General Understanding of Commercial Tenancy Contracts in the Emirate of Dubai

General Understanding of Commercial Tenancy Contracts in the Emirate of Dubai
21 Jun, 2024

Understanding the basics of the commercial tenancy contracts in the Emirate of Dubai will require us to understand the Legal Framework that governs commercial tenancy contracts, the responsibilities and obligations of the parties, the regulatory considerations, and in general the practical considerations of the parties. All together, shall give us insightful information in regards to the commercial tenancy contracts in the Emirate of Dubai.

Commercial tenancy means the temporary possession of a commercial property such as shops, warehouses, offices, retail, shopping centers, workshops, commercial villas and commercial units. This temporary possession can start at one year long until any period of time as agreed between the parties.

During this period, the landlord must allow the tenant full access to the unit and must provide the tenant with smooth services as agreed between them in return for annual or monthly payment for the possession of the property.

Legal Framework Governing Commercial Tenancy Contracts

The primary legislation governing commercial tenancy contracts in Dubai is Law No. 26 of 2007, as amended by Law No. 33 of 2008, also known as the Dubai Tenancy Law. This law regulates the relationship between landlords and tenants in the Emirate of Dubai, covering various aspects from contract formation to dispute resolution.

Typically, commercial leases in Dubai are for one to three years, though longer terms can be negotiated.

The contract should clearly state the lease duration, renewal terms, and conditions under which the lease can be renewed or terminated.

The contract must specify the rent amount, payment schedule, and acceptable payment methods.

It should also outline any provisions for rent increases, which are subject to regulations by the Real Estate Regulatory Authority (RERA).

A security deposit, usually equivalent to one to three months' rent or 10% of the total rental value is required and should be documented in the contract.

The terms for refunding the security deposit upon contract termination should be clearly outlined, as such, the tenant should always keep the property in an acceptable condition and deliver back the property at the end of the tenancy term or upon the revocation of the tenancy contract in the same condition when the tenant received the property and this condition goes for commercial and residential tenancy as well.

Responsibilities and Obligations

The contract should delineate the responsibilities of both the landlord and tenant concerning maintenance, repairs, and compliance with municipal regulations.

It should also specify any restrictions on the use of the property, subleasing, and alterations to the premises.

The main obligation of the tenant is to safeguard the property from any damages, taking into consideration the period of the lease, and acknowledging the fact that by time the property will need to be renovated before being handed over to the landlord.

The main obligation of the landlord is to allow the tenant to use the property as agreed in the contract and to allow the staff to lodge into the property during the agreed working hours without any preventions other than what is stated in the contract or what was agreed between the tenant and the building management.

The tenant must pay the due payments on time without any delay or that will be a reason for early eviction and the landlord can confidently take the matter to the court and request for eviction for the reason of non-paying the rental value on time.

Conditions under which the lease can be terminated by either party should be detailed.

The contract should include clauses related to early termination, penalties, and notice periods.

The contract should outline the process for resolving disputes, typically referring to the Rental Dispute Settlement Centre (RDC) in Dubai, although it is stated in all contracts, however, it is important to be double checked by both parties.

Regulatory Considerations

1. RERA Regulations:

RERA, a division of the Dubai Land Department (DLD), oversees real estate activities in Dubai, including commercial leases.
It provides guidelines on rent increases, ensuring they are in line with the official rental index and the prevailing market conditions.
Taking RERA in consideration, the Landlord, cannot under any situation raise the rental value in contradiction with RERA calculation report, there is no way to manoeuvre this rule.

2. Ejari Registration

All commercial tenancy contracts must be registered with the Ejari system, an initiative by RERA to regulate and authenticate rental agreements.
Ejari registration ensures that the contract is legally binding and enforceable.
Always refer to your Ejary contract to know more about registration cost and who is obliged to pay the cost of the registration of EJary contracts.

 

Practical Considerations for Tenants

1. Due Diligence

Before signing a lease, tenants should conduct thorough due diligence, including verifying the landlord's ownership of the property and checking for any existing legal disputes. It is highly recommended to further check – even if your agent checked – the landlord capability of keeping their contracts and whether if the landlord or the building or the unit was brought before into a legal proceeding or no, using Dubai Rest APP in this stage is highly recommended.

2. Negotiating Terms

Tenants should negotiate terms that suit their business needs, such as flexibility in lease duration, options for renewal, and reasonable clauses for early termination. We are always encouraging our clients tenants and landlords to negotiate the contract terms since the negotiations in this stage can bring more benefits to each of the parties.
Understanding current market trends and average rental rates can provide leverage during negotiations and help in securing favorable terms.

3. Legal Advice

Engaging a professional legal consultation in reviewing and advising on the tenancy contract and its addendum can help prevent potential disputes and ensure that the tenant's or the landlord’s interests are protected.

Commercial tenancy contracts in Dubai are governed by a robust legal framework designed to protect the interests of both landlords and tenants. By understanding the key elements of these contracts and the regulatory landscape, businesses can navigate the complexities of commercial leasing in Dubai more effectively. Engaging in thorough due diligence, seeking legal advice, and staying informed about market conditions are crucial steps in securing a tenancy agreement that supports business growth and success in this vibrant Emirate.

 

At Elnaggar & Partners, we are eager to fulfill your needs whether you are a landlord or a tenant. Do not hesitate to reach out to us for review and advice on your new tenancy agreement before you agree on the terms and conditions of the lease, seeking our advice now can effectively make things smoother in the future and can firmly secure your rights. You can contact us via email info@elnaggarlegal.com

 

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