Can A Property Management Company Increase The Rent?
The answer to this question is a two-way street. First, according to the client request, a property management company can consider the possibility to increase rent. Second, when we are talking about the possibility here, we are talking about legal rights to set the higher price in the contract with the current tenant. If these rent changes comply with the law, a property management company proceeds further for a new contract price.
Rent increases are dealt with by the Real Estate Regulatory Agency (RERA)
While in some other countries it’s completely up to a landlord to decide whether and how much to change the price, in Dubai, you will come across one nuance. To clarify, the rent increase is under strict governing by RERA.
Of course, RERA does not dictate when landlords must raise your price. And does not prescribe the exact amount they must raise your rental price by. Instead, it calculates the rental index for various property types and areas. In turn, this rental serves as a basis for calculating the maximum rent increase a landlord is allowed to apply in their exact case.
What is the RERA Rental Increase Calculator?
To make things easier for both landlords and tenants, RERA developed their Rental Increase Calculator. With this calculator, one can easily understand what amount of the increase can be applicable by law for each exact case.
To get the numbers, choose a tab that corresponds to your property (residential, commercial, industrial, or staff accommodation). Then, enter the following information:
- Type of the property you lease (for example, a villa or apartment for residential properties);
- Number of bedrooms in your unit (for example, studio, one bedroom, etc.);
- Contract end date;
- Current annual rent.
Then, the system compares your current annual rent with the average annual rent of similar units in the area and calculates the maximum cap applicable in your case.
However, there are cases when Rental Increase Calculator is not at the help. To clarify, these are the cases when a similar property is not available in the list. For example, when the unit is located in a newly developed area. Or when it was upgraded significantly.
In these cases, you as a landlord (or your representative with POA) can apply for the individual rent evaluation for your unit. Unlike Rental Increase Calculator, Rental Valuation is a paid service. The service fees start from AED 2,020 for just one unit and can go up to AED 10,020 if you request the rent evaluation for five units or more.
How much the rent can be increased per year in Dubai?
Well, it depends. To clarify, when the landlord increases the rent, they shall follow the rule that the Government of Dubai stipulated in Decree No. 43 of 2013. The Decree sets different rental increase caps for different cases:
Allowed rent increase
a) your current rent is higher than current average unit prices on the market
b) your current rent is equal to current average unit prices on the market
c) your current rent is less than that just by 0-10%
your current rent is less than current average unit prices by 11-20%
your current rent is less than current average unit prices by 21-30%
your current rent is less than current average unit prices by 31- 40%
your current rent is less than current average unit prices by 40.1 % and over
A few words about an average unit price
Note, for calculating your exact rent increase cap, you shall consider the current average unit prices. In other words, you shall consider the rental of similar units in your area. For example, if you lease a studio in Dubai Sport, you shall compare it with an average rental of the studio in Dubai Sport. If you lease a one-bedroom apartment in Down Town, you shall compare it with an average rental of one-bedroom apartments in Down Town. And if you lease a two-bedroom villa in Emirate Hills, you shall compare it with an average rental of the two-bedroom villa in Emirate Hills.
Ok, now you are familiar with the rule. The next question that must arise in your head is how to learn what an average rental is? The answer is that you shall consider only the numbers officially published by RERA.
When is a rent increase allowed?
To answer this question, we need to touch on three aspects, at least:
- First, whether you as a landlord can increase the rent prior to the expiry date of the tenancy contract or only on its renewal;
- Second, whether you can increase the rent each time you renew your tenancy contract or there is some rent-freeze period;
- Third, whether any relevant legal amendments are upcoming in the near future.
In regard to the first aspect. No changes are allowed prior to the expiry date of the contract. Your only option is to set a higher rental when renewing your tenancy agreement upon the expiry date. Having notified your tenant about the upcoming rental hike at least 90 days before your current contract expires.
In regard to the second aspect. Currently, no rent-freeze period is in effect. In other words, now you can increase your rent value right on the next tenancy contract renewal. For any contracts, including new ones. However, there are big uncertainties here…
Possible upcoming changes
And now we are coming to the third aspect. Amendments. It is said, the Government has drafted their plans to introduce a rent-freeze period. And not less than for three years. Unfortunately, no one knows when this plan to be executed and whether it will touch leases entered a year or two ago.
At BSO, our expert opinion is that this is a rather significant change in tenancy relationships. Thus, we are closely monitoring the situation. On the one hand, we all remember that Law No 33 of 2008 replaced Law No 26 of 2007 on the date of its publishing in the Gazette. On the other hand, significant changes typically have a postponed date of entering into force.
So, for our clients, we have some valuable ideas on how to hedge themselves. When you became our client, you will be able to take full advantage of our hedge policy. Sign a property management contract and stay updated and hedged.