Seven steps to dealing with the removal of Abu Dhabi’s rent cap
The Abu Dhabi rent cap was introduced in 2006 by what has become known as the Tenancy Law. Set at 7 per cent per year, it meant tenancy agreements coming up for annual renewal could be only to a maximum 7 per cent rent increase.
This was later tightened to 5 per cent in 2010 to combat rental rates that were spiralling out of control because of an expanding population and very little residential construction. Prices peaked in late 2008 but fell back because of the recession and the emergence of the master-planned communities such as Reem Island, Al Reef and Raha Beach, which added vast amounts of housing stock to Abu Dhabi’s stretched resources.
In addition to this rental cap, there was an executive council decision that was renewed each year, stating that landlords could not evict tenants at will. Landlords had to have a good reason (a list of these is set out in the Tenancy Law) to remove a tenant. Both of these rules were removed last November. This has been coupled with an almost 16 per cent average rise in rent prices in the newer areas of Abu Dhabi this year.
There is no doubt the population of Abu Dhabi is expanding, and at a faster rate than new developments are being completed. In particular there are no new large villa complexes planned for the next few years. Villa construction will be ad hoc in Khalifa Cities A and B and Mohammed bin Zayed City. Apartment rates should remain more stable as there are quite a few developments coming on line (Oceanscape, Al Bustan, Al Forsan, Gate Towers and Al Rayyana). Rents are on the rise but the removal of the rent cap might slow this increase, particularly in the better areas where rents are rising the fastest.
So what can tenants do in the face of this upheaval? To make sure you get a fair deal from your landlord you can:
1. Use the two months — Article 20(3) of the Tenancy Law states that parties must “notify the other party in writing two months [three months for commercial buildings] prior to the date of the lease’s expiry” if they want to amend the terms of the lease. So:
a) Make sure your landlord doesn’t try to raise the rent if your renewal is less than two months away; and
b) Article 20(3) also means you need to give two months’ notice if you want to renew. Make sure you inform your landlord the day before the two-month period is up to give him as little time as possible to request a rent hike.
Note: If you reach the end of your tenancy and neither party has altered the terms of the tenancy agreement then the tenancy is deemed to automatically renew on the same terms.
2. Complain about huge hikes – Landlords are not legally allowed to raise rents to above market rate (although judging this is precarious). If the rise is above market rate, then use this to negotiate a more sensible number.
3. Be a good tenant — What landlords crave above all else is reliable tenants. Look after the property, pay on time and cooperate with your landlord where possible.
4. Negotiate — If a landlord evicts a tenant the chances are he won’t be able to get another paying tenant for about a month. That month is a loss of 8 per cent of his yearly rental income. Use this, and the fact you’re a good tenant, to your advantage when making a counter-offer.
5. Be prepared to move — If the landlord knows you will stay no matter what, then he can charge what he likes. Prepare yourself to move if necessary, it will make your bargaining position stronger.
6. Negotiate for the future – talk to your landlord and see if he will agree to put in the contract that he will raise the rent by only 5 per cent each year for the duration or your stay in the property. It never hurts to ask.
7. Buy – if you’re your own landlord your “rent” is fixed and is dependent only on your bank repayments. It’s the perfect way to insulate yourself against future rises and means you stop flushing so much rent away with no long-term gain.
Ben Crompton is a managing partner at Crompton Partners real estate agency
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Updated: March 27, 2014 04:00 AM