The COVID-19 pandemic is having a tangible and significant effect on businesses in the United Arab Emirates and the people working in them. Finding ways to deal with customers and employees fairly needs to be considered in tandem with the need to protect the business from supply problems and cash flow issues. One of the critical concerns where real estate businesses and individual landlords and tenants are turning to legal advice is with the case of force majeure, and the impact COVID-19 is having on contractual obligations.
According to Joe Carroll, who is a senior associate at global law firm Dentons, the immediate effects of the global pandemic were clear. “Reduced activity levels across a range of real estate transactions and the temporary closure of many offices, retail and hospitality establishments,” he explains. “Consequently, many parts of the sector experienced disruption to liquidity and cash flows.”
The UAE government responded quickly with a series of measures to help participants in the sector. However, due to specific contractual commitments, Carroll says that it remained necessary for many participants to seek to negotiate reliefs and concessions from their contractual counterparties. For example, construction milestones, rental payments, royalty payments, guaranteed returns, performance targets, franchise fees, purchase installments and loan repayments, to name but a few.
“Where such reliefs and concessions were obtained, the time that has passed and the gradual easing of restrictions may mean that they are now being withdrawn or coming to an end,” Carroll says. “Where such reliefs and concessions were not obtained, the corresponding contractual commitments may not have been performed triggering disputes on default.
In both scenarios, questions of compliance and enforcement are foremost and present one of the main challenges to the sector. “Finding the best solution often depends on leveraging both commercial and legal considerations. These can naturally change from one scenario to the next, meaning there is no quick fix or “one size fits all”,” Carroll adds.
As far as legal considerations are concerned, Carroll highlights one area of law has been the subject of particular focus. This concerns principle of law under the UAE Civil Code that may exempt a party from performance (for example, due to force majeure). “These can be extremely useful tools in contract negotiations,” Carroll says. “The application by the UAE courts of these principles to COVID-19 scenarios is being closely watched.”
According to Carroll, legal advisors must have a clear understanding of the legal principles and strategies surrounding contractual commitments and their enforcement to assist their clients in responding to these challenges.
“Many legal advisors will already have experienced a swift change from transactional work to advising on contract renegotiations, settlements, late payment claims and disputes. At the same time, positive opportunities continue to be observed. For example, accelerated growth in online sales is generating demand in the logistics and warehousing sectors,” he explains.
“Currency fluctuations continue to provide opportunities for international investors with the recent weak performance of the US dollar attracting investment from jurisdictions including the UK and Europe.”