Commercial Leasing In The UAE: The Contractual Risks Businesses Need To Address Before Signing

A commercial lease represents a substantial financial commitment, often tying a business to premises for several years. In the UAE, businesses should not assume that the law will fill every gap in an agreement or protect them against the consequences of poorly drafted terms. While legislation establishes certain rights and obligations, the lease itself remains central to determining how risks are allocated between landlord and tenant. This article examines mainland commercial leases in Dubai and the contractual issues most likely to lead to disputes.

 

The Legal Framework

 

Commercial leases in Dubai are principally governed by Law No. 26 of 2007, as amended by Law No. 33 of 2008. The legislation covers premises leased for commercial, trade or professional activities under Article 2. Article 4 requires a lease to identify the property and its intended use, specify the term and rent, and set out the method of payment. Registration through the Real Estate Regulatory Agency’s Ejari system is also required. Disputes fall within the jurisdiction of the Rental Disputes Centre, established under Decree No. 26 of 2013. Businesses should note that other emirates have their own rental legislation, while financial free zones such as the Dubai International Financial Centre may operate under separate legal regimes.

 

Permitted Use and the Landlord’s Title

 

A lease should identify the activity for which the premises may be used. A tenant that departs from the agreed purpose or breaches applicable planning and land-use requirements may face eviction under Articles 4 and 25(1)(f). Before committing to a property, a business should establish that its licensed activity is permitted at that particular location and that the premises can lawfully accommodate its intended operations. It should also verify the landlord’s ownership or authority to grant the lease. Where the landlord is not the property owner, Article 4 requires the owner to be identified in the agreement. These checks are particularly important where a business intends to undertake specialised operations or invest substantial sums in adapting the premises.

 

Fit-Out Works and Reinstatement Obligations

 

The condition in which premises are handed over can have significant financial implications. Under Article 15, the landlord must deliver the property in a condition that enables the tenant to use it for the agreed purpose. The parties may also agree to a lease before construction is complete, with the tenant undertaking the remaining work and the agreement determining who bears the cost. Article 19 restricts alterations without the landlord’s permission and the necessary licences, subject to agreed or customary restoration work. At the end of the tenancy, Article 21 generally requires the tenant to return the premises in the condition in which they were received, allowing for ordinary wear and tear. Article 23 further provides that, unless otherwise agreed, the tenant may not remove leasehold improvements.

 

The agreement should consequently spell out who owns the fit-out, whether installations must be removed at the end of the lease and who will pay for reinstatement. It should also distinguish between structural repairs, routine maintenance and damage caused by the tenant. Under Article 16, the landlord is generally responsible for maintenance and defects that prevent the property from being used for its intended purpose, unless the parties agree otherwise. A vague allocation of responsibility can leave both sides disputing substantial costs when the tenancy ends.

 

Renewal and Security of Tenure

 

Businesses should not treat renewal as automatic or assume that continued occupation guarantees a fresh long-term lease. Under Article 6, where the lease expires and the tenant remains in occupation without objection from the landlord, the tenancy is renewed on the same terms for a period equal to the shorter of the original lease term and one year. This may offer continuity, but it does not necessarily provide the longer commitment a business needs for expansion or investment.

 

A landlord seeking eviction at the end of the term must rely on one of the grounds specified in Article 25(2). These include demolition and reconstruction, restoration work that cannot reasonably be carried out while the tenant remains in occupation, use by the owner or a first-degree relative, and a proposed sale of the property. The applicable conditions vary according to the ground relied upon and may require permits, a Dubai Municipality technical report or evidence that the owner has no suitable alternative property. The landlord must give at least 12 months’ notice, state the reason for eviction and serve the notice through a Notary Public or by registered mail. Article 26 also restricts the reletting of non-residential premises recovered for the owner’s own use: the property may not be leased to a third party for three years. Tenants planning costly fit-outs should factor these restrictions and notice requirements into their investment decisions.

 

Rent, Service Charges and VAT

 

Rent negotiations should begin well before the lease expires. Unless the agreement provides otherwise, Article 14 requires a party seeking to amend the terms on renewal to notify the other at least 90 days before expiry. If the parties cannot reach agreement, the Rental Disputes Centre may determine a fair rent by considering the Real Estate Regulatory Agency’s rental guidelines and comparable rents, in accordance with Articles 9 and 13.

 

The rent figure alone may not reflect the full cost of occupation. A business should establish whether service charges, district cooling and other recurring expenses are included or payable separately. The lease should also clarify whether rent is inclusive or exclusive of value-added tax (VAT). Commercial rent is generally subject to VAT at five per cent under Federal Decree-Law No. 8 of 2017, where the relevant tax requirements are met. Clear drafting on these expenses helps businesses prepare realistic budgets and reduces the scope for disputes over additional payments.

 

Default and Eviction

 

Article 25(1) sets out the grounds on which a landlord may seek eviction during the lease term. Failure to pay rent within 30 days of a notice demanding payment can trigger eviction proceedings, unless the agreement provides otherwise. A tenant may also face eviction if it fails to remedy a breach within 30 days of being notified. Another ground concerns leaving commercial premises unoccupied without a valid reason for 30 consecutive days or 90 days in total during a year, again subject to the terms of the lease.

 

These provisions make it important to establish clear procedures for payment, service of notices and the correction of breaches. Tenants should ensure that payment records are maintained and that any alleged breach is addressed within the applicable period. Landlords, meanwhile, cannot resort to self-help measures to recover possession. Article 34 prohibits a landlord from disconnecting services or otherwise disturbing the tenant’s use of the property. Disputes over arrears or breaches must be handled through the legally prescribed process rather than by disrupting business operations.

 

Early Termination

 

A tenant that needs to leave before the agreed expiry date cannot ordinarily assume that it may terminate the lease unilaterally. Article 7 provides that a valid lease may be ended during its term by mutual agreement or in circumstances permitted by law. Businesses anticipating a possible relocation, restructuring or change in operational requirements should therefore negotiate a break clause before signing.

 

Such a clause should identify who may exercise the right to terminate, the notice period required and any payment due on exit. It may also make termination conditional on the absence of outstanding rent or an unremedied breach. Where the agreement stipulates compensation for early termination, Article 340 of the new Civil Transactions Law, Federal Decree-Law No. 25 of 2025, permits a court to reduce agreed compensation where the debtor establishes that it is excessive. This does not remove the need for a carefully negotiated exit mechanism, particularly where the landlord has incurred costs or suffered loss in reliance on the agreed term.

 

Assignment, Subletting and Changes in Ownership

 

A business may wish to transfer its lease as part of a sale, restructure its operations or allow another business to occupy part of the premises. Article 24 provides that, unless the lease states otherwise, the tenant cannot assign or sublet the property without the landlord’s written consent. Unauthorised subletting is a ground for eviction under Article 25(1)(b), and the consequences may extend to the subtenant. Under Article 8, a sublease ordinarily ends when the head lease expires or is terminated, unless the landlord expressly agrees otherwise.

 

The agreement should specify whether consent may be withheld, whether it must be given within a defined period and whether a transfer to an affiliated company or purchaser is permitted. These provisions can become particularly important when a business is sold or reorganised. A change in the property's ownership, however, does not by itself extinguish a tenant’s rights under a fixed-term lease. Article 28 preserves those rights when the building is sold, giving tenants a degree of protection against disruption arising solely from a transfer of ownership.

 

Force Majeure and Hardship

 

The new Civil Transactions Law, Federal Decree-Law No. 25 of 2025, took effect on 1 June 2026, repealing Federal Law No. 5 of 1985. Its application to a particular lease depends, among other things, on the date the contract was concluded and the relevant transitional provisions. Two provisions are especially significant when unexpected events make contractual performance difficult or impossible.

 

Under Article 224, exceptional circumstances that could not reasonably have been foreseen and that make performance excessively onerous may allow a court to reduce the obligation to a reasonable level or cancel the contract. An agreement cannot validly exclude that statutory power. Article 236 addresses a different situation: where force majeure makes performance of a bilateral contract impossible, the corresponding obligations are extinguished and the contract is automatically cancelled.

 

Businesses should not assume that financial pressure, reduced demand or an interruption to operations will automatically qualify as force majeure or hardship. The facts and the applicable legal requirements remain decisive. A lease should define force majeure carefully, address the consequences of interruption and allocate responsibilities where possible. Any clause purporting to exclude the court’s power under Article 224 must also be considered in light of the statutory restriction.

 

Conclusion

 

A commercial lease determines much more than the rent a business pays. It can shape the cost of fitting out premises, the ability to remain after expiry, liability for repairs, the consequences of default and the options available if circumstances change. Before signing, a business should be able to establish who owns the improvements, which additional charges it must pay, what conditions govern renewal and termination, and whether assignment or subletting is permitted. Where these questions are left unanswered, the parties may find themselves relying on statutory default rules or seeking a determination from the Rental Disputes Centre. Careful review at the outset can reduce uncertainty and help protect a business from avoidable disputes over the life of the tenancy.