Author: afridi-angell

The DIFC in focus

DIFC Rent Cap

 

A new Dubai Decree on rental increases issued at the end of last year has significant implications for the current practice of landlords in the DIFC. Previously, there was no rent cap law in the DIFC. Now, Decree No. 43 of 2013 on Determining the Increase in the Real Estate Rentals in the Emirate of Dubai also determines the extent to which rents may be increased in the free zones, and expressly refers to its applicability in the DIFC. As a whole, the Decree applies to landlords in all of Dubai.

 

 

The Decree provides a mechanism for calculating the maximum rent increase permitted, if at all, upon renewing a lease. The calculation is determined by reference to the average rental value in the area where the property is located and the percentage to which the rent pre-renewal falls short of that. Article 1 of the Decree sets out the maximum increase in rent allowed depending on the difference between the rental amount and the average rent paid in the area. No rent increase is permitted where the rental amount is up to 10 percent less than the average rental in the same area.

 

 

The Decree also stipulates that the average rent is determined by the RERA rent index for which the Rental Increase Calculator is available online. The Rental Increase Calculator allows a landlord or tenant to enter the current annual rent paid for the type of property in a particular area and calculate the permitted rent increase. The Rental Increase Calculator has just this month been adjusted for rental prices and now also includes properties in the DIFC.

 

 

Further, it should be noted that the Rental Disputes Settlement Centre of the Dubai Land Department will handle all rental disputes arising between landlords and tenants in the Emirate of Dubai (including the free zones). However, this does not apply in respect of rental disputes arising inside free zones that have courts competent to settle rental disputes arising within their boundaries. Therefore, the DIFC Courts would have jurisdiction over any rental dispute in the DIFC. Moreover, in this regard the DIFC Small Claims Tribunal (Resolution of Rental Disputes) Order No.2 of 2014 issued this month directs and expressly provides that the Small Claims Tribunal will hear and determine all rental disputes where the amount of the claim does not exceed AED 500,000.

 

Revised Procedural Rules of the DIFC Courts

 

Following a two-month consultation period, the 2014 edition of the Rules of the DIFC Courts have now been published. The Rules governing the Courts’ procedures have been revised to incorporate several important changes including provision for a cost-free trial for pro bono litigants under Part 38, whereby the Pro Bono Panel may decide, subject to certain criteria, to grant such litigants a trial without the risk of legal costs being awarded against them if they lose, and changes to Part 28 which governs the production of documents.

 

With respect to the revised Part 28, the intention is to bring the provisions more in line with the International Bar Association’s disclosure rules. Importantly, the revised part provides for co-operation between the parties where the volume of documents to be searched is likely to be extensive requiring the parties, where possible, to exchange preliminary production requests in draft form before standard production of documents takes place. Any such exchange should not limit the parties’ rights to submit further requests to produce documents thereafter. Also of significance is that the grounds for excluding documents from production have been extended to include considerations of procedural economy.

 

Memorandum signed between DIFC Courts and Federal Court of Australia

 

Further to the memoranda signed between the DIFC Courts and the UK Commercial Court in January 2013, and the Supreme Court of New South Wales in September 2013, in March this year the DIFC Courts have signed a similar memorandum with the Federal Court of Australia addressing the reciprocal enforcement of money judgments.

 

As with previous such memoranda signed by the DIFC Courts the intention is to assist investors and those interested in doing business from the relevant jurisdiction in the region, and encourage and develop closer trade and investment relations between that jurisdiction and Dubai by increasing confidence and certainty in the legal system.

 

Amendments to the DIFC Arbitration Law

 

DIFC Amendment Law No.6 of 2013 (the Arbitration Amendment Law) enacted in December 2013 amends the DIFC Arbitration Law No. 1 of 2008 and gives the DIFC Courts the power to stay court proceedings in favour of arbitration with a seat outside of the DIFC. The amendment seeks to clarify the law and bring it in line with the New York Convention, to which the UAE is a signatory. The amendment was necessary to effect the obligation under Article II(3) of the New York Covention which requires that a court of a Contracting State, if seized in a matter in respect of which there is a valid arbitration agreement between the parties, shall refer the matter to arbitration.

 

Previously, Article 13(1) of the DIFC Arbitration Law No.1 of 2008 was held in the case of Injazat Capital Limited v Denton Wilde Sapte (2012) only to empower the DIFC Courts to stay arbitration proceedings where an arbitration agreement stipulated the DIFC as its seat. The judgment acknowledged that it “would thwart the promotion of the DIFC as a jurisdiction supportive of arbitration.” The amendment to the law has been welcomed as one that resolves this issue by expressly providing that the DIFC Courts’ power to stay proceedings under Article 13(1) also applies where the seat of arbitration is not the DIFC. ■

Mandatory classification requirements for engineers and contractors in Abu Dhabi

Background

 

Companies licensed to conduct engineering or contracting activities in Abu Dhabi must be classified by the Contractors and Consultants Classification and Engineers Registration Office at the Abu Dhabi Department of Municipal Affairs.

 

The applicable regulations setting out the classification requirements are not new and date back to 2009 but implementation has been delayed until 2014. Regulation No. 1 of 2009 on Classification of Engineering Consultancy Offices in the Emirate of Abu Dhabi, and its subsequent implementing instructions set out the classification requirements for engineering consultancies. Regulation No. 2 of 2009 on Contractor Classification in the Emirate of Abu Dhabi, and its subsequent implementing instructions set out the classification requirements for contracting companies.

 

Who is subject to those classification requirements and how can they be met?

 

The classification requirement will be imposed on existing engineering companies the next time the company’s Abu Dhabi professional license comes up for renewal. Classification is now a condition precedent to renewal of the license. Companies established in the future will have one year from the date of initial licensing to meet the classification requirement.

 

While contracting companies have been able to have commercial licenses issued and/or renewed since November 2013, there is a catch: until contracting companies are classified, their commercial licenses will include the contracting activities for which they wish to be licensed for, but will include a caveat that the contracting companies may not carry out such activities until they have been classified. Once classified, the Office will instruct the licensing authority to remove the caveat.

 

Classification is not a routine or automatic approval. Nor is it simply additional bureaucracy and paperwork. Classification entails a substantive review by a panel of experts of a company’s capabilities and qualifications and a company that does not meet the specified criteria will not be classified.

 

The requirements are onerous and will vary from case to case. For example, a local engineering consultancy seeking classification in the Special Category (which is the highest category for engineers and permits a company to perform contracts with a value of over 70 million dirhams) must meet, among others, the following criteria:

 

  • The value of the capital and assets owned by the company should not be less than AED 4 million.

 

  • The company is required to employ five specialized and registered engineers with at least one engineer having a minimum experience of 15 years, two engineers having a minimum experience of 12 years and the other two engineers having a minimum experience of 10 years each. This applies to each Special Category of engineering type the company requires to undertake, i.e., for civil engineering, it will be required to employ five civil engineers meeting the foregoing minimum experience; for mechanical engineering, it will be required to employ five mechanical engineers meeting the foregoing minimum experience; and so forth.

 

  • The cumulative value of the previously executed projects must not be less than AED 480 million, provided that the value of each project submitted is not less than AED 60 million.

 

  • The company must hold an ISO 9001 certificate.

 

Conclusion

 

All companies conducting activities involving engineering or contracting should immediately investigate whether the licensed activities currently on the company’s trade license require classification. The same applies to persons planning to set up new companies doing business in these sectors.

 

Unless the concerned authorities have a change of heart and grant further extensions to implementing the requirements (which is not currently expected), classification cannot be avoided except where a company is willing to remove all activities requiring classification from its license, which in turn will limit the scope of the company’s permitted business activities.

 

If a company is not already classified, it should begin investigating the specific requirements it will have to meet well in advance of its next licensed renewal date. ■

Unified real estate contracts

The Dubai Land Department (“DLD”) recently announced the introduction of mandatory unified real estate contracts (the “Contracts”) to be used in property sale and purchase transactions. The Contracts become effective from May 1, 2014. The Contracts have been introduced to facilitate the sale and purchase process and are intended to protect the three main parties to any sale and purchase contract, namely the buyer, the seller and the broker.

 

The Contracts

 

There are currently three models of Contract: (i) a contract between seller and buyer, (ii) a contract between seller and broker and (iii) a contract between buyer and broker. The Contracts are available on the DLD’s smart property website EMART:

www.emart.gov.ae/UploadedFiles/Downloads/Docs/English/All_contracts.pdf.

 

The Contracts enable the parties to quickly populate the main terms of the sale and purchase transaction such as the parties, the property, the price and the completion date. It is intended that the Contracts will become valid when completed and documented at the DLD.

 

Is a Separate MOU Required?

 

Whilst the Contracts document the main terms of the sale and purchase transaction, they do not go into any greater detail. Moreover, contractual agreement on material issues such as warranties and representations, apportionments, deposits, dispute resolution, confidentiality and jurisdiction (which are ordinarily expected in any sale and purchase contract) is lacking. Given the absence of these material clauses which are intended to protect the parties to any sale and purchase agreement, the Contracts should be augmented (using a schedule, an attachment or incorporation by reference) by continuing the current practice of the parties entering into a separate sale and purchase contract (“SPA”) or Memorandum of Understanding (“MOU”).

 

Conclusion

 

Given the mandatory requirement for the Contracts, parties to a real estate transaction should ensure that the Contracts are properly completed and validated at the DLD. The introduction of the Contracts should not, however, displace the need for the further protection that is offered in the form of an SPA or MOU. The Contracts and the form of SPA or MOU should be linked together to enable the parties to the transaction to not only comply with the requirements of the DLD but also to ensure the contractual protection and certainty that an SPA or MOU affords. ■

New Dubai rent Settlement Disputes Center

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, recently issued Decree 26 of 2013 concerning the formation of the Dubai Rent Dispute Settlement Center (“the Center”).

 

The Decree comes at a time of increasing economic activity and rising rents. The main aim of the Decree is to implement a judicial system specialized in dealing with rental disputes quickly and simply.

 

Rental Disputes

 

The Center shall deal with and hear disputes related to all landlord-tenant disputes including in free zones (but not including: free zones with committees or courts that deal with rental disputes; finance lease contract disputes; or 99 year lease disputes). The Center is to be chaired by His Excellency Judge Abdul-Qader Mousa and staffed by lawyers and administrative staff.

 

Reconciliation

 

A Reconciliation Department shall attempt to amicably settle rental disputes within 15 days from the date of the parties’ appearance before the Reconciliation Department.

 

First Instance and Appeal Departments

 

If reconciliation is not successful, a rental dispute shall be determined by the First Instance Department which shall consist of committees each consisting of a chairman (who must be a judge or legal expert), and two members with sufficient experience and competence in law and real estate.

 

All members of a committee must be in attendance for a valid meeting and a decision by at least a majority (2/3) of the committee members is required. A committee shall decide a rental dispute within 30 days from the date of the file being referred to it.

 

Decisions of the First Instance Department may be appealed to the Appeal Department so long as the amount of the rental dispute is more than or equal to AED 100,000. Disputes regarding amounts of less than AED 100,000 generally cannot be appealed except in specific circumstances. An appeal must be filed within 15 days of the day following the issuance of the First Instance Department’s decision.

 

Execution

 

All final decisions of the Center shall be executed by the Execution Department that is affiliated with the Center, which can be the Execution Department of the Dubai Courts.

 

Cost and Charges

 

The costs and charges of the Center shall be determined by resolution of the Chairman of the Executive Council of the Emirate of Dubai. Until such resolution, the costs and charges of the Rent Committee of the Dubai Municipality shall apply.

 

The Center Replacing the Rent Committee

 

The Center shall hear and decide all claims that are presently before the Rent Committee unless such claims are set for judgment. The Rent Committee shall cease to exist and all employees of the Rent Committee shall be transferred to the Land Department. ■

 

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Afridi & Angell – Our Real Estate Services

 

Afridi & Angell is one of the most prominent law firms in the region, having been established almost 40 years ago. The firm provides comprehensive legal advice in corporate, commercial, real estate and banking law as well as dispute resolution. The firm’s real estate lawyers provide catered strategic advice, and innovative legal solutions and services for the sale, purchase, leasing and development of real estate (including jointly owned property (strata) matters), as well as any related litigation and arbitration.

 

For more information, feel free to contact us. We welcome the opportunity to be of service.

 

Shahram Safai is a partner in the Dubai office of Afridi & Angell. He practices real estate, corporate and venture capital law. He is active in lobbying for and providing constructive feedback to government organizations regarding regional laws and regulations pertaining to real estate, investments and corporate governance. Shahram is qualified as a solicitor in England and Wales and is a member of the California State Bar. 

 

The content, comments and opinions included in this document are intended solely for information purposes. They should not be regarded or relied upon as legal advice.

The UAE Direct Debit system

Background

 

The implementation of a system for effecting payments by direct debit in the UAE is the latest effort by the UAE Central Bank to modernize and streamline the system for individuals and companies to meet their financial obligations. It is widely anticipated that the UAE Direct Debit System (DDS) will lead to a more efficient and secure system for payments.

 

The UAE Central Bank has published an extensive set of rules to assist financial institutions, corporates and individuals in understanding how the DDS can help them with their day-to-day operations and what they must do to ensure that they are compliant with the applicable rules.

 

The implementation of the DDS will change the landscape for electronic payments in the UAE. It offers corporates and individuals the ability to make automated recurring payments electronically which will have consequences for the manner in which financial institutions offer their products and collect payments from customers. It is important to understand the full impact of these changes before they come into effect.

 

Set out below are some of the key features of the new system as well as an overview of the three main parties who will be involved in the DDS.

 

Parties Involved in the DDS

 

In addition to the customer or payer who will use the DDS to pay recurring bills/payments, three parties will be involved in completing the cycle of payment.

 

  1. The Originator – A financial institution or corporate entity (referred to under the DDS as the “Originator”) may use the DDS to collect payments from its customers by direct debit. An Originator must also meet specific regulatory thresholds set by the UAE Central Bank and is required to provide a broad indemnity to other users of the DDS.

 

  1. The Sponsoring Bank – Each Originator is required to appoint a sponsor (referred to under the DDS as the “Sponsoring Bank”) in order to use the DDS. The Sponsoring Bank will provide the Originator with access to the DDS and will assist in the processing of direct debit payments. The Sponsoring Bank shall, in summary, act as a conduit for payment requests from Originators and payments flowing from customers of the Originator (or Payers as referred to under the DDS) to the Originator. The Sponsoring Bank shall be responsible for collecting payments due to the Originator. The Originator remains, subject to some limitations, at liberty to appoint more than one Sponsoring Bank. The Sponsoring Bank may also be an Originator.

 

  1. The Paying Bank – Each Payer who wishes to make payment to an Originator will require a bank account with a so called “Paying Bank” that is registered with the DDS. The Paying Bank shall be responsible for effecting the required payment from the Payer’s account to the relevant Originator’s Sponsoring Bank.

 

Dispute Resolution

 

It is noteworthy to mention that that the DDS will provide a dedicated mechanism for dispute resolution. This process involves communication between the parties involved and allows for final approach to the UAE courts if a resolution is not achieved.

 

Implications of the DDS on your business

 

Since all commercial banks in the UAE are obliged to undertake the roles of a Sponsoring Bank and a Paying Bank in the DDS, the DDS has the potential to change the way in which financial institutions in the UAE operate their businesses and will consequently impact a broad spectrum of businesses and individuals. It is also mandatory for all financial institutions in the UAE providing credit facilities (such as personal loans, car loans and mortgages) to act as an Originator.

 

In Conclusion

 

Afridi & Angell has developed specialist knowledge of the rules that apply in relation to entities participating in the DDS and is able to offer market leading advice and assistance in the preparation of the required documents in order to enable participation in the DDS. ■

 

For advice in connection with the DDS, its implementation and the consequences it may have for your business and operations, please contact Amjad Ali Khan or Danielle Lobo, or get in touch with your usual contact at Afridi & Angell for further assistance.