Introduction
Commercial lease rent refund UAE disputes often hinge on whether the tenant actually received the benefit intended under the contract—a principle recently clarified by the Abu Dhabi Court of Cassation in Commercial Appeals Nos. 9 & 13 of 2026.. However, a significant judgment of the Abu Dhabi Court of Cassation (Commercial Appeals Nos. 9 & 13 of 2026) demonstrates that the true legal battle often concerns a more fundamental issue: whether the tenant ever received the lawful and safe benefit intended under the lease.
This decision provides an advanced judicial interpretation of:
- the legal meaning of benefit in lease contracts,
- the consequences of rescission in continuing contracts,
- allocation of liability in fire damage cases,
- interaction between contractual and tort liability,
- and the relationship between compliance, insurance, and risk allocation.
Background of the Dispute
A long-term commercial lease was executed for industrial premises for a five-year period. The tenant paid a substantial first-year rent and security amounts. Shortly after taking possession, the tenant repeatedly requested essential regulatory documentation required to operate the facility, including:
- industrial license compliance,
- completion certification,
- civil defense safety approvals,
- documentation required to secure insurance coverage.
The landlord repeatedly confirmed availability of these documents but failed to provide them.
Despite the missing compliance documentation, the tenant attempted to prepare the premises for operations. Later, a fire occurred causing extensive damage to the premises and equipment.
Litigation followed, involving:
- A claim for rescission of the lease and refund of rent.
- A counterclaim for rent, penalties, and damages.
- A dispute over responsibility for the fire damage.
- Disagreement regarding insurance obligations.
The Court of First Instance rescinded the contract and ordered certain financial remedies.
The Court of Appeal partially amended the ruling.
Both parties then appealed to the Court of Cassation.
I. The Concept of “Benefit” in UAE Lease Law
Under UAE Civil Transactions Law, a lease transfers benefit, not merely possession. The benefit must be:
- lawful,
- safe,
- usable for the agreed purpose,
- capable of regulatory approval,
- and capable of insurance where required.
The Court of Cassation emphasized that the landlord’s primary obligation is not simply to hand over the premises physically but to deliver it in a condition that allows the tenant to lawfully exploit it.
In this case, the premises lacked regulatory approvals and safety certification necessary for operation. Because of this, the tenant could not obtain insurance and could not legally operate the industrial activity.
The court therefore concluded:
- Physical occupation alone does not constitute delivery of contractual benefit if legal operation is impossible.
- Accordingly, the rent paid for that period was refundable because the agreed commercial purpose could not be achieved.
II. Rescission of Continuous Contracts (Lease vs Instant Contracts)
The judgment provides a valuable distinction between two categories of contracts:
Instantaneous Contracts
Such as sale agreements — rescission returns parties entirely to pre-contract position.
Continuous Contracts
Such as leases — effects differ.
In leases:
- Past benefit actually enjoyed may remain payable.
- Non-existent or defective benefit must be refunded.
- The court examines quality of use, not mere occupancy.
The landlord argued that occupation alone prevented refund.
The court rejected this argument and held:
The benefit must be complete, lawful, and safe — otherwise it is legally considered nonexistent.
Therefore, rescission required refund of the rent already paid.
III. Insurance and Compliance: Allocation of Risk
A key issue concerned insurance coverage.
The contract required insurance coverage against risks such as fire. However, insurance could not be issued because regulatory approvals and civil defense certification were missing.
The court established a crucial legal principle:
- A party cannot rely on contractual risk allocation where its own breach prevented the allocation from functioning.
- Since the landlord failed to provide the documents necessary for insurability, the tenant could not be blamed for absence of insurance.
This principle has significant practical impact in commercial leasing disputes, especially industrial and warehouse leasing.
IV. The Fire and Civil Liability: Direct Cause vs Contributing Cause
After the fire, a major compensation dispute arose.
The legal question became: Who caused the damage?
Under UAE law, civil liability requires:
- Fault
- Damage
- Causation
Where multiple parties contribute to damage, courts determine:
- the effective cause,
- degree of contribution,
- proportional liability.
The court determined:
The landlord contributed by delivering non-compliant premises lacking safety approvals.
The tenant contributed by operating within unsafe conditions.
Thus, neither party was exclusively responsible.
The Court of Cassation therefore apportioned liability equally and reduced the compensation, accordingly, ordering the damages to be shared on a 50-50 basis.
V. Contractual Liability vs Tort Liability
An important argument raised was whether damages resulted from breach of contract or independent tort.
The court clarified:
- When the damage flows directly from failure to perform contractual safety obligations, liability remains contractual.
- When conduct independently causes harm, tort liability applies.
- When both exist simultaneously, the court may combine principles and allocate responsibility proportionally.
Here, the failure to provide safe premises created a chain of causation leading to the fire damage. Therefore, liability became shared between contractual breach and operational conduct.
VI. Interpretation of Contracts: Intention Over Wording
The judgment reaffirmed a fundamental rule in UAE contract interpretation:
Contracts are interpreted according to purpose and meaning, not literal wording.
The court considered:
- commercial expectations,
- regulatory requirements,
- safety standards,
- practical usability.
Even though the written contract-imposed obligations on the tenant, those obligations were conditional upon the landlord first delivering compliant premises.
Thus, contractual clauses could not override real commercial reality.
VII. Final Decision of the Court of Cassation
The Court of Cassation ruled:
- The lease was validly rescinded.
- The rent paid was refundable due to absence of usable benefit.
- The damage compensation must be shared equally.
- Liability for the fire was divided between both parties.
- Compensation amount was reduced and adjusted proportionally.
Conclusion
The Abu Dhabi Court of Cassation in Commercial Appeals Nos. 9 & 13 of 2026 has delivered a landmark clarification of UAE lease law.
The judgment confirms:
- A lease is not a contract for space —it is a contract for lawful commercial utility.
- Where that utility does not exist, rent may be refunded.
- Where damage results from mutual fault, liability is shared.
- And where compliance is absent, contractual protections collapse.
This decision reshapes how commercial leasing disputes, particularly industrial property disputes, will be evaluated in the UAE going forward.
If you require further clarification or legal assistance concerning the matters discussed in this article, please do not hesitate to contact Khairallah Advocates & Legal Consultants LLC. Our lawyers would be happy to assist you.
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