Salary cuts have taken a heavy toll on the financial status of residents, but that reason will not be enough if they renege on rents. Image Credit: Gulf News Archvie

Dubai: Tenants in Dubai may not be in a position to evade penalties if they cite salary cuts as the reason for not being able to pay up their rents.

Moreover, landlords are well within their rights to issue eviction notices to tenants who have failed to meet rental obligations. But, according to real estate industry sources, landlords may still need to get clearance from the Rent Dispute Settlement Centre (RDC) before they can carry out the eviction.

It “will not be enforceable except upon the RDC issuing a judgment ordering the eviction,” said Wael El Tounsy, Senior Counsel at the law firm of Baker McKenzie Habib Al Mulla.

Even so, “The lease agreement [with the tenant] can stipulate a condition of “automatic cancellation” without the need for a court ruling in the event of late payment of rent or inability to liquidate the rent cheque.

“This is an express condition for termination, which is legally valid and permissible in the Civil Transactions Law.”

That’s explicit enough and should settle some of the doubts that had crept in after the RDC issued a recent verdict on those tenants who had lost their jobs and found themselves unable to keep up with their rents.

The RDC stated clearly that such tenants can terminate the lease agreements, and, most important, will not have penalties imposed on them. In its judgement, RDC states that a job loss represents an "exceptional circumstance".

"While the RDC judgment provides clarity on tenants' ability to terminate their leases under these exceptional circumstances, what is less clear is how any rental arrears or overstay charges are handled before their departure," according to a market source. "Which as it stands, the tenant remains liable to pay."

Salary cuts won’t do

Legal and real estate sources emphasize that the salary cuts imposed after COVID-19 broke out and impacted the economy will not qualify for the same consideration. If they are not careful on the payments, they could get hit with some stiff penalties. And also liable for eviction.

According to John Stevens, Managing Director at Asteco, “Typically, the penalties amount to two- or three months of the rental sum. But there are also lease agreements where the penalty clauses are not clearly specified.

“In those cases, the landlord can impose a penalty equal to the rent for the remaining months left in the lease. Tenants need to be extra careful in the months ahead in working out their rental obligations.

Local authorities had issued strict guidelines that no tenant should be evicted for whatever reason during March and April. But based on available info, that clause has not been extended for landlord-tenant issues after April.

"Exit clauses and associated penalties vary greatly by landlord, and are not uncommon as additional terms to the Unified Tenancy Contract," said Helen Chen of Nomad Homes, a property portal for renters and buyers. "As a company that represents the renter, it is our responsibility to negotiate these on behalf of our customers and ensure that they are fully aware of the clauses and what that would mean if they decided to end their tenancy before expiry of the lease.

"The penalties can vary based on circumstances, but we often see two months' rent for early termination. We always suggest the tenant to speak with the landlord when this situation arises to come to a mutually agreeable solution."

What is less clear is how any rental arrears or overstay charges are handled before their departure

- A property leasing agent

Rush to RDC

In recent weeks, there has been a flood of appeals filed by tenants – and landlords – with the RDC and seeking its final word on rental agreements. The COVID-19 situation has upturned the financial status of residents, many of whom have gotten hit by a combination of job losses and salary cuts of between 30-50 per cent.

In such an alarming situation, some landlords have shown their willingness to defer rent payments and even allowed one- or two-month waiver. But their numbers are very much in the minority.

Businesses have imposed four-month salary cuts extending up to September, which is why many tenants will find it extra difficult to balance paying out school fees for the new term as well save up for their rents. And there’s still no guarantee that businesses will reinstate full salaries by August/September.

These are uncertain times for all, but tenants will keep hoping that landlords will show some leniency and not rush to send those eviction notices at the slightest delay in payments.

And yet, there are landlords’ offices sending out messages to tenants to ensure their bank accounts have sufficient funds to clear the next dues.

For tenants, their only hope remains the RDC. They also better give a quick glance at their tenancy contracts, and what it states on penalties for delayed/non-payment of rents.

Legal nitty-gritty on evictions
When Dubai's Rent Disputes Settlement Centre issues a verdict on an eviction, it "shall be from the date the tenant stops paying and not from the date the judgment becomes final," said Wael El Tounsy of Baker McKenzie Habib Al Mulla. This is because "the "judgment is considered "declaratory of the annulment" and not establishing the status of annulment."