What is the maximum agency commission brokers are allowed to charge? Image Credit: Gulf News Archives

Dubai: What is the maximum percentage of rent, which a real estate agency can charge in Dubai? A Gulf News reader who was helping a friend find an accommodation in Dubai, wrote in, confused by the high agency commission charges she had recently encountered.

She asked: “I was wondering if you would be able to highlight the confusing and also concerning situation about the real estate agencies’ commissions in Dubai, upon renting a property. I was helping a friend find a suitable apartment, and I was very surprised by the fact that all of the real estate agencies in that particular area are claiming double the amount compared to what is stated by the Real Estate Regulatory Authority – five per cent of the annual rental amount. It is quiet puzzling that the agencies can go so as far as that.”

Gulf News raised the reader’s query with Ahmed Elnaggar, Managing Partner at Abu Dhabi-based Elnaggar Legal Advisors Limited, who clarified that there was no limit specified in writing on the maximum percentage of annual rent, which real estate agents could charge in Dubai.

“There is no maximum or minimum commission stipulated in the law for brokerage fees. This is a subject that is to be regulated contractually,” he said.

There is no maximum or minimum commission stipulated in the law for brokerage fees. This is a subject that is to be regulated contractually.

- Ahmed Elnaggar, Managing Partner at Abu Dhabi-based Elnaggar Legal Advisors Limited

This would mean specifying in the rental contract the amount of brokerage fees, which would be charged by the broker. These contracts could be signed between a broker and any of the following parties:

- A tenant renting an apartment

- A landlord looking for tenants to occupy his unit

- A buyer looking for a property to purchase

- A property owner looking for buyers to sell the property to.

“All such relationship must be executed in writing together with a licensed brokerage firm that has clear terms that define their fees percentage or as a lump sum amount. This is basically what the law stipulates,” Elnaggar added.

What the law says

The law stipulating terms of brokerage in Dubai is Law No. (85) of 2006, with Chapter 4 laying down the terms of brokerage. According to the law, the real estate broker’s remuneration will be determined by Agreement, and in the absence of agreement, remuneration will be determined according to prevailing practice. Also, as per the law, a real estate broker will be entitled to remuneration for his brokerage services only if a contract is concluded between both parties ‘by signature’ and when the deal is accomplished between a tenant and landlord or a buyer and seller.

Is the agent licensed?

It is important for anyone dealing with a real estate agency to find out of the brokerage is registered with the Real Estate Regulatory Authority. In Dubai, you can check the commercial licence by verifying it with the Dubai Economic Department as well as the Dubai Land Department.

Law No. 85 of 2006 Regulating Real Estate Brokers Register in the Emirate of Dubai

The law stipulating terms of brokerage in Dubai is Law No. (85) of 2006. Articles 26 to 33 of the law enumerate the legal terms that govern brokerage fees in Dubai.

Article (26)

The Brokerage contract shall be in writing and shall state the names of the contracting parties, specifications of the Real Property and the Brokerage conditions. The contract shall be registered in the real estate register.

Article (27)

A Broker’s fee shall be determined by agreement. If there is no agreement the fees shall be determined according to the prevailing practice.

Article (28)

1. A Broker shall not be entitled to a fee for his Brokerage unless this Brokerage resulted in a contract to be entered between the two parties. The contract shall be considered as entered when the parties agree on all the conditions provided in the brokerage agreement.

2. A Broker shall be entitled to his fee upon signing the sale contract and registration of it in the Department, unless the brokerage agreement stipulates otherwise.

3. If the sale contract is pending on a condition agreed on pursuant to the Brokerage contract, the Broker shall not be entitled to his fee unless this condition is met.

Article (29)

If the Brokerage contract is revoked, the Broker may claim his fees pursuant to the agreement stipulated in the Brokerage contract, unless deception or grave mistake was proved on his part.

Article (30)

If a Broker’s instructions or negotiations did not lead to signing a contract between the two parties, the Broker shall not be entitled, in consideration of his endeavour, to claim any compensation, expenses or costs he incurred unless the Brokerage contract provides otherwise.

Article (31)

If more than one Broker participated in the mediation or negotiation for one party in order to reach an agreement and this led to the completion of the agreement, all of them will be entitled to the fees as if they were one Broker and the fee shall be divided between them as per the conditions of the contract entered between them.

Article (32)

Subject to Article (30), if a party contracted with many Brokers independently and with regard to one subject in order to mediate for him and negotiate on his behalf in an agreement and one of them succeeded in completing the transaction, he alone shall be entitled to the full compensation.

Article (33)

A Broker shall be entitled to compensation only from the party to the transaction who authorises him to mediate in the transaction. If the authorisation was issued by both parties, each one shall be severally responsible towards the Broker for paying the fee due from him, even if they agreed that one of them shall pay the full fee to the Broker.