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The United Arab Emirates is a federation of seven emirates, with each emirate being governed by its own ruler; this brings in the application of local laws along with federal laws. This is especially true when concerning property laws. For instance, in Dubai, the property matters are subject to the provisions of local laws, which determine the rent increase for real property in the emirate of Dubai.
RERA Rental Index:
In Dubai, Real Estate Regulatory Agency ‘(RERA’) has been constituted as a regulatory wing of the Dubai Land Department (DLD). The RERA department is responsible for regulating the relationship between a landlord and a tenant in accordance with the Dubai laws governing tenancy matters. In this regard, the RERA has introduced the ‘Rental Index’, which constitutes the system by which a rental average is allocated to various properties and based on the allocated average, the system generates the applicable legal limit for a rental increase.
Rental Index Calculator:
As discussed above, RERA is responsible for maintaining and updating the ‘Rental Price Index’ in Dubai, which constitutes a database documenting the average rental prices for all types of property in Dubai. This index is then updated on a yearly basis in order to apply to all the rental transactions in Dubai. The rental index allows users to calculate the possible rent increase and also to find the average market rent of any given area in Dubai. This is a free service that can be used by any user and thus helps to maintain both transparency and a fair balance in the market in matters concerning rental increases.
The applicable legal upper limit for a rental increase in Dubai is governed as per the provisions of the Dubai Decree number 43 of 2013 on the ‘Determination of the Increase in the Real Estate Rent in the Emirate of Dubai’. Pursuant to the said decree law, ‘the average rent constituted for the property Pursuant to the Decree, the maximum increase permitted for the rental increase is that of twenty per cent (20%) against the index.’ Article 3 defines the ‘Average Standard Rent’ and states that, ‘For the purposes of the application of Article (1) of this Decree, the average standard rent shall be determined according to “Dubai Rent Index” adopted at the Real Estate Regulatory Institute.’
Applicable percentage of rental increase:
Pursuant to the decree-law, there are specific rental increase percentages assigned to a given property area, depending on various factors such as the fixed average rent determined for that area as per the RERA Index. Pursuant to article 1 of the decree law, the maximum rate of increase in the rent for properties in the Emirate of Dubai shall be determined upon renewal of the properties lease contracts, as follows:
a– No increase in the rent value of the real estate unit should its rent be less than 10% of the average standard rent.
b- 5% of the rent value of the real estate unit should its rent be less by a percentage varying between 11% and 20% of the average standard rent.
c- 10% of the rent value of the real estate unit should its rent be less by a percentage varying between 21% and 30% of the average standard rent.
d- 15% of the rent value of the real estate unit should its rent be less by a percentage varying between 31% and 40% of the average standard rent.
e- 20% of the rent value of the real estate unit should its rent be less by a percentage exceeding 40% of the average standard rent
When faced with an unreasonable rental increase, the tenant has the legal right to object to the increase within the norms of the applicable laws. The tenant may also object in instances wherein a rental increase is being forced upon them during the term of the tenancy. The general norm is that the landlord is obliged to provide at least three months advance notice prior to the expiry of the tenancy if there are any changes being proposed in the tenancy. This can include a rental increase. If so, the first thing to check is whether the rental increase is legal, and if legal, whether the landlord has followed the proper procedures and provided three months advance notice intimating the legally permissible rental increase. The notice should be provided in advance of the expiry of the contract term, as that will provide ample time for the tenant to be informed as well as to vacate the property if needed.