Making Abu Dhabi Redundancies? How to Offload Your Staff Housing

If you are currently reducing staff head-count and want to efficiently get rid of your staff property portfolio in Abu Dhabi, or you are just interested in planning for that contingency, then read on. Abu Dhabi laws and practices make dealing with staff housing a very tricky issue when making redundancies, for example leases in Abu Dhabi are always for a year and are very difficult to break, a year’s rent is usually paid up front and leases can either be in the tenant’s name or the company’s name.

If you would like a more in-depth discussion on this subject and how it relates to you own company’s situation please don’t hesitate to email me onben.crompton@cpestateagents.com or call me on 050 6145199. We specialise in helping companies reduce their housing portfolio.

This question ties in very closely to how companies give housing allowances to their staff. I will put out an article tomorrow (9th December 2015) on this point.

The most important question to ask is, in whose name is the tenancy contract? There should be one of two answers to this, either your employee’s name or the company will be on the lease agreement.

COMPANY LEASES

Breaking the Lease – When it comes time to break a lease you should consult the lease contract very carefully to see if there is an exit clause. You should note that very few tenancy agreements in Abu Dhabi have a break clause in them. First Gulf Properties recently scrapped their break clause as the buoyant housing market meant unit turnover was so fast people had less time to care about contract content. Tenancy contracts are for a year and often the rent is paid up front. So then how can you get some of your rent back? The simple answer is negotiate. Most landlords will break a lease for a penalty (often a month’s rent) and if you find someone to take over the lease as you leave (so they don’t lose any money in rent and get the bonus of a months lease payment).

It is worth noting that the lease may not be capable of being broken, some landlords may refuse any refund. In this situation the law is on the landlord’s side and there is little that can be done. See our guide to tenant’s rights here.

Finding Someone to Take Over the Lease – Finding a new tenant for the lease will not be easy for most companies. Sometimes the landlord or manager will help but they more often will expect this from the current tenant. Companies like Crompton Partners can assist in finding new tenants and companies looking to break lease contracts would do well to use them to off-load these units.

Corporate Liability – It will be commonly agreed that if the lease agreement is in the company’s name then the company will be liable for it until it is terminated. It should however be noted that the ex-employee is the tenant, they may make it difficult for the company to break the lease and will still benefit from it after termination if they are living there. It may even be difficult to get the tenant out of the property. In this instance companies may wish to consider deducting amounts from the employee’s final salary or end of service benefits (if applicable).

EMPLOYEE LEASES

If the employee’s name is on the agreement then the question is then a) will the company assist the tenant to break this lease if they want to and b) if the company will not assist the tenant to break the lease then how will the employee receive the remaining rent.

Breaking the Lease – Breaking the lease and getting someone to take it over are exactly the same process as above for the Company Leases, the only difference here for the company would be how this is done. Companies may wash their hands of the lease and require the ex-employee to terminate it, and be liable for any period of time where they can’t break the lease, or the company may take this expense on from the date of termination, paying for the lease until it is broken.

Employee Compensation – The company may have paid the rent on the unit for the employee, or the ex-employee may have taken a loan from the company (or perhaps even a bank) to fund their lease payments (very common if no housing allowance is given or the employee is required to pay the rent and be reimbursed in their salary). The company will deal with these loans according to their policy.

It is well worth considering the position the company would take if the lease turned out to be unbreakable and the employee did not wish to keep the property (as it was too expensive, or they wished to return home). Would the company place the full liability on the employee or would they shoulder the cost.

If you would like more information on reducing your housing portfolio please don’t hesitate to email me on ben.crompton@cpestateagents.com or call me on 050 6145199.