Article 794 stipulates a party can seek termination of the lease as a result of emergency circumstances that are related to this party,” Mr El Tounsy said.

“The RDC has decided to terminate the lease and refund the cheques for the pending period from July 5, 2020 until January 5, 2021.”

Mr El Tounsy said the tenant submitted all correspondence and emails showing his clients cancelled contracts.

“We told the court that the 'force majeure' principle could be applied since a critical situation was caused due to the coronavirus pandemic due to which all his customers did not want anyone from outside coming into their homes.

“He lost all deals signed because people were afraid of the coronavirus. Force majeure in law is something you cannot anticipate and cannot avoid.”

The authorities in Dubai and Abu Dhabi in March halted evictions for two months for tenants struggling to pay rent.

However, by law, a landlord has the right to claim compensation of two or three months' rent if a tenant breaches a lease agreement.

Since landlords hold cheques given in advance by tenants, residents have worried about facing court cases if owners bank cheques that subsequently bounce due to a lack of funds.

Tenants are generally guided to appeal for compassion from landlords instead of going to court.

Mr El Tounsy said the rent centre assessed each case based on the circumstances of the tenant and landlord.

“The judges look at this case-by-case and not every situation is the same,” he said.

“The judge may not have issued this order if the person had enough time to find the money to make the payment or find another job.”

Keren Bobker, an independent financial adviser with Holborn Assets and columnist for The National, said it was an important ruling showing that Dubai's Real Estate Regulatory Agency would help tenants in need.

"These are unusual times, so it is good that steps are being taken to assist people with genuine difficulties," she said.

“Many people have lost their jobs and a significant number of those have been on a reduced salary for a while so having to pay a substantial penalty is just not affordable for everyone.”

She supported fewer penalties in new lease agreements.

“Certainly it would be fair to have a clause that states that there are no financial penalties if someone wants to break a lease due to redundancy and financial problems,” Ms Bobker said.

“It would be good to see more options in the standard rental clauses that can be agreed by both parties.”

The Land Department did not responded to requests for comment.

Some developers announced rent waivers over the past few months.

Wasl Asset Management announced in April that it would defer lease payments for residential and commercial units by three to six months.

This was in response to a directive from Sheikh Mohammed bin Rashid, the Vice President and Ruler of Dubai, to extend assistance to all segments of society dealing with challenges during the pandemic.

Dubai World Trade Centre Authority announced a rent holiday from April to September to retail tenants in the Dubai International Convention and Exhibition Centre and One Central and a three-month rent waiver from April to commercial tenants.