Bounced cheque law in UAE: The changes landlords and tenants need to know

Last month, the UAE put into effect Federal Law No. 14 of 2020, amending and repealing some of the previous laws governing bounced or returned cheques. Among the changes include the decriminalization of cheques issued without sufficient funds.

In a nutshell, a bounced cheque due to insufficient funds is no longer a criminal offense except those issued in bad faith. Prior to this, such instances were penalized by jail terms and the issuance of fines.

This blog aims to provide an overview of the changes to the law, especially for landlords and tenants. This does not serve as legal advice in any way.

Tenancies & PDCs

There are 8.89 million expats in the UAE. That’s roughly 89% of the population and a majority of them rent homes here. So, it’s understandable that this is a hot topic.

When it comes to tenancies, the use of post-dated cheques or PDCs as a payment mode is the most common one, allowing tenants and landlords to proceed with little effort or difficulty as they guarantee payments of large amounts over time. So unless the annual rent is paid in cash or in one go, it is customary for landlords to take the entire year’s rent in multiple cheques.

For tenants, this allows them to essentially pay the entire value of the rent in advance without technically releasing the amount until the date indicated on the cheque. For landlords, it serves as a safety net, ensuring and settling the payment for their properties for the year.

Bounced cheques before the amendment

A bounced cheque used to be a criminal offense under UAE law. According to the now-defunct Article (401) of the UAE Penal Code, instances of dishonored cheques — for any reason — were punishable with penalties in the form of detentions or fines.

Here’s a familiar scenario in Dubai’s leasing landscape while it was still in effect:

If a tenant’s cheque is dishonored, a landlord could resort to filing a criminal complaint at a local police station. Thereafter, the police may summon the drawer of the bounced cheque, the tenant in this case, where he or she is given the option to settle the amount. Otherwise, the matter could be taken to court.

If the settlement does not happen, the police may register a case against the tenant and endorse the case to the public prosecutor or criminal court. This is where criminal liability is determined and a fine or detention is imposed.

At least that’s how it used to be.

Bounced cheques after the amendment

The latest amendments now classify issuing a cheque without sufficient funds as a civil offense. Further, partial payment of a cheque is now mandatory under the changes.

The changes introduced aim to foster amicable settlements between parties, landlords and tenants included. Ultimately, it redefines what constitutes as a crime in commercial transactions involving returned cheques while decongesting the UAE’s judicial system in the process.

This means the previous steps of filing a police report and the ensuing procedures are removed from the equation. Instead, a cheque bearer can directly present a returned cheque to request an executory order for the payment of the entire or remaining value in question.

With this, banks are obliged to release any available fund in the drawer’s account for the cheque bearer’s benefit unless the beneficiary refuses the partial payment.

It is important to note that cases involving fraud can still be criminally prosecuted. These include cases involving falsifications, forgeries, and fraudulent practices to prevent cheque encashments.