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August 26, 2026
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ME-ALLIANCE LEGAL UPDATE
ADGM Court Upholds Late Payment Fee and Holding-Over Damages in Commercial Lease Dispute
On 3 September 2026, the ADGM Court of First Instance (Real Property Division) issued its judgment in Sowwah Square Investment – Sole Proprietorship L.L.C. v. Forever Rose Retail Limited [2026] ADGMCFI 0024, concerning the enforceability of late payment and holding-over charges under a commercial retail lease at The Galleria, Al Maryah Island.
Background
Following the tenant’s default under the lease, the landlord, Sowwah Square Investment, obtained summary judgment for the outstanding rental payments and yield-up costs. The Court reserved for trial the question of whether the lease’s Late Payment Fee (EIBOR plus 8% per annum) and Liquidated Damages for holding over (200% of rent) amounted to unenforceable penalties – the issue determined in this judgment.
Legal Basis
The Court applied the test set out by the UK Supreme Court in Cavendish Square Holding BV v Makdessi [2016] AC 1172, binding in the ADGM under the Application of English Law Regulations 2015. Under this test, a contractual payment on breach will only be an unenforceable penalty where it is out of all proportion to the innocent party’s legitimate interest in performance of the primary obligation.
Key Findings
The burden of proving a clause to be a penalty rests on the party challenging it; the tenant filed no evidence and did not appear at trial. Unchallenged expert evidence confirmed that EIBOR-plus-margin late payment fees and 150%–200% holding-over damages reflect standard market practice for institutional commercial leases in Abu Dhabi and the ADGM. Both parties were sophisticated commercial entities negotiating at arm’s length; no unequal bargaining power was found.The charges were held to be commercially justified, and not “out of all proportion,” “exorbitant,” or “unconscionable.”
Outcome
Judgment was entered in full for the landlord on both the Late Payment Fee and the Liquidated Damages, together with costs on the indemnity basis.
Practical Takeaway
This is the first ADGM judgment to substantively explore the parameters of the Cavendish Square penalty test. It confirms that well-established, evidence-backed, market-standard lease clauses in Abu Dhabi/ADGM commercial leases are likely to be upheld – particularly where the resisting party fails to adduce contrary evidence.
You can see the judgement from the below link.
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