COVID-19 fallout: UAE landlords waive rent penalties, but not rents

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But tenants still have room to pursue extended rent-free periods and monthly payments

Dubai: More private landlords in the UAE have stopped enforcing penalty clauses on rental contracts, while some are now allowing payments to be made via monthly cheques.

But landlords are yet to go in for full-scale rent waivers or rent-free extensions to ease their tenants’ pain following the COVID-19 outbreak and the subsequent impact on all layers of the economy.

“We have tenants who have lost jobs and are waiting to exit the country once flights re-open in the UAE,” said Pawan Batavia, CEO, Synergy Properties. “In such cases, early termination of rent contracts usually sees a two-month rent penalty. But under the current situation we have exempted tenants to pay the penalty.

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“They are also accepting re-negotiation on the cheque amount, allowing tenants to pay monthly cheques instead of quarterly.”

But what of rent waivers?

For now, the big relief is coming from the leading developer-landlords. Dubai Holding in tandem with Meraas, was the first to announce a Dh1 billion relief package. The two will be offering such support on a case-by-case basis for tenants, principally commercial, at developments such as City Walk, Bluewaters, and La Mer.

Will private landlords follow suit?

Naval Vohra, CEO of Appello Real Estate, feels the smarter ones will look at their property portfolio and go in for options where they are assured of a steady income and, at the same time, ease the burden on tenants?

“In residential sector, some landlords are offering waivers of up to three months,” said Vohra. “I would advise tenants with financial or employment issues to reach out to their landlords and negotiate a deal. Our main advice to landlords is to try and retain their tenants by being flexible either in reducing some rent or in the payment terms.”

Check the contracts

Relief could also come to tenants if they go through their tenancy contracts. If there is a mention among the clauses of a “force majeure” sort of situation, then could initiate talks with their landlords by invoking that clause.

It applies to situations where forces outside of people’s control impact on their prospects and financial situation. A pandemic certainly qualifies as a force majeure situation.

According to John Peacock, Head of Indirect Tax and Conveyancing at BSA Ahmad Bin Hezeem and Associates, if residents are unable “to make payment of rentals due to a lack of income resulting from the forced closure of a business or a loss of salary as an employee, they should fanalyse the relevant contract, which may provide for both force majeure and hardship events.

“Should the contract however not make provision, the affected party may wish to consider the provisions of Federal Law No. 5/1985 (Civil Transactions Law).”

Article 249 of the Civil Transactions Law provides that a judge may, to a reasonable level, order a modification of a “burdensome obligation” if instigated by “public exceptional unpredictable circumstances, making the execution of the contracted obligation, if not impossible, burdensome to the debtor.”

In other words, when circumstances force constraints on the financial situation of the tenant. And many are finding themselves in just such a situation.

It will only get stronger

There has been a demand for residential rent relief keeping in mind the temporary and permanent salary cuts and job redundancies. Employers are yet to take such drastic action, even though many have been sounding out their workforces.

Elaine Jones, Executive Chairman of Asteco Property Management, said, “We do not expect rental waivers as such for residential property, but there may be revised payment plans. Tenants must refer to their employers for rental support.

“Some landlords can and will help, but the resident should first address [the issue] with their employer.”

Landlords might not be ready to renegotiate rent, as rents had dropped substantially in the last two years and tenants have had that benefit.

“Some landlords have agreed to accept rent in monthly instalments,” said Jones. “We expect this trend to increase significantly over the coming weeks.”

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