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Direct debit system for rent collection: Will maintaining insufficient funds attract a penalty?

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00


UAE, Dubai, rent, funds, debit system, penalty, Emirates NBD, landlords

Recently, a new mechanism came into force in Dubai allowing renters to pay by direct debit from their bank accounts instead of giving a post-dated cheque to the landlord.

Landlords get a one-time direct debit mandate from tenants via the system, enabling Emirates NBD to deduct the rental amount from the tenant's account or credit card. Utilizing an automated method, landlords can recoup the rental.

Ordinarily, if tenants' rent checks bounce due to inadequate cash at the time of clearance, real estate companies frequently apply a fine or penalty. However, what happens if a renter does not keep a sufficient balance by the time the direct debit is due? 

According to an Emirates NBD spokesperson, no penalty on the tenant will be imposed by the bank in such a scenario. The spokesperson further added, “Landlords might impose some fines/penalties on the tenants for repetitive recovery failures. The charge recovery will take place outside the banking system and will be imposed by landlords directly.”

According to Niral Jhaveri, head of Property Management at Betterhomes, fines are primarily imposed to encourage the tenants to pay the rent on time. She further said, “Even for direct debit and credit card payments, we will impose fines if the tenant fails to maintain the required balance. Our fines vary from Dh525 to Dh1,050, depending on the type of the property."

According to the NBD official, no reminders will not be sent to tenants ahead of the direct debit. However, real estate firms may choose to do so, as some do with post-dated cheques.

How is the scheme being implemented by real-estate agencies?

The UAE Central Bank's Direct Debit System is used to automate and digitise rental check payments under the terms of the agreement between Dubai Land Department (DLD) and Emirates NBD bank (UAEDDS). This eliminates the need to manually manage post-dated cheques, it benefits tenants, property management firms, and landlords.

The system requires the landlord to sign up with the bank for the service. The landlord obtains authorised direct debit mandates rather than cheques from the tenants

According to Jhaveri, Betterhomes is yet to implement the direct debit system as “we are awaiting more details on how this process will work and what the legal framework is. A very few landlords have asked us about this system. I think most of them are awaiting more clarity in terms of what happens if there is no sufficient balance in the account. Would the landlord be able to file a case to recover this money? How much time will it take to recover the money? Would advice from the bank about insufficient funds be enough to file the case? Most of the landlords are comfortable with the traditional method of holding on to cheques as it gives them a sense of security." She also said once a proper framework is set up, many landlords would prefer switching to the direct debit system instead of taking post-dated cheques from the tenants.

Jhaveri also said that the new system is likely to reduce the administration work for the property managers and the landlord. She further said, “We will no longer be required to warehouse the post-dated cheques and deposit them on the due date. It will also reduce human errors like overwriting on cheques, irregular signatures, etc. Direct debit will help the landlords maintain their cash flows efficiently. In addition, Dubai is a hub for ex-pats who are not familiar with rental cheques, therefore this will simplify payment methods and synchronise us with global standards."

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