Following the 2018 reforms to the Real Property and Strata Title Laws, Dubai International Financial Centre (DIFC) has enacted Leasing Law 2020, taking effect from 14 January 2020 (Commencement Date). Leasing Law 2020 aims to bring more certainty to the statutory rights and responsibilities of lessors and lessees within the jurisdiction of the DIFC, particularly in relation to residential tenancies and the most common areas of dispute.

Key takeaways:

  1. Exemptions: Leasing Law 2020 does not apply to (i) leases of serviced apartments; (ii) hotel inventory leased as part of a hotel; or (iii) leases entered into by the parties to a mortgage of leased premises in accordance with the terms of the mortgage. All other leases of premises in the DIFC are subject to Leasing Law 2020, including all leases in the DIFC which were entered into prior to the Commencement Date.
  2. Invalid terms: lease terms which purport to "contract out" of all or any of the provisions of Leasing Law 2020 are invalid. It is important therefore that parties understand their statutory rights and obligations as they shall prevail over inconsistent lease terms. Lessors should conduct an audit of their existing leases and standard form lease agreements to understand which clauses may be incompatible and may need to be amended.
  3. Residential leases: Leasing Law 2020 draws a distinction between leases of commercial and residential premises, with enhanced protections afforded to lessees of residential premises. In particular, Leasing Law 2020 introduces specific provisions regulating, amongst others: (i) the payment and utilization of security deposits (capped at 10% of rent); (ii) condition reports; (iii) maintenance and repairs; and (iv) rent increases. Commercial leases are not subject to the same degree of stipulations, with parties afforded more flexibility to agree their own terms.
  4. Residential security deposit scheme: a major part of Leasing Law 2020 is the introduction of a residential security deposit scheme. The scheme requires lessors of residential premises to pay any security deposits they take from lessees to the DIFC Registrar of Real Property who will hold the sums in an escrow account and administer deductions and refunds subject to the joint instructions of the parties or a court order. The scheme does not apply where a security deposit has been paid by a lessee under a residential lease entered into prior to the Commencement Date, however it will apply to renewals of existing residential leases.
  5. Key-money and goodwill payments prohibited: DIFC has joined a number of jurisdictions in outlawing key-money payments for retail premises. Advance payments required by lessors of retail premises for items other than rent or security deposits/guarantees will therefore need to be considered carefully or risk being rendered void.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.