Dubai residents keep citing COVID-19-created job loss for early exit on rental contracts

Dubai: Hit with a job loss… and want to exit the rental contract you are in?

A resident in Dubai can still cite COVID-19 as a reason for wanting to get out of the contract and, in the process, do so without paying a penalty for an earlier exit. Residents can do so using the Rental Disputes Centre, which operates under Dubai Land Department, to do so.

More than 12 months after COVID-19’s impact on businesses and subsequent job losses, the pandemic is still rated as a valid reason if someone finds that his or her existing rental obligations are too burdensome. The Rental Disputes Centre shares that view even after 12 months have elapsed since COVID-19 was cited as a reason, according to a senior lawyer with Baker McKenzie Habib Al Mulla – Dubai Office.

“Yes, COVID-19 is still an existing reason - many businesses remain affected,” said Wael El Tounsy, Counsel and Head of Real Estate and Litigation at the law firm. “However, the judge considers the validity of this before making a decision, though it is noticed that the number of cases for this reason has decreased.”

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An exit route

But for tenants in Dubai caught in the unfortunate situation of having to deal with a job loss and worrying about reduced household income, the portals of the RDC remain the best option. The penalties for wanting an early out from a residential contract can be quite taxing, otherwise, with landlords able to impose two months’ rents on the tenant. It could be more in some instances.

But tenants in this situation should also keep in mind that there will be a time limit to citing COVID-19 as a reason for their job loss and drop in income. “Usually, a ‘force majeure’ reason is bound by a certain timeframe,” said another lawyer. “It’s inconceivable that someone losing a job in the second-half of 2021 can refer to COVID-19 for breaking his/her residential contract.”

The ‘force majeure’ clause applies to completely unforeseen circumstances that prevents an individual (or business) from fulfilling any contractual obligations. Last year, RDC used this clause as a reason to allow tenants wanting to exit leases on their residential or commercial premises.

The RDC is willing to give ear to this reason even now. The property court adjudicated overwhelmingly in favour of tenants who had brought their plight before it during the peak months of COVID-19 created job disruptions last year.

These tenants were helped by their employers who, in their termination letters, specifically cited COVID-19 as the reason for redundancies. “Actually, the evaluation of the evidence is one of

the absolute powers of the judge,” said El Tounsy. “I believe tenant services can been terminated due to COVID-19 only if there is evidence of this impact on a workplace. The tenant will need to show the termination letter from a company or even an email that the reason for termination is the financial condition of the company due to the pandemic.”

Tenants can always rely on any reason when requesting a termination of the lease, whether due to COVID-19 that they have lost their job or otherwise. However, the court makes its decision based on evidence presented to it - and the interests of both tenants and landlords

Wael El Tounsy of Baker McKenzie Habib Al Mulla – Dubai Office

Change of circumstances

But, of late, businesses are not as willing to show they are letting go because of the COVID-19 created situation. “Then, it will be up to the employee to convince his company or HR department to issue such a letter to show the landlord,” said a property consultant. “Otherwise, tenants worried about their job situation and entering a new residential contract will need to have some backup plans in case of a termination.”

Job market

In the first three months of this year, businesses were reporting job losses, according to multiple sources, including IHS Markit, the consultancy that tracks private sector activity. But April provided some respite, with businesses, especially in Dubai, reporting slight improvements in adding to the workforces.

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