Unable To Perform Business Activity Due To Covid-19- Can You Claim Reduction In Rent?

property law

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August 19, 2020

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The force with which the global pandemic is flaring up and the reaction to it has heightened the concerns or disputes between the lessor and lessee in UAE. It is protected to state that landowners and occupants will from now on carefully review certain critical, yet not generally used in most circumstances such as force majeure. At this moment however, the COVID-19 pandemic's effect on organizations and business activities is raising vulnerability under business rents about issues best tended to with proactive evaluation from occupants and proprietors in regards to their rent commitments.One of this situation was recently dealt by Rental Dispute Committee in Dubai and is elaborately discussed by Property Lawyers of Dubai.

In a recent judgment of Rental Dispute Committee under case number 2020/04006/02 and the counter case 2020/04604/02, the court examined the situation of Coronavirus being a force majeure and issued a judgment assisting the tenant in unexpected circumstances.

Case of the Plaintiff

Plaintiff (tenant) registered the case against the defendant (landlord) under a commercial lease to decrease the rental amount from AED 1.7 million to AED 1.1 million per annum from 01/03/2020 till the authorities allow to reuse the commercial property (which was temporarily shut by the order of Ministry of Economy as a preventive measure in COVID-19) and requested the court to order the other party to return the rental cheque for such time.

The Case of the Defendant

The Defendant (Landlord) on the other hand requested the court to order the plaintiff to pay AED 875,000 as pending rental amount and to pay 9% interest from the date of delay in payment to fulfill its contractual obligations under the Lease Agreement.

The rationale behind plaintiffs claim

  • The plaintiff urge before the court that Ministry of Economy ordered all commercial properties (due to COIVD-19) to close temporarily and accordingly requested the court to decrease the rent based on their inability to perform their commercial activities based on a governmental order. Plaintiff referred to Law number 26 of 2007 as amended by Law number 33 of 2008 regarding the lease agreements in Dubai which states that for the reasons of the renewal of the tenancy contract, both the parties have the right to modify any clause in contract and increase or decrease the rental amount and if they fail to settle the amendment of the tenancy contract, the court has the right to arrange a suitable rental amount as per Article 9 of this law and in case both the parties want to modify the agreement as per Article 1 of the concerned law, he has to notify the other party before 90 days from the date of end of the contract.
  • Plaintiff further referred to Court of Cassation judgment 374/2011 the court was of the opinion that if any unusual circumstances or public situation happens and it is not normal to expect such situation to exist and because of such situation the other party is unable to perform its contractual obligations and leads to a big loss for a party who is supposed to perform his part under the contract.
  • In such cases, the judge has the right, post reviewing the facts and circumstances between both the parties to re-draft a specific clause or difficult part of a particular contract to be suitable for the parties and anything else agreed upon between the parties would be therefore held invalid. This is in accordance with Article 249 of the Civil Procedure Code.
  • In line with the foregoing provision, the plaintiff request the court to accept his request because of unusual circumstances of COVID-19 the plaintiff was unable to perform his business activity and therefore unable to maintain his position under the contract and alleged that performance of such contract would lead to significant losses to the plaintiff. Importantly, this circumstances effects huge number of people and such an event is unexpected to happen while signing the contract. Further, for the consideration the public circumstances in the time of making the contract and hard for the debtor to perform his obligations under the contract.
  • he Plaintiff further relied on Court of Cassation case number 56/2009 on the claim registered by the defendant seeking legal interest, wherein the foregoing judgment the court was of the opinion that the legal interest due from the debtor is a compensation for late performance of the contract, whether it is civil or commercial and this interest has to be calculated as per the value of the contract and the court shall have no authority to calculate the amount from the date of delay in payment, however, the court has the authority to determine the interest on delay in payment from the date judgment becomes final and binding.
  • Lastly, the plaintiff relied on Court of Cassation case number 69/1991 wherein, the court held that the subject of the case is determined when the plaintiff submits his opening memorandum and he also has the right to modify his memorandum of to increase or decrease the amount in his request against the defendant and the court shall accept his request and issue a judgment on the last documents submitted. In this regards, as per the request of the plaintiff to decrease the amount to 1.1 million AED yearly and this is as per the rental amount of the similar property and the common rules and regulations in the DED and the contract did not have any vitiating consent.
  • JUDGMENT

    Decrease in Rent

    The court held that as per the documents submitted by both the parties that the rental contract is valid until October 2020 and the plaintiff does not have the right to decrease the rent amount during the continuity of the contract. However, she can seek for decrease in rent 90 days before the expiry of the contract. Therefore, the court rejects plaintiffs request to decrease the rent.

    Claiming the Post-Dated Cheque

    The court herein confirmed that due to the current situation and temporary closure of business of the plaintiff whose activity as per the trading license deals in sports (as per the order of Ministry of Economy to shut all sports activities from 15 March 2020) the plaintiff has been effected by the impact of such regulation. Therefore, the court accepted the plea of plaintiff and offered relaxation on the rent for the said period (wherein the activities were closed by the government).

    Importantly, the court ordered the other party to return the cheque to the plaintiff.

    The present circumstances of the case, represented well by the Legal Consultants allowed the Plaintiff to seek a relaxation in the rent from the time the commercial property was temporarily shut upon government order. Importantly, if you find yourself in such similar situation, it is better to seek assistance of Best Lawyers in Dubai to understand the critical boilerplates in your lease agreement to receive a favorable judgment.

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