There has long been a disparity between the ability of landlords to increase the rent paid by tenants residing in the DIFC free zone and those in the remainder of Dubai. The rent cap applied generally in Dubai was not previously applicable to tenancies in the DIFC free zone and, as such, tenants there had little or no protection against increases in rent on renewal of the tenancy contract. However, since Dubai Decree No. (43) of 2013 was issued in December 2013, these disparities have now been addressed somewhat. The Decree places tenants located within the DIFC free zone on a more equal footing with those outside of the free zone. The new Decree outlines the maximum percentages of increase in property rent which are allowed upon the renewal of tenancy contracts (unless agreed otherwise between the landlord and tenant), and are to be implemented with immediate effect. The maximum permissible increases in annual rent which can be applied by a landlord on renewal of the tenancy contract are:
- Maximum 0% increase, where the current rent paid by the tenant on the property is 10% or less than the average rent for a similar property.
- Maximum 5% increase where the current rent paid by the tenant on the property is 11%-20% less than the average rent for a similar property.
- Maximum 10% increase where the current rent paid by the tenant on the property is 21%-30% less than the average rent for a similar property.
- Maximum 15% increase where the current rent paid by the tenant on the property is 31%-40% less than the average rent for a similar property.
- Maximum 20% increase where the current rent paid by the tenant on the property is >40%, less than the average rent for a similar property. This is the maximum increase permissible.
The average rent for a similar property is formally known as the “similar rent value of the property” and is determined by the Real Estate Regulatory Agency’s (RERA) Rent Index, which is normally updated every four months. It is unclear as yet if this procedure (or the way in which similar rent values will be calculated) will change. The RERA website contains a Rental Increase Calculator to assist in any calculation of the maximum increase in annual rent which landlords may apply where the parties cannot agree. DIFC property information is not as yet included within the Rental Increase Calculator so, for now, any queries in relation to this should be directed to RERA in the first instance.
This new rent cap should generally be seen as a positive step by landlords and tenants in Dubai as it provides a more uniform system and a fair compromise between them in relation to permissible rental increases. Perhaps it will also provide a more stable rental market and help to forge better relationships between landlords and tenants, as both parties clearly know where they stand in relation to this issue.
The Team at The Wills & Inheritance Department – James Berry & Associates
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