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6 Agreements for Commercial Lease UAE in 2019

October 22, 2019
6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time

In the UAE, a lease is deemed a personal right rather than an interest inland. Non-UAE nationals (and companies owned in whole or part by non-UAE nationals) may only be granted long leases within one of the investment areas in Abu Dhabi or one of the designated areas in Dubai.

Abu Dhabi law does not provide a clear distinction between a lease (a personal right) and a usufruct (a right in rem). The law does state that long leases (being those with a term of 25 years or more) are property rights, however, it does not clearly define the characteristics of leases with terms shorter than this. In practice, ADM have deemed leases for a term of more than four years granted in favour of a non-UAE national (or a company owned in whole or part by a non-UAE national) in relation to land outside an investment zone and which contain rights to sublet to be usufructuary rights (and therefore not capable of being granted to a non-UAE national outside an investment zone).

In Dubai, a long lease is one with a term of ten years or more and these require registration at the DLD. For leases of less than ten years, registration is still required but at a nominal cost at the Real Estate Regulatory Agency (RERA) on its ‘jari’ system. The ejari registration is required in order to open a utility account, telecommunications account, etc, for the property.

6.2 Types of Commercial Leases

For leases of less than ten years required to be registered on the ‘jari’ system in Dubai, RERA requires parties to use a mandatory form of lease that records certain key provisions (eg, parties, premises, rent and term, etc). It is common for parties to attach supplemental terms to RERA’s mandatory form. Such supplemental terms will be more comprehensive than RERA’s mandatory form and will include any special commercial terms agreed between the parties.

The form of lease is not mandated by law in Abu Dhabi, but certain key provisions must be included (eg, parties, property description, rent, and term).

6.3 Regulation of Rents or Lease Terms

Rent in the UAE may be freely negotiated between the parties to the lease.

In Abu Dhabi, Abu Dhabi Executive Council Resolution No 14 of 2016 on Lease Agreements of Premises prohibits rental increases greater than 5% per annum.

In Dubai, Decree No 43 of 2013 concerning the percentages of maximum property rent provides for the average market rent to be set according to the Rent Index for the Emirate of Dubai as approved by RERA. The percentage of the maximum increase in real estate rents in Dubai is determined on renewal according to the current annual rent amount compared with the average rent for a similar property. Whilst these restrictions apply to both residential and commercial property, in practice, for commercial property, alternative terms (such as fixed increases) agreed are likely to be respected.

6.4 Typical Terms of a Lease

The terms of a lease may be freely negotiated between the parties, provided that the contents of the lease agreement do not contravene the law.

Both the Abu Dhabi and Dubai landlord and tenant laws include provisions in relation to the repair and maintenance, termination and term of leases where the lease agreement remains silent on such topics, although in practice most contracts will contain express terms on those matters. The frequency of rent payments is a matter for negotiation and typically varies from once a year to quarterly payments.

' 6.5 Rent Variation

Rent is commonly calculated on a per square meter/foot basis, or by reference to the turnover of the tenant’s business (if retail premises).

The rent payable under a lease must be specified in the lease agreement and is generally subject to fixed or index-linked increases at regular intervals.

Market rent-review provisions are also included in some leases. However, these clauses are not as used as frequently as they are in more developed real estate markets as reliable comparable transactions can be difficult to establish due to the lack of publicly available market data.

6.6 Costs Payable by Tenant at Start of Lease

A tenant’s liability for upfront costs should be set out in the lease agreement.

The parties to a lease commonly agree that the tenant will be responsible for paying the registration fees associated with registration of the lease at the relevant land department or RERA (as applicable). Tenants are also generally responsible for the cost of opening an account for utilities and telecommunications and paying for meters and connections in new properties.

A tenant may also be responsible for payment of a service charge if such charges are levied contractually or, in the case of long leases, in accordance with the jointly owned property laws and specified in the master community declaration. A tenant may also be liable for the fees of any agent involved in the transaction.

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