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Claim No:XXXX

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE SMALL CLAIMS TRIBUNAL

BEFORE SCT JUDGE MARK BEER

BETWEEN 

GERVOIS

Claimant 

and

(1) GITTANA LLC

(2) GACINTA LLC  

Defendants 

Hearing:          12 July 2016

Judgment:       8 August 2016

JUDGMENT OF SCT JUDGE MARK BEER

UPON this claim having been called for consultation on 22 June 2016 before SCT Officer Mahika Hart;

UPON the parties not having reached settlement;

UPON hearing the Claimant’s representative and the Defendants’ representatives;

AND UPON reading the submissions and evidence filed and recorded on the Court’s file and reviewing the judgment in Earlene v Earl dated 20 July 2014;

IT IS HEREBY ORDERED THAT:

1. The Claimant’s claim seeking renewal of the Lease Agreement under the same terms and conditions as the previous year(s) is dismissed.

2. Each party shall bear their own costs.

THE REASONS

Parties:

3. The Claimant, Gervois, is a tenant and a partner of a law firm in Dubai. His associate is a lawyer in the same firm and was appointed as his personal representative for the hearing.

4. The Defendants are Gittana LLC (the “First Defendant”) and Gacinta LLC (the “Second Defendant”). The Second Defendant is the Claimant’s landlord and the First Defendant is the Second Defendant’s managing agent. The submissions made on behalf of each Defendant during the hearing were said to be made on the behalf of both Defendants.

Background:

5. On 10 July 2010, the Claimant entered into a Lease Agreement with Gacinta LLC for the rent of apartment in DIFC.

6. It is common ground that from 10 July 2010 until the current dispute arose, the Lease Agreement has been renewed annually substantially on the same terms and conditions.

7. By email dated 30 March 2016 the First Defendant (acting as agent for the Second Defendant) informed the Claimant that “Your current period of tenancy expires on 09 July 16 for unit ”. The email stated that the Claimant should vacate the apartment on 9 July 2016 and went on to say “If you would like to sign new lease agreement [sic] with the Landlord for the same unit, please do be informed that the rental value will be 140,000 for the period from 10 July 16 to 09 July 2017”. It is common ground that the proposed new rent was expressed in UAE Dirhams.

8. A meeting appears to have taken place between the Claimant’s representative and the First Defendant’s representative in April 2016, which was followed by an email from the Claimant dated 25 April 2016 in which it was written “This is to confirm that I am happy to renew the Tenancy Agreement under the same terms and conditions as the previous year, including the applicable rental price.” The letter went on to refer to the RERA Rental Increase Calculator, as provided for in Decree No. 43 of 2013. It is common ground that the RERA calculator applies to properties located in the DIFC.

9. The proposed rental rate of AED 140,000 represented a 45% increase in rent from the lease for the year to 9 July 2016. It is common ground that such an increase was not in accordance with the RERA calculator, which would not have permitted any rental increase.

10.By email dated 2 May 2016, the First Defendant referred to its email of 30 March 2016 as an “eviction notice” and reiterated the requirement for the Claimant to vacate the premises. Further correspondence was exchanged, leading to a “without prejudice” letter addressed to the Defendants from Law Firm dated 23 May 2016 and a subsequent letter from Law Firm dated 7 June 2016 in which it was said that the Claimant had “decided to file a claim against you before the DIFC Courts.”

The Claim:

11. On 9 June 2016, the Claimant lodged a claim with the DIFC Courts’ Small Claims Tribunal (SCT) against the Defendants, in which he claimed that the Unit is not eligible for an increase in rent for renewal pursuant to Decree No. 13 of 2013.

12. The Claimant’s submissions in the claim form focused on the impact of the Second Defendant being allowed to use the termination of the Lease as a mechanism to “circumvent the provisions of the applicable laws, including but not limited to the Decree [No. 13 of 2013]”. The claim form suggested that “If this unlawful behavior by the landlord is permitted, then the purpose of enacting the Decree, which is to prohibit landlords from abusively increasing the rent prices, is completely defeated.” The claim form went on to suggest that the “conduct of the Defendant . . . is contributing in creating an imbalance in the market prices particularly that the Defendant is a large corporation that owns a significant number of properties in the building. This further means that the Defendant has the power to directly manipulate the market prices in the building and the area thus creating market instability that the government authorities are combating.” During the hearing, this submission became known as the “Policy Claim”. That is, the DIFC Courts should prevent a landlord from being able to rely on termination provisions within a lease as a guise to increase the rent beyond that prescribed using the RERA calculator described in Decree No. 13 of 2013.

13. During the hearing, additional matters were raised by the Claimant and addressed by the Defendants. The first was seen on the wording in Clause 5.1 of the Lease which stated that “... Both Parties agree that should Landlord decide not to sell the property to a third party purchaser as aforesaid, then the Tenancy Agreement will be renewed solely upon mutual agreement between parties and to such a period as then mutually agreed.” It is common ground that the Landlord had not agreed to sell the apartment to a third party purchaser. The Claimant submitted that there had been “mutual agreement” to renew the Lease (see the emails of 30 March 2016 and 25 April 2016, in particular the wording “This is to confirm that I am happy to renew the Tenancy Agreement under the same terms and conditions as the previous year, including the applicable rental price.”). It was argued that by his email of 25 April 2016 the Lease had been renewed because at that point the only point of difference between the landlord and the tenant was the price which, it was agreed, could not be increased under the terms of the RERA Calculator. That is, because the rental amount was not negotiable, and all other terms had been offered and accepted, the Lease was renewed for the period from 10 July 2016 to 9 July 2017 at a rate fixed at AED 140,000. I call this the “Offer and Acceptance Claim”.

14. The Claimant also claimed that the parties had agreed to incorporate Dubai Law No. 26 of 2007 (Law Regulating Relationship between Landlords and Tenants in the Emirate of Dubai) into the Lease through a reference to it in Clause 4.10 of the Lease. Although it was accepted that reference to that law was limited to Article (4)2 regarding registration, the Claimant submitted that such a reference was sufficient to impute a broader application of that law, including the restrictions on lease termination provided for therein. Other arguments were put forward to suggest that Dubai Law No. 26 of 2007 applied to the Lease, including that the Landlord had given 90 days’ notice of eviction. It was common ground that if Dubai Law No. 26 of 2007 applied to the Lease, then the Landlord had not given effective notice to vacate the apartment. I call this the “Legislative Incorporation Claim”.

The Defence:

15. Regarding the Policy Claim, the Defendants argue that:

(a) this case relates to matters of law and contractual interpretation, and not of public policy;

(b) the applicable laws in DIFC, along with the Lease itself, allow the Second Defendant to terminate the Lease and, simultaneously, to offer a new contract with a higher rent than would otherwise be permitted by the RERA Calculator; and

(c) the Courts do not need to consider public policy because tenants in DIFC could obtain the same or similar protections to those enshrined in Dubai Law No. 26 of 2007 by way of incorporating detailed notice and termination provisions into their tenancy contracts.

16. Regarding the Offer and Acceptance Claim, the Defendants submit that their email of 5 June 2016 in response to the Claimant’s letter (sent on his behalf by Law Firm) of 23 May 2016 rejected the Claimant’s letter in its entirety by stating that they have “no intention to renew the tenancy contract” and that “the Landlord does not wish, and is not obliged to, renew the Tenancy Agreement.” The Defendants therefore do not consider the suggestion made in the email on 30 March 2016 to sign a new Lease Agreement as a mutual agreement for the renewal of the agreement (see paragraph 11 above). In any event, the Defendants do not accept that they ever accepted an offer to renew the Lease at the same rental amount as in the year to 9 July 2016.

17. Regarding the Legislative Incorporation Claim, the Defendants submitted that reference to Dubai Law No. 26 of 2007 in the Lease was a mistake. The referenced clause referred to registration of the Lease which was not applicable to the Lease because it was in respect of an apartment in DIFC. It was submitted that if the Courts do not accept that submission, the Defendants argue that only the referenced clause, being Clause 4(2) of Dubai Law No. 26 of 2007, should be incorporated into the Lease, and not any additional provisions.

Finding:

19. Firstly, in relation to the Policy Claim, I am persuaded that the Claimant, a practicing lawyer, had the opportunity to consider termination when the Lease was being negotiated initially, on renewal each year. He had the opportunity to request contractual protection and the legal knowledge to know that Dubai Law No. 26 of 2007 does not apply in the DIFC. If he had required a similar notice period to that set out in Dubai Law No. 26 of 2007 he could have requested that such notice period be provided in the Lease. I do not, therefore, side with the Claimant in suggesting that the Courts should step in to fill a void. There is no such void. Tenants of properties in DIFC are free to contract in accordance with applicable laws in the DIFC, including negotiating such termination terms as are mutually agreeable between the landlord and tenant.

20. Regarding the Offer and Acceptance Claim, whilst it is an interesting legal argument, and perhaps the most persuasive of those put forward by the Claimant, on balance I cannot find that the Claimant and Second Defendant were ad idem despite the email of 30 March 2016 and the Claimant’s response on 25 April 2016. As such, I do not find that there was the mutual agreement required by Clause 5.1 of the Lease. The parties were not ad idem at that time because the Defendants’ view of the rental amount was higher than that of the Claimant. Although not pertinent to this determination, I was not persuaded by the suggestion of the Defendants that if the Claimant had agreed to the proposed rent of AED 140,000 that would have constituted a new lease, as opposed to a renewal.

21. Regarding the Legislative Incorporation Claim, I do not find that reference to Dubai Law No. 26 of 2007 in Clause 4.10 of the Lease is sufficient to incorporate that law in its entirety into the Lease. I accept that its inclusion in the Lease was a mistake and that the referenced provision of that law has no bearing on this claim.

Issued by:

Mark Beer

SCT Judge

Date of issue: 8 August 2016

At: 4 pm