United Arab Emirates: Covid-19 – Impact on lease and rent obligations

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published on 3. June 2020 | reading time approx. 2 minutes

  

The suspension of enforcement proceedings of court rent disputes was one of the first steps taken after the outbreak of the corona pandemic in the United Arab Emirates (UAE). A final judgement regarding a rental dispute derived in connection with unpaid rent generally cannot be enforced at this time. This also applies to cases in which the defendant has been sentenced to a prison term. For now, the initial time frame of two months for this measure has almost expired. At this stage, it is not clear whether the measure will be extended.

  

  

The UAE government decided within the first stimulus package that parts of the service charges (DEWA) would be reduced by 10 percent, regardless of whether the rent is private, or business related.
Additionally, the free trade zones also responded to the above-mentioned scenario. The Freezone-Council, an association of the various free trade zones such as the Dubai Airport Freezone, the Dubai International Financial Center, the Jebel Ali Freezone, Dubai South and the DMCC, has decided within the framework of the second stimulus package that rent payments could be suspended for a period of up to six months.
So far, the government has not yet specified which period is applicable to private tenants. Furthermore, the legal situation for companies and private individuals outside the free trade zones are not being defined yet and thus no uniform answer can be given. In this case it depends either on a possible application of the concept of Force Majeure or simply on the landlord's goodwill.

 
The term Force Majeure has its origin in the French jurisdiction and can be defined as an “act of god”. In the past this legal concept has mostly been applied to circumstances such as earthquakes, volcanic eruptions, floods, heat waves and other natural disasters. However, since Force Majeure is an indeterminate concept, there is no exhaustive list of such defined events under  UAE law. In general, it can be defined as an event which is superior and beyond someone’s control, thus making performance inadvisable, impracticable, illegal, or simply impossible.

 
In UAE Law, one of the requirements of Force Majeure defines that a contract must be bilateral and the contract obligations cannot be legally or practically performed at all. It is referred to either a contractual clause or the application of the law (Art. 273 UAE Civil Code). Should a case of Force Majeure exist, all contracting parties are generally released from their obligations, to the extent that obligations have not yet been extinguished. Beyond this – as a consequence of the application of Force Majeure - the contract is rescinded by law. Whether the corona pandemic and the associated crisis can be evaluated as an act of Force Majeure has not yet been decided. Even in case of Force Majeure, the application of this provision may not lead to a reduction of the rent, but rather to an immediate termination of the lease agreement.

 
At this point, Article 249 of the UAE Civil Code can be applied. If, in fact, the performance of contract obligations has become burdensome to a party in such a manner as to threatening him with heavy loss,, a judge can determine that the obligations of a party are significantly reduced depending on the circumstances. Accordingly, a reduction of the rent by means of a court decision may be obtained.

 
It can be summarized that although some measures have been put in place to assist tenants, a high number of cases may be solved solely by individual agreement and the landlord's goodwill. If not, tenants still have the chance to take legal action to obtain a rent reduction. However, in in this case it is the tenant´s obligation to proof that his duty to pay the rent has become a severe burdensome to him due to the unforeseeable circumstances. How the competent courts will decide in this context remains unclear.

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