Based on public information, it is said that the holiday home company that caused recent distress had entered into a one-year tenancy agreement with the landlord for a specific property at a specific price. The mode of payment featured multiple cheques and permission was received to sub-rent as a holiday home to third-party end-users.
It is said the company then entered into a contract (not registered with RERA) to lease the property with an end-user for a period of one year for one cheque and at a lower price than it was leased from the landlord. Then, on collecting the payments, the company’s executives appear to have decided to conceal the obtained finances.
Law breached
According to the Guide regulating the activity of leasing holiday homes in Dubai - first edition of 2020, Section 10 - the contract between the holiday home and a guest is valid for a maximum period of three months. This directive has been established by Dubai Tourism to prevent the malpractice. In my opinion, if the holiday home company entered a one-year contract with end-users, then the company has breached this directive and such a contract is therefore not valid.
A bigger problem
The biggest victims of this breach, unfortunately, will probably be the end-users as they don’t have a valid contract and unlikely to be protected by RERA or Dubai Tourism regulation. After the cheque bounce from the holiday home company, the landlords can serve notice of eviction to remove the tenant from the property in this case, the holiday home company) and proceed with eviction after 30 days. The end-user, who paid the yearly rent in one cheque, will be ultimately evicted and shall ask for a compensation from the holiday home company as per the UAE’s Civil Code.
Prevention ways
For landlords: When signing the tenancy contract with a holiday home company, you may take two months of rent as a security deposit to be forfeited in case of a bounced cheque. In case the rental cheque bounces, serve notice of eviction to the tenant (holiday home company) to vacate the property in 30 days and then you will have another 30 days to rent out the property, which should allow you operate without losing any rental income.
For end-users/guests: Offers that are ‘too good to be true’ (properties offered as rent below market rate) should prompt you to diligently study the details to make sure you are not being taken for a ride. Do a review if the company has a unit permit from Dubai Tourism for the property to be sub-leased and review the Guide regulating the activity of leasing out holiday homes in Dubai.
Regulatory change
It is clear that landlords can be easily protected by increasing security deposits and that the current regulatory framework is sufficient. But the challenge lies in making aware the end-users that they can enter only into maximum of three months long contract.
One potential solution could be the following - As the unit permit is the document confirming that the property can be operated as a holiday home, it is likely to be reviewed by the end-users/guests on signing a short-term lease contract. I would propose to adjust the layout of the unit permit and add on it a statement that the ‘Property can be rented for three months maximum in a row’.
However, it is entirely at the discretion of Dubai Tourism whether they would believe that such a change would be beneficial for the industry.
I would be careful in stating the holiday home company organized a large-scale scam before understanding the situation in full. We should entertain a scenario, where the company could be having long-term cash flow issues caused by the pandemic, which it tried to solve by selling part of their managed property portfolio below price. This may have been done to resolve short-term cashflow problems in the slow season and hoping to recover during the high season on the rest of the properties managed.
This strategy may have failed for whatever reason, but would not be a scam as the managers were trying to act with care. Where the company likely failed was to follow the directives and should be penalized for are on the sub-leasing contracts.
More so, if the company executed them for duration of one-year, perhaps unknowingly as the regulation came into practice only in 2020. If that was the case, Dubai Tourism has a clear set of penalties for this.
