Heightened landlord, tenant awareness can remove grey areas in sub-leasing holiday homes

As more information becomes available on the Dh30 million sub-renting affair with a holiday home in Dubai, it turns out the company did not have the permission to sub-rent the properties for one year in a majority of instances. And only a limited number of these properties were operated as holiday homes.

Regardless, whether the property was sub-rented without permission or if the property was a certified holiday home and sub-rented for more than three months, Dubai has a clear regulation on how to proceed in case of a tenant’s default. The relevant law in Dubai states: “Unless otherwise agreed by the parties to the lease contract, the tenant may not assign the use of or sub-lease the real property to third-parties unless written consent of the landlord is obtained.”

Further, another law states that in case the tenant sub-lets the property or fails to pay the rent within 30 days of obtaining a notice to pay the dues, the landlord can seek eviction and this will apply to the sub-tenant as well.. The latter can then claim the paid-up rent on the tenant (in this case on the sub-renting company) via the UAE’s civil process.

The civil process is established to recover rightful claims and may lead to issuance of arrest warrant, and (potentially extendable internationally) against the sub-renting company’s manager(s) to find out the company’s assets and to satisfy its creditors.

If the following documents were obtained by the tenant:

• Property management letter as issued by Dubai Economy and Tourism (DET) signed by the landlord; and

• Unit permit to operate the property as a holiday home issued by DET;

then the holiday home regulation applies. This is in accordance of the ‘Guide regulating the activity of leasing out holiday homes in Dubai, first editions of 2020’. The regulation states that the contract between the holiday home and a third-party sub-tenant (guest) is valid for a maximum of three months.

In case a contract to lease a holiday home is longer, this contract is invalid and therefore if the holiday home operating company, who is the legal tenant, defaults on its rental obligations, the landlord as per Article (25) can evict the holiday home operating company. The eviction will also apply to the sub-tenant.

Well-defined rules

It is evident that Dubai has a clear set of regulations for sub-renting properties for all tenants, be it a person or a company, which protects the landlords in case the property is sub-let without permission or rent is not paid. On top of this regulation, there is another specific directive governing properties with the permission to be sub-let and operated as holiday homes. It protects the sub-tenants/guests, limiting their exposure to three months of rent.

Any due liabilities among involved parties, which may occur for any reason, being it for a default or for fraud, are then recoverable via the UAE’s civil process. It appears from the public information on the Dh30 million sub-renting affair, the concerned company may have exploited a low awareness of the established regulation on sub-renting and may have tricked clients into ‘too good to be true’ offers. This causes a temporary distress until the matter is resolved as per the established regulatory processes.

The challenge to prevent this happening again lays in making aware the sub-tenants that they need to review the permission from a landlord, whether the property can be sub-rented. Or, if they are renting a holiday home, to review the permit issued by DET (proving the property can be sub-rented) and the DET’s Guide, regulating the holiday home industry in Dubai.

Two potential measures could be taken to increase the regulatory awareness:

• Run an awareness campaign, regarding the regulation on sub-renting properties in Dubai and underlining that tenant must have permission from landlord to sub-lease. And that in case of holiday homes, contracts can be signed for maximum of three months.

• Adjust the layout of the unit permit and add on it a statement that the ‘Property can be rented for maximum three months in a row’, which could help to convey the information in case the guest missed it in the DET’s Guide.

There are no loopholes in the regulation or the governing processes of the real estate or holiday homes segments in Dubai that would pose unregulated risk to any parties, operating in these markets. We have likely witnessed a low awareness exploitation that happens from time to time across all industries by an isolated entity or individual.

I have full confidence the authorities will assess the situation and, if needed, weigh the benefits and costs of deploying any measures to increase regulatory awareness and take appropriate action to support the stability of the real estate and holiday home sectors.

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