ADGM’s Leasing Regulations in Real Estate – Bolstering Regulatory Excellence

The Abu Dhabi Global Market (ADGM) has introduced major updates to its Real Property Regulations, unveiled new off-plan development regulations, and launched a unified digital platform, AccessRP.

 

These advancements aim to enhance clarity, compliance, and fairness within ADGM’s sophisticated legal framework.

 

The Real Property Regulations 2024 provide clear guidelines for lessors and lessees, making them essential for anyone leasing property in ADGM to safeguard their rights and interests.

 

1. LEASING TERMS: STRUCTURE AND GUIDLINES:

ADGM offers flexibility in leasing arrangements while maintaining clear legal limits:

a) Lease Duration:

Leases can be granted for up to 99 years, with options for renewals or extensions. However, the total term, including all extensions, cannot exceed 198 years.

b) Short-Term Leases:

Special provisions for short-term residential leases focus on tenant rights, ensuring high standards for property maintenance and habitability.

 

2. LEASE REGISTRATION – ENSURING LEGAL PROTECTION:

Registering leases with the ADGM Registrar is not just procedural; it is also vital for legal enforceability and protection:

a) Timely Notification:

Lessors are required to notify the Registrar of any lease or renewal within 30 days.

b) Comprehensive Lease Details:

Registered leases must include property descriptions, identification of both parties, and all critical terms (e.g., lease duration, renewal options, permitted use).

c) Streamlined Options:

A memorandum of lease can be filed instead of the full lease document if it captures all required details, adding flexibility for businesses managing sensitive commercial agreements.

 

3. LESSOR – DUTIES AND OBLIGATIONS:

a. Registration and Documentation (Section 43):

• Notify the Registrar within 30 days of entering or renewing a lease and ensure payment of applicable registration fees.

• Ensure the lease agreement meets all content requirements, including property details, parties’ information, and specific terms.

 

b. Maintenance and Repairs (Section 56):

• Keep the property in a safe, habitable, and functional condition, including the maintenance of structural elements, utilities, and mechanical systems.

• Perform routine maintenance and necessary repairs to avoid disruptions to the lessee.

 

c. Quiet Enjoyment and Vacant Possession (Section 54):

• Deliver vacant possession at the commencement of the lease and ensure the lessee’s uninterrupted quiet enjoyment of the property throughout the lease term.

 

d. Access and Inspections (Section 57):

• Provide prior written notice (except in emergencies) for access to the property for repairs, inspections, or other purposes.

• Minimize disruption to the lessee when accessing the property.

 

e. Utilities and Community Charges (Sections 58-59):

• Pay all applicable community service charges unless agreed otherwise.

• Ensure uninterrupted utility services and refrain from disconnecting them during the lease term.

 

f. Handling of Security Deposit (Section 53):

• Hold the security deposit in trust for the lessee and return any unused portion promptly after deducting legitimate costs (e.g., unpaid rent or damages).

 

g. Relief from Forfeiture (Section 50):

• Allow the lessee to apply for court relief against forfeiture for alleged breaches, ensuring fair treatment.

 

h. Sale of the Property and Transition of Obligations (Section 64):

• Notify the lessee in writing upon the sale or transfer of the property, including the details of the new owner.

• Transfer the security deposit to the new lessor, ensuring it remains available for use as per the lease terms.

• Ensure all outstanding obligations, such as repairs or maintenance, are transferred to the new lessor.

 

4 . LESSEE – DUTIES AND OBLIGATIONS:

a. Payment of Rent (Section 55):

• Pay rent as specified in the lease agreement, including the agreed amount, payment method, and frequency.

• In the absence of specific terms, pay market rent in monthly installments.

 

b. Use of Property (Section 45):

• Use the property only for the permitted purpose stated in the lease.

• Avoid causing nuisance or disturbance to neighbors or adjoining properties.

 

c. Maintenance and Repair Responsibilities (Section 56):

• Keep the property clean and in reasonable condition, avoiding damage or misuse.

• Promptly report maintenance or repair issues to the lessor.

• May undertake urgent repairs if the lessor fails to act, with the right to reimbursement for reasonable expenses.

 

d. Termination and Surrender (Sections 49, 62):

• Follow the agreed procedures for surrendering or terminating the lease.

• Return the property in good condition (fair wear and tear excepted) at the end of the lease term.

 

e. Restrictions on Assignment and Subletting (Section 64):

• Cannot assign, sublease, or otherwise transfer the lease without the lessor’s prior written consent unless otherwise agreed.

 

f. Responsibilities When the Property is Sold (Section 64)

• The lease remains valid, and the new lessor is bound by its terms.

• All rights, such as quiet enjoyment and maintenance obligations, automatically transfer to the new lessor.

• The lessee can enforce any pending breach or obligation against the new lessor.

 

5. LEASE RENEWAL & OBLIGATIONS OF LESSOR AND LESSEE:

a. Lease Renewal (Article 60):

• Mutual Agreement: A lease renewal requires mutual agreement between the lessor and the lessee.

•Registration Deadline: The lessor must register the lease renewal with the Registrar and pay applicable fees within 90 calendar days of the lease expiry (Article 60(1)).

• Failure to Renew:

(i)If the lease is not renewed and registered within 90 days, it will be considered expired.

(ii)Any new lease registration after this period will be treated as a new lease, attracting fresh registration fees (Article 60(2)).

(iii)The lessor is required to de-register the expired lease and pay de-registration fees (Article 60(2)(b)).

 

b. Rent Increase on Renewal (Article 61)

• The lessor may increase the rent on renewal, provided:

(i)The lessee is informed in writing at least 90 days before lease expiry.

(ii)The rent increase cannot exceed 5% of the previous rent amount (Article 61).

 

c. Obligations of the Lessor at Renewal

• Registration & Fees: Responsible for ensuring lease renewal is properly registered and all required fees are paid (Article 43).

• Rent Adjustment Notification: Must notify the lessee of any rent increase within the specified 90-day notice period (Article 61).

• Property Maintenance: Continues to be responsible for major repairs and ensuring the property remains fit for habitation (Article 56(1)(a)).

• De-registration of Expired Lease: If the lease is not renewed, the lessor must apply for de-registration and pay applicable fees within 90 days (Article 60(2)(b)).

 

6. RESPONSIBILITIES OF THE LESSOR AND LESSEE ON SECURITY DEPOSIT:

a. Lessor’s Responsibilities:

• Requirement of Security Deposit:

The lessor may request a security deposit from the lessee, which cannot exceed 5% of the annual rent payable in the first year of the lease.

• Holding the Security Deposit in Trust

The lessor must hold the security deposit on trust for the lessee and account for it upon the lease’s termination or expiry.

• Permitted Deductions from the Security Deposit:

The lessor may apply the security deposit (in whole or in part) to cover:

(i)Unpaid rent.

(ii)Breaches of the lease agreement by the lessee.

(iii)Repairing damages caused by the lessee, excluding fair wear and tear.

The lessor cannot use the security deposit for damages caused by themselves or for repairs/maintenance that are their responsibility.

• Notification and Return of the Security Deposit:

The lessor must notify the lessee within 21 calendar days after lease expiry/termination regarding:

(i)Any deductions made.

(ii)The costs incurred (with supporting evidence).

The lessor must return the remaining security deposit after permitted deductions.

 

b. Lessee’s Responsibilities:

• Providing the Security Deposit

The lessee must pay the security deposit as required by the lessor at the beginning of the lease.

• Maintaining the Property: The lessee is responsible for:

(i)Preventing damage beyond fair wear and tear.

(ii)Repairing damages caused by themselves or their guests.

(iii)Adhering to any repair covenants specified in the lease agreement.

• Fulfilling Rent and Lease Obligations:

The lessee must ensure rent is paid on time and comply with all terms of the lease to avoid deductions from the security deposit.

• Receiving the Returned Security Deposit:

Upon lease termination or expiry, the lessee is entitled to receive the remaining security deposit after any permitted deductions have been made.

 

7. LESSOR AND LESSEE – SHARED RESPONSIBILITIES:

a. Lease Compliance (Section 44):

• Both parties must ensure the lease agreement is:

(i)legally compliant; and

(ii)addresses key elements such as lease duration, renewal rights, permitted use, and obligations.

 

b. Dispute Resolution (Section 63):

Both parties have the right to seek judicial intervention to resolve disputes, including issues related to:

(i)Termination;

(ii)Breach; or

(iii)Rent payments

 

c. Property Maintenance and Inspections:

Coordinate for inspections, repairs, and maintenance to ensure minimal disruption and mutual satisfaction.

 

8. TERMINATION, RENEWAL, AND FINANCIAL OBLIGATIONS:

a.  Termination and Renewal Guidelines:

• Lease Termination: Leases may end naturally, through mutual agreement, or due to lessee default, provided notification and legal requirements are met.

• Renewal Options: Renewals require mutual agreement. For short-term residential leases, rent increases are capped at 5%, ensuring predictability for tenants.

 

b. Forfeiture Relief:

Lessees facing forfeiture due to non-payment or breaches can seek relief through the ADGM Courts, offering a safety net for tenants in challenging situations.

 

c. Security Deposits:

Lessors of short-term residential leases may request a security deposit, capped at 5% of the first year’s annual rent. Deposits must be held in trust and refunded upon lease termination, subject to deductions for damages or unpaid dues, as outlined in the regulations.

 

d. Utility and Community Charges:

Leases must clearly define responsibility for utilities and community service charges. Tenants typically pay a fair share of shared utility costs, while lessors are generally liable for community charges unless otherwise agreed.

 

9. LEASE AMENDMENTS AND DISPUTES:

a) Lease Variations:

Registered leases can be amended using an instrument of variation, provided the changes do not alter the fundamental terms or parties involved. This ensures flexibility while maintaining the integrity of the lease agreement.

 

b) Dispute Resolution:

The ADGM Courts are instrumental in resolving disputes related to lease terminations, registration issues, and forfeiture cases, ensuring fairness and transparency for all parties.

 

10. SUMMARY AND INSIGHTS

The Abu Dhabi Global Market (ADGM) offers a well-defined and reliable legal framework, making it an ideal destination for leasing property. The Real Property Regulations 2024 provide clear, practical guidelines for lessors and lessees alike, ensuring both legal protection and operational clarity. Whether you’re an individual or a business, leasing in ADGM guarantees a smooth, transparent process underpinned by strong regulatory oversight.