Neighbourhood Watch: Demand for multiple cheque payments

When a property is rented in Dubai, it is common practice for the landlord to ask for an annual payment of one cheque in advance. If a commercial space is involved, it may be negotiated such that several cheques are accepted.

This is a subject that has been given attention lately and it appears to be a popular topic for discussion. It has been an accepted custom for many years to pay rent annually, one of the reasons being to reduce the problem of chasing payment.

For some time, however, landlords, managers and tenants alike are encountering increased problems with bounced cheques. In the present economy it may be difficult for tenants to pay rent in advance but the number of requests for multiple cheque payments is escalating.

While allowing rent payments with a greater numbers of cheques may seem to be the answer to the tenant, it unfortunately does not allay fears with management or the landlord.

The work involved in chasing bounced cheques is enormous with the present system and multiple payments have the potential of compounding the problem. This of course does not solve the cash flow problems of companies or budget constraints for individuals. Often a company will allow an accommodation budget for an employee, but it is only provided within his monthly salary.

Either the company or the employee has to come up with six months to a years rent in advance, which in many cases is difficult. The landlord may not be opposed to receiving his rent monthly but demands a bank guarantee before signing the agreement. Small companies or individuals are often not in a position to provide these guarantees and perhaps this is when a bank can be approached.

Perhaps landlords should require salary certificates; after all you cannot purchase a car or get a credit card without one - why should you be able to enter into a rental contract with no evidence that you are able to pay?

As a management company certain banks approached us many years ago with proposals on this subject but few people were interested in pursuing the idea, as it seemed there was insufficient demand.

Today, however, we are faced with increasing problems and perhaps it is time to look for a solution to satisfy all parties. Financial institutions could be interested in tailor making schemes that will allow rents to be secured with low interest rates and perhaps somewhat resolve the problem.

However, one argument from the bank may be the difficulty of individual security cheques. One might feel that the landlord should simply accept 12 cheques directly from the tenant.

After all why should the tenant have to pay interest to a bank in order to pay his rent and is an acceptable practice worldwide? The landlord will argue that, aside from the accounting and management complications, the difficulty lies in removing a tenant who is in default, from the property.

The law is heavily weighted in the tenant's favour. It often takes months of paper chasing in order to obtain the authority to repossess the property and have it re-rented.

A large amount of money is often lost during this period and never recovered by the landlord. If we are facing a problem with the present practice, it would only be exacerbated if a greater number of post-dated cheques were in circulation.

If the landlord thought that a direct bank debit could be arranged monthly, then it may be more reasonable for him to accept the new negotiations and avoid the more onerous problems of bounced cheques.

There also may be issues with respect to the landlord's own commitments to his bank, but the present situation together with the problems faced by the tenants and their employers has the potential of putting everyone at risk.