Kuldip Lakhani, an information specialist in Abu Dhabi, recalls an incident last year when his landlord lost one of his post-dated rental checks.

“I had to write replacement checks instead and get a commitment from the landlord on his company letterhead that he wouldn’t cash my original post-dated rent checks,” says Lakhani, who has been renting property in the capital of the United Arab Emirates for over 14 years.

The 36-year-old Indian native, who also owns a property in Dubai’s Jumeirah Village Circle, says it’s also difficult for tenants to collect post-dated checks if they decide to terminate a rental agreement before it expires after have entered into a mutual agreement with their owner.

It is these problems that the Dubai Land Department aims to eliminate by allowing tenants in the emirate to pay their rent through their bank accounts and credit cards rather than using the traditional system of post-dated checks.

The DLD and Emirates NBD signed an agreement last week to digitize rental check payments through the UAE Central Bank’s direct debit system. This will eliminate the need to manually manage post-dated checks submitted to landlords and property management companies.

Tenants in the UAE usually write post-dated checks a year in advance. While this method gives landlords security that payment will be made, it can cause financial problems for tenants who sometimes need to take out a personal loan to pay their rent.

“This move will give tenants payment flexibility and help them better manage their rental budget as well as other monthly expenses,” Lakhani said.

“They no longer have to worry about issuing or replenishing a checkbook to pay their rent. For people who are new to Dubai, it will be easier to rent a property as they will not have to wait for a checkbook to be issued.

From a landlord’s perspective, it takes time to collect, store and cash post-dated rent checks, according to Mr. Lakhani, who has appointed a property management company to handle the end-to-end processes, including including the management of checks, for his apartment. in the circle of the village of Jumeirah.

However, this installation comes at a cost, usually between 3 and 5% of annual rental income, he says.

“I rented my apartment for four checks. While my property manager keeps the post-dated checks, I still have to follow up to get them deposited into my account,” says Lakhani.

“The new decision will make cash flow smoother for owners.”

However, Mr Lakhani is unsure how the department’s decision will protect landlords if a tenant does not have enough money in their bank account or on their credit card to pay the rent.

This is not the first time that tenants in Dubai have been able to pay their rent by direct debit or online banking.

In 2018, Dubai property services company Asteco introduced a digital payment service for tenants that allowed them to pay rent by direct debit after partnering with the National Bank of Fujairah.

“Implementing Direct Debit will benefit all parties, especially tenants, as it eliminates the difficulties associated with issuing post-dated checks, such as irregular signatures, ink smudges and overwrites, which can all result in a returned check, even if there are sufficient funds available. in the account,” says HP Aengaar, Managing Director of Asteco.

“Plus, use direct debit for more frequent payments [monthly] allows tenants to manage their funds more efficiently, while taking into account other financial obligations, such as tuition fees.

“It can be more difficult if you’re expected to save throughout the year to meet one to four lease payments via post-dated checks and to ensure funds are available.”

However, direct debits could make it difficult for tenants to negotiate annual rent rates down, says Aengaar.

For owners of multiple homes, direct debit could provide better insight into their cash flow and monthly income, he adds. Thanks to post-dated checks that are paid in installments, it could be difficult for landlords to identify which units are generating the most revenue.

Pradeep Kumar is a 32-year-old Indian project engineer in the oil and gas industry. He owns a one-bedroom apartment at Damac Hills in Dubai and also manages a rental on behalf of his parents for their Jumeirah Village Triangle villa.

He believes the decision to remove post-dated rental checks does not protect landlords’ rights because tenants can no longer be held liable.

“If a tenant does not have sufficient funds to pay via direct debit, how do I exercise my rights to have the tenant evicted from my listing? The process of evicting a tenant from a property is cumbersome,” he says.

“If a check is bounced, most property management companies or landlords could claim up to Dh500 for the bounced check and even file a bounced check file at the police station, which only incurs a maximum fine of 5,000 Dh, depending on the amount of the check. How does the direct debit system penalize offenders? »

Citing the example of a tenant who struggled to pay the rent for his parents’ villa, Mr Kumar recalls receiving irregular sums of money from month to month rather than being paid by post-dated checks.

“We have not yet received the rest of the rent because he has owed us 24,000 Dh for two years now,” he says.

According to Mr. Aengaar of Asteco, there is still a level of security perceived by landlords who consider checks to have a stronger guarantee that payments will be honoured.

Now that the Central Bank and the DLD are openly promoting the direct debit payment methodology, this may increase the level of security in the minds of institutional owners given that the direct debit mandate is as legally binding as a check, adds he.

The DLD’s decision should prompt Dubai-based landlords to become more selective about which tenants they want to have a relationship with, Mr Kumar said.

They may prefer tenants with stable jobs and well-known multinational companies rather than small local businesses. There will be a change in the mindset of landlords and they will impose additional requirements before finalizing the rental agreement in the future, he says.

Prior to the announcement, tenants and landlords were already transacting through wire transfers for convenience. This was especially true for tenants who receive an advance housing allowance from their company, Kumar says.

“Once, I rented my apartment to a tenant who paid 60,000 Dh by bank transfer [as he didn’t have a chequebook] in response to my initial offer of payment by cheque,” ​​says Kumar.

“This was after eliminating several potential tenants who offered four to six checks, and some even up to 12 checks.”

Digitizing the check system will allow rental prices to stabilize even more, he says. Most landlords charge Dh1,000, Dh2,000 or even up to Dh4,000 extra in rent if there are a lot of checks, according to Kumar.

Landlords also have to manage their cash flow and pay the mortgage on the property, Kumar says.

“Non-payment of a mortgage is much worse than non-payment of a credit card or a personal loan,” he points out.

If the system changes to direct debit, rental contracts or the law will have to adapt to this change, he says.

“Most landlords will treat the rental of a property on a monthly basis rather than an annual contract. It will be much easier and simpler to have a recurring monthly rental contract than an annual contract,” he adds. -he.

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Adam Wilkin, director of sales and property management at Aqua Properties, welcomes the change, saying he meets many renters who find paying by check a “strange concept”.

Many millennial tenants don’t even know how to write a check because they’ve never done it in their home country, he adds.

“As Dubai continues to attract young, tech-savvy residents to work remotely, we need to modernize the way we pay our rent,” Wilkin says.

The decision will help estate agents and property managers, as the majority of their landlord clients live outside the UAE and rely on them to write bank checks and transfer money overseas.

If the tenant pays in multiple checks, there’s a lot of paperwork for agents and more risk, he adds.

“Hopefully the owners will embrace the change and be more flexible with payments,” Wilkin said.

“With more and more tenants turning to the short-term market, Dubai could see a monthly rent transfer pattern like Europe and the US.”

Neither the direct debit instruction at the bank nor post-dated checks are 100% secure from a payment risk perspective, according to Nicoleta Remmlinger, business development manager for the Middle East at risk consultancy 4ft credit.

A direct debit instruction can be canceled at any time and a post-dated check can bounce once presented, she adds.

“Direct debit instructions and NSF post-dated checks are reported daily to the UAE Central Bank and Al Etihad’s credit bureau and displayed on the renter’s credit report for five years, affecting their credit score and his credit history and the possibility of obtaining new credit [loan, mortgage or credit card] in the future,” says Remmlinger.

“Banks, financial organizations and real estate agencies should adopt a tenant score based on internal and external data from sources such as the DLD which assesses timely payments, litigation records, court data and data of the AECB to help select tenants and maintain landlord profitability.”

The key is to develop models that can predict the likelihood of a tenant not paying rent on time for a chosen property and to assess what a potential tenant can afford in terms of rental amount and optimal number checks, she said.

Making offers tailored to the tenant’s needs allows real estate companies to maximize landlords’ goals and is the best solution to avoid late rent payments, she adds.

Updated: July 15, 2022, 05:21