The Rental Increase Cap – An Update on Tenancy Law

The Rent cap decree passed in 2010 sets to ensure the stability of property market in the emirate. The decree also aims to regulate the relations between landlords and tenants and charting a legal framework for this matter. The decree sets rent increase caps for 2010 at the same rates for 2009 and earlier, according to the decree issued on rental cap in 2009.

We have herein compiled a basic overview of the current laws, specifically regarding Law No. 33 of 2008 (which amended Law No. 26 of 2007) and Decree of 2010. 

Please note that both these laws have not yet been published in the “official gazettes” and hence the below is a summary of draft laws and can be used for information purposes only. 

Law No. 33 of 2008 

This law is intended to amend the provisions of Law No. 26 of 2007, which regulates the relationships between landlords and tenants in the emirate of Dubai. Below are the most relevant amendments enacted by Law 33 of 2008.

Article 4 of the law requires that tenancy contracts should be registered with RERA. However, RERA or the Rent Committee can make an exception in entertaining disputes filed by landlord or tenant even if the tenancy contracts are not registered. This means you need to get your tenancy contract registered with RERA, but if you have not done so you may still have some legal protection.

Article 9 of the law previously contained a two year protection against any increase in rent for the first two years of the tenancy; the amending law removes this protection. This means that rent increases can take place every year, in accordance with the 2009 rent cap and the index of rental values.

Article 13 & 14 of the law require that if the tenancy contract is to be renewed at the end of its term and amendments are to be made to the contract, including any review of the rent, the parties to the contract must notify each other of such amendments at least ninety days prior to the expiry date unless the tenancy contract provides otherwise.

Article 25 Part 2 adds that a landlord may terminate the tenancy contract upon expiry if he "wishes to sell the property.” However, there is a requirement for twelve months’ notice to be provided by the landlord to the tenant in such a case. Article 25 also introduces a requirement that any notification of eviction from a landlord must be sent either through the notary public in Dubai or registered mail.

Article 26 of the law is amended to the extent that if the landlord wishes to recover the property for his personal use, he is now restricted to re-lease it to a period of 2 years for residential properties and 3 years for non-residential properties; previously it was a requirement of 1 year.

Other highlights: In the event of premature termination by tenant, the tenant can claim for remainder rent amount by mutual agreement between landlord and tenant OR the rent committee can grant some amount of compensation to landlord and refund the remainder amount to tenant. 

Decree of 2010

This is the recent law regarding the rental caps and the rental index prices throughout Dubai. A summarization of the law is as follows:

There will be no rent increase in 2010 for tenants who were leasing property units in 2009, which includes residential and non residential properties, if the rent in 2009 was equal to or 25% or less below the average similar rent. Stated differently, rental increases can only occur if the property was more than 25% below the average index price (which has been determined by RERA - a link to this index is at the bottom of the article). 

Given this, the maximum rent increase for tenants who were leasing such units in 2009 shall go according to these rules: 

• If the rent was 26% to 35% less than the average rent for a similar property, the maximum increase shall be equivalent to 05% of rent value for the year 2009.
• If the rent was 36% to 45% less than the average rent for a similar property, the maximum increase shall be equivalent to 10% of rent value for the year 2009.
• If the rent was 46% to 55% less than the average rent for a similar property, the maximum increase shall be equivalent to 15% of rent value for the year 2009.
• If the rent was 56% to 55% less than the average rent for a similar property, the maximum increase shall be equivalent to 20% of rent value for the year 2009.

The “similar rent value” of the property is based on “The Rent Index of the Emirate of Dubai,” applicable on the date of renewing of the tenancy contract. RERA will review and update the Index periodically.

According to the Decree, the Real Estate Regulatory Authority shall undertake implementation of this rule, provided that it shall be issued in the official gazette and shall be effective as from the date of its issuance. This means that, until the rule is published in the official gazette, it may not be considered “effective.”

Click here for the current rental index map, based on official RERA figures.

Click here for a supplementary article in Gulf News regarding the former 5% rent cap.

Please note: This summary is our best understanding of current law and the same can be used for informational purposes only. Specifics of the law may change before official publication in the gazette. Please seek professional legal advice on any crucial details of these laws.