Dubai's direct debit system for rents: Will tenants be fined for insufficient funds?

A new system that lets tenants pay rents in Dubai through direct debit came into effect recently. The system offers tenants an alternative to submitting post-dated rental cheques to their real estate firms.

Through the system, landlords get a one-time direct debit mandate signed by tenants, allowing Emirates NBD to debit the rental from the tenant’s account or credit card. Landlords can recover the rental using an automated system.

Typically, real estate firms impose a fine or penalty on tenants if their rent cheques bounce due to insufficient funds at the time of its clearance. So, what happens if a tenant fails to maintain sufficient balance in time for the direct debit?

According to an Emirates NBD spokesperson, the bank will not impose any penalties on tenants for this.

“Landlords might impose some fines / penalties on the tenants for repetitive recovery failures. The charge recovery will take place outside the banking system and will be imposed by landlords directly,” the spokesperson added.

Niral Jhaveri, head of Property Management at Betterhomes, said fines are imposed mainly to encourage the tenants to pay the rent on time. “Even for direct debit and credit card payments, we will impose fines if the tenant fails to maintain the required balance. Our fines vary from Dh525 to Dh1,050, depending on the type of the property,” she said.

Reminders will not be sent to tenants ahead of the direct debit, the Emirates NBD official said. However, real estate firms may choose to do so, as some do with post-dated cheques.

Have real estate agencies started implementing the scheme?

Under the agreement signed between Dubai Land Department (DLD) and Emirates NBD bank, rental cheque payments are automated and digitised using the UAE Central Bank’s Direct Debit System (UAEDDS). It benefits landlords, property management companies and tenants by eliminating the need to manage post-dated cheques manually.

Under the system, the landlord must register for the service with the bank. Instead of collecting cheques from the tenants, the landlord gets signed direct debit mandates.

Jhaveri said Betterhomes is yet to implement the direct debit system as “we are awaiting more details on how this process will work and what the legal framework is”.

“A very few landlords have asked us about this system. I think most of them are awaiting more clarity in terms of what happens if there is no sufficient balance in the account. Would the landlord be able to file a case to recover this money? How much time will it take to recover the money? Would an advice from the bank about insufficient funds be enough to file the case? Most of the landlords are comfortable with the traditional method of holding on to cheques as it gives them a sense of security,” she said.

Jhaveri said the new system would decrease the administration work for the property managers and the landlord. “We will no longer be required to warehouse the post-dated cheques and deposit them on the due date. It will also reduce human errors like overwriting on cheques, irregular signatures, etc. Direct debit will help the landlords maintain their cash flows efficiently.

“In addition, Dubai is a hub for expats who are not familiar with rental cheques, therefore this will really simplify payment methods and synchronise us with global standards,” she added.

The real estate expert said once a proper framework is set up, many landlords would want to switch to direct debit instead of cheques.

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