Long-term leases (typically 3 to 10 years) are common in the industrial and high-end office sectors. These agreements provide stability for both parties, but they present a unique challenge when market conditions change.
The “Escalation Clause”
In a standard one-year lease, rent is governed by the RERA index annually. However, in a long-term lease, the parties often agree on a pre-set escalation schedule. For example, a contract might state that the rent will increase by 5% every two years. If this clause is in the signed contract, it supersedes the RERA index.
What Happens if There is No Clause?
If a 5-year lease is signed without any mention of rent increases, the landlord generally cannot increase the rent mid-term. The rent remains fixed for the duration of the agreed term. Any attempt to change this would require a mutual amendment signed by both parties.
Legal Requirements for Renewal
Upon the expiry of a long-term lease, the transition to a new term follows the standard UAE laws. The landlord must provide 90 days’ notice for any changes to the new contract. If the parties cannot agree, the RDC typically defaults to the market rate as determined by the RERA index.
How DY Legal Consultants Will Help
Whether you are a landlord looking to protect your asset from inflation or a tenant seeking to lock in a rate, the drafting phase is where the battle is won.
DY Legal Consultants assists by:
- Drafting Escalation Formulas: We create clear, legally enforceable rent-review mechanisms (e.g., linked to CPI or fixed percentages) that prevent future disputes.
- Contractual Enforcement: If a party tries to deviate from a long-term agreement, we provide the litigation support necessary to enforce the original terms.
Renewal Strategy: As your long-term lease nears its end, we handle the complex negotiations to ensure the next term reflects current market realities while protecting your legal rights.
