Introduction

A proposed amendment to the Abu Dhabi Landlord and Tenant Law has recently been announced. Our summary below sets out the details and impact of these proposed amendments. Our information is based on an unofficial English translation from the Arabic version of the draft law and we cannot definitively confirm its completeness or accuracy.

Renewability of leases

Tenants in Abu Dhabi currently enjoy a form of security of tenure where their lease is of a term of five years or less (a Short Lease). Law No. 6 of 2009 amending Law No. 20 of 2006 (the Law) provides that Short Leases are renewable at the option of the tenant for an additional five-year term or shorter. At the end of the first term, the landlord is only able to object to the tenant’s right to renew if certain grounds are made out (such as non-payment of rent, unauthorised subletting and/or breach of other lease covenants, redevelopment by the landlord, or if the landlord wants to occupy the premises himself).

Law No. 4 of 2010 (the Draft Law) provides that Short Leases are renewable for a further term, but only by mutual consent of both parties. Therefore tenants would no longer have an automatic right to renew a Short Lease.

However if the tenant’s lease expires and the tenant remains in the premises, the Draft Law provides that as long as the landlord is aware and does not object, the lease is deemed to be renewed on the same terms.

Under the Draft Law, for the landlord or the tenant to object to a lease renewal, the objecting party must serve a written notice on the other (an Objection Notice). The landlord would no longer be restricted to the grounds summarised above if it wishes to object. In the case of residential leases, the notice must be served two months prior to the expiration of the lease term. In the case of commercial leases, the notice must be served three months prior to the expiration of the lease term.

We understand that the Draft Law provides that landlords may not serve an Objection Notice until 9 November 2010 (though this date is subject to amendment when the Draft Law is reviewed by the Executive Council). Before this date, the landlord may obtain a resolution from the Rent Committee entitling it to serve six months’ notice on the tenant prior to the expiration of the lease term, if: (a) the tenant’s continued occupation of the premises will cause serious harm to the landlord; and (b) the tenant has been in occupation for at least two years.

The Draft Law is likely to encourage landlords to take a proactive role in managing their property. This is particularly important because if a landlord fails to serve an Objection Notice within the applicable time period, it may find that by inaction it has inadvertently acquiesced to a lease renewal at the premises. However a landlord may be more concerned to object to a lease renewal in a rising market, where it would have the opportunity to achieve a higher rent for a new lease on the open market, than in the current falling market.

Decisions of the rent committee

The Draft Law also amends the Law in relation to the Committee for Settlement of Rent Disputes in Abu Dhabi (the Rent Committee).

The Rent Committee was established by Resolution No. 41 of 2006 (the Resolution) and has the jurisdiction to give summary judgments on tenancy-related disputes. There is at present no requirement for members of the Rent Committee to be legally-qualified. The Resolution provides that decisions of the Rent Committee are subject to appeal within fifteen days of being delivered but, following any appeal or the expiry of this time period, decisions are final and irrevocable.

The Draft Law provides that the Rent Committee would be chaired by a judge, and will seek the help of a consultative panel consisting of experts in real estate. The Draft Law also makes detailed provision for the right to appeal decisions of the Rent Committee.

This aspect of the Draft Law is most favourable to the larger commercial landlords in Abu Dhabi. In particular, the right to appeal only extends to disputes above specified values. If a dispute relates to a sum of less than AED 100,000, the decision of the Rent Committee is final. If a dispute exceeds this level, it can be appealed within 15 days to the Appeal Committee. If the decision of the Appeal Committee relates to a sum of more than AED 500,000, it can be appealed to the Cassation Committee within 30 days.

Conclusion

As Abu Dhabi is seeking to establish itself as a maturing real estate market, the proposal of the Draft Law is an eminently sensible step in encouraging the confidence of commercial investors in the emirate.