Exemption of Early Exit Penalty in Tenancy Contracts due to Coronavirus

A recent RDC judgement which allowed a tenant to terminate his tenancy contract prematurely without a penalty was a welcoming step amidst the pandemic.

Salary reductions, unpaid leave, and job loss due the pandemic have created such a situation where tenants started negotiating with the landlord for deferred rent pay, discounts in rent, rent waiver or even early termination of tenancy contract without a penalty.

A tenant who lost his job due to Coronavirus precautionary measures requested the landlord for the early termination of tenancy without a penalty. When the matter came before RDC for its consideration, it confirmed the request of the tenant considering the fact that the tenant earns his life only through the salary income.

The tenant doesn’t have any other income other than the salary which had stopped due to the job loss. The Court confirmed that the tenancy contracts can be terminated in the following circumstances:

• Unforeseeable circumstances that prevent someone from fulfilling the contract - [Force majeure]
• Emergency circumstances, though the court has not provided any further explanation regarding what can be considered as emergency circumstances, in the instant matter, the Court considered job loss as an emergency circumstance during which tenant may terminate the tenancy contract.

The Court directed the landlord to return the cash or cheque paid by the tenant on account of rent after the job loss and ordered him to not to charge any penalty for early termination.

In this way, the RDC has taken a new approach towards the early termination of residential tenancy contracts and disallowed the compensation to the landlord considering the situation of the tenant as an unforeseeable or emergency circumstance which made him impossible to perform the contract.

However, the same has not been notified as a law. This is a judgement pronounced by RDC after considering the facts and circumstances of the instant case. The above concept of impossibility to perform has been laid down as a principle of Force Majeure under common law.

It is defined as an unforeseeable circumstance(s) mostly an act of god, like earthquakes, flood or any other natural calamity that prevent someone from fulfilling his contractual obligations.

The UAE Civil Code has laid down clearly that "the right shall expire if the obligor proves that the performance of it has become impossible for him for an extraneous cause in which he played no part" [Article 472].

The law emphasizes the impossibility to perform the obligation of a contract and not merely a difficulty in performance.

Written by:

Rajasree Ravivarma | Hussain Lootah & Associates