Dubai Court Clarifies Landlord Liability in Commercial Lease Disputes Involving Property Managers and Unusable Premises

Within Dubai’s rental dispute framework, the courts are frequently required to balance the rights and obligations of tenants and landlords where commercial properties fail to deliver the anticipated benefit. A recent commercial lease dispute illustrates how the courts address issues of agency, contractual responsibility and proof of damages.

The dispute concerned a tenant who entered into a lease for a commercial unit in a prominent building, intending to operate a retail business. The lease term ran from early 2023 until April 2024, with rent payable in quarterly instalments. The tenant complied with its contractual obligations, paying rent and associated fees, but subsequently encountered difficulties in securing the necessary approvals from Dubai Municipality and Civil Defence.

As a result, the tenant sought reimbursement of the sums paid under the lease, including rent, deposits, brokerage and related fees, together with compensation for alleged lost profits. The landlord contested the claim, arguing that communications had been conducted through the property manager rather than directly with the landlord, and that the property manager lacked authority to bind the landlord.

To determine the facts, the court appointed an independent financial expert. The expert confirmed that the tenant had paid substantial sums under the lease and related agreements and that the unit had never been occupied during the entire rental period. Inspection reports and an exit letter dated April 2024 confirmed that the premises remained vacant throughout.

The expert also examined the role of the property manager, who had issued certificates, exchanged correspondence and managed the handover of the unit. Although no formal power of attorney was produced, the expert concluded that the property manager acted as the landlord’s apparent agent. From the tenant’s perspective, it was reasonable to rely on the manager’s authority, and responsibility for those actions therefore rested with the landlord.

The court accepted this analysis and rejected the landlord’s defence of lack of standing. It held that the property manager’s conduct was attributable to the landlord and that the tenant had acted in good faith. The ruling reinforced the principle that landlords cannot avoid liability by distancing themselves from their appointed managers where tenants reasonably believe those managers are acting on the landlord’s behalf.

In assessing the claim for lost profits, the court emphasised that contractual liability requires proof of breach, actual damage and a direct causal link between the two. While certain breaches were established, the tenant failed to prove actual financial loss beyond speculation. Accordingly, the claim for lost profits was dismissed.

The reimbursement claim, however, was treated differently. The expert’s findings demonstrated that the tenant had paid rent, deposits and brokerage fees but had derived no benefit from the premises. On this basis, the court ordered the landlord to refund those amounts.

The judgment relied on Dubai Rent Law No. 26 of 2007, as amended by Law No. 33 of 2008, together with Article 135 of Federal Decree-Law No. 42 of 2022 on Civil Procedures. Ultimately, the court ordered the refund of the tenant’s payments, rejected the claim for lost profits, and directed both parties to share the legal fees and expenses.

The decision reflects the Dubai courts’ balanced approach to commercial lease disputes. While tenants are protected from financial loss where premises are unusable, claims for lost profits will not succeed without clear and credible evidence. The case also underscores the importance of agency in property management, confirming that landlords may be held accountable for the actions of their property managers where tenants reasonably rely on their apparent authority.

For any enquiries or information, contact ask@tlr.ae or call us on +971 52 644 3004. Follow The Law Reporters on WhatsApp Channels.