Renting your property - absonding tenants

The UAE is one of those transitional ‘temporary home’ countries as far as residents are concerned, meaning tenants move in and out more frequently.  Issues can arise when people are forced to leave for reasons beyond their control, eg redundancy.  

The risk of landlords losing tenants increased during the financial crisis.  Many residents simply had to break their rent contracts mid-year and paid, others didn’t have the money to cover outstanding rent.  Some decided to do a runner.

Traditionally, asking for one- year rent in advance has mitigated the risk of a tenant disappearing. However the market has changed and is maturing. Not everyone can afford to pay in advance, loans to cover such an advance are harder to come by and more companies paying for their employees find themselves in saving mode, unwilling to cover one year’s rent at once. Therefore it has become more common to pay rent with three or four or even up to six cheques.

These rents, however, are covered via post-dated cheques.  Letting one bounce is a criminal offence, thus offering the landlord some sort of security.

Bounced cheques became a serious issue during the real estate crisis and the government reacted by introducing a special cheque committee to hear cases of bounced cheques dealing with real estate, instead of filling up the jails.

Landlords and tenants need to be aware though that the committee will only address bounced cheque cases relating to client-developer purchases, not those related to tenancy or mortgages. Inh other words the landlord can go to the police to denounce the tenant, which could in theory arrest him, or her, and file a criminal case with the courts. How quick, or effective, this route is to get an absconding tenant to pay is questionable.

“Bounced cheques are still an offence but the police are probably swamped with such cases,” comments Ronald Hinchey, Director of Professional Services at Cluttons.

Due to the criminality of the offence, tenants remaining in the country are likely to negotiate and not disappear. However, if they are leaving there is little a landlord can do.

“Absconding tenants is a tricky one and most landlords are just happy to get their hands on the property to re-let especially if the tenant was occupying on an old protected rent at below market level,” says Hinchey.

One could try to pursue the tenant after he left the country, but Hinchey gives a clear hint. “A landlord could attack an absconded tenant in their home jurisdiction but the hassle and cost is just not worth the trouble.”  

A landlord has more chances of recovery if the tenant is likely to return to the UAE one day. In this case he could inform immigration via the police to arrest the absconders if they try to re-enter the UAE, according to Hinchey. “That may prove to be a deterrent in itself.”

This would suggest, prevention rather than cure is the answer and this doesn’t necessarily mean demanding the whole year rent upfront, which is simply not realistic these days.

Landlords should carry out a background checks on their tenants and employers. If possible meet them in person and ask questions about their future plans. They could also try, although it isn’t customary at present in the UAE, to ask for a two months rent in advance as a deposit, for example as is done in Europe to mitigate some risk.

In Dubai, a deposit depends on the size of the property, usually around Dh10,000 (a three bed villa), in form of a post-dated cheque, covering possible smaller damages to the property whilst the tenant lives in it. This cheque is usually returned in full, or in part, after the landlord has inspected the property as the tenant leaves.