UAE Commercial Security Deposits: Landlord Guidelines

Security deposits act as the primary financial safety net for commercial landlords in the United Arab Emirates. Governed by the Federal Civil Transactions Law (currently Law No. 5 of 1985, to be replaced by Federal Decree-Law No. 25 of 2025 effective June 1, 2026) and emirate-specific legislation like Dubai's Law No. (26) of 2007 (effective 22 August 2007), these deposits are essential for mitigating the higher financial risks associated with business tenancies. While they function similarly to residential deposits, the scale, complexity, and negotiation leverage differ significantly in the commercial sector.

Standard Commercial Deposit Amounts

The UAE market generally operates on fixed percentages for commercial security deposits, similar to the residential sector.

• Standard Office/Retail: The widely accepted standard is 5% to 10% of the annual rental value.
• Industrial and Heavy Commercial: For high-risk facilities, massive warehouses, or spaces requiring extremely complex tenant fit-outs (like a factory or a large restaurant with heavy kitchen equipment), landlords often push for higher deposits, sometimes requesting 10% to 20% or requiring the deposit to be provided as an irrevocable Bank Guarantee rather than a cash cheque.

The exact amount must be explicitly defined in both the Ejari/Tawtheeq registration and the customized lease Addendum. These mandatory registration systems serve as the primary legal record, and any deposit terms that contradict local tenancy laws may be deemed unenforceable.

Holding the Funds

Unlike some jurisdictions where commercial deposits must be held in specialized escrow accounts, commercial landlords in the UAE typically hold the security deposit directly. However, landlords do not have absolute discretion; the legal obligation to return the deposit is strictly enforced under Emirate-level tenancy laws, such as Article 20 of Dubai Law No. 26 of 2007 and Abu Dhabi Law No. 20 of 2006. Under the upcoming Federal Decree-Law No. 25 of 2025 (Article 906), effective June 1, 2026, deposits are clarified as being held in trust, with the landlord liable for loss attributable to negligence. Disputes regarding the retention of these funds are subject to the jurisdiction of the Rental Dispute Centers (RDC in Dubai, Rental Dispute Settlement Committee in Abu Dhabi).

Fit-Out Deposits

In commercial leasing, a secondary type of deposit is extremely common: the Fit-Out Deposit.

When a commercial tenant (like a retail shop or clinic) wants to undertake significant construction ("fit-out") to customize the shell-and-core space, the landlord or Building Management will usually demand a separate Fit-Out Deposit.

• This is entirely distinct from the lease security deposit.
• It covers potential damage caused to the building's common areas, elevators, or central HVAC systems by the tenant's contractors during the construction phase.
• Once the fit-out is completed, inspected, and approved by the building management and Civil Defense, the Fit-Out Deposit is refunded to the tenant's company.

Deductions and Reinstatement at Move-Out

At the end of a commercial lease, disputes frequently arise over the property's condition. Under Article 21 of Dubai Law No. 26 of 2007, the tenant must surrender the property in the same condition it was received, except for ordinary wear and tear.

The Reinstatement Clause

Almost all well-drafted UAE commercial leases include a strong "Reinstatement" clause in the Addendum. This mandates that upon vacating, the commercial tenant must strip out all their custom fixtures, walls, and branding, returning the space to the exact "shell-and-core" or "Cat A" condition it was in when handed over.

If the tenant vacates but leaves their restaurant kitchen built-out or their custom office partitions standing (unless the landlord explicitly agreed in writing to keep them):

1. The landlord is fully legally entitled to use the commercial security deposit to pay contractors to demolition the fit-out and reinstate the space.
2. If the demolition costs exceed the deposit, the landlord can file a case against the corporate tenant at the Rental Dispute Centre (RDC) or the relevant settlement committee to recover the remaining costs.

Handling Deposit Disputes

If an amicable agreement over deposit deductions fails, either the corporate tenant or the commercial landlord can initiate a formal dispute at the RDC (Dubai) or the Rental Dispute Settlement Committee (Abu Dhabi).

To win a case regarding commercial deposit deductions, the landlord's strongest piece of evidence will always be a professional, signed Move-In Condition Report (with extensive photography) demonstrating the exact state the property was handed over in.

Streamline your commercial move-in and move-out inspections with Landager's digital documentation tools, ensuring your right to retain deposits is always backed by undeniable photographic proof.

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