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The Evernest scam: What happens next?

 

Michael Kortbawi, a partner of BSA Ahmad Bin Hezeem and Associates, offers some insights into the recent Evernest Holiday Homes scam and the developments that are expected to follow

 

Filed under
Property Management
 

January 20, 2022
 
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The Evernest scam: What happens next?
 

Hundreds of Dubai residents were recently hit by a scam involving Evernest Holiday Homes Rental.

Tenants and landlords were duped by the property management company, which fled the country with almost AED48mn in deposits, fees and rent paid in advance.

According to news reports, Dubai’s Department of Economy and Tourism (DET) is investigating the case.

Michael Kortbawi, a partner of BSA Ahmad Bin Hezeem and Associates, offers some insights into the matter and the developments that are expected to follow.

What is the Evernest scam?

Evernest Holiday Homes Rental LLC recently conducted a scam in the UAE, resulting in AED30mn in fraudulent gains, impacting almost 500 property owners and tenants. The scam involved Evernest leasing properties from property owners and promising them high returns through rental income from sub-leasing the properties at higher-than-market rent. What occurred in reality was quite the opposite. 

Evernest provided the property owners with post-dated cheques, and then sub-leased the properties at an extremely low annual rent. The catch was that Evernest’s tenants had to pay the entire rent to Evernest upfront (i.e. in one cheque). Enticed by low rents, many people in search of a bargain agreed to take this offer. In December 2021, Evernest’s principals and managers fled the UAE, leaving the property owners without access to their properties and holding worthless cheques, and the tenants with uncertainty as to whether they will be able to remain in the properties. Unfortunately, this is not the first time such a scam has occurred in the UAE.

How can individuals avoid being caught up in such a scam? 

When entering into a rental agreement, Tenants should always check the documents of the landlord, and request proof that the party they are renting from indeed owns the property or has the capacity/authorisation to sub-lease it. If the property is not owned by the party renting it out (that is, the property is being sub-leased), tenants should check whether the party renting out the property is licensed by the regulator and ideally should seek the ultimate landlord’s written consent to the sub-lease.

In the event a tenant is sub-leasing a property,  they should ideally seek approval from the ultimate property owner regarding certain aspects of the sub-lease. This would include checking that the intermediate landlord is in fact authorised and has the capacity to sub-lease the property, as well as to obtain  acknowledgment of the amount of rent quoted under the sub-lease. 

The measures described above can also help protect the ultimate property owners in that they will be informed of the terms/details of the sub-lease and the ultimate tenant. 

What are the regulations around sub-leasing in the UAE?

Short-term renting is regulated by the Department of Tourism & Commerce Marketing (DTCM). The DTCM issues guidance ,the most recent version being the First Edition 2020, which supplements Decree No. 41 of 2013 Regulating the Activity of Leasing out Holiday Homes in the Emirate of Dubai. 

The DTCM requires appropriate licensing and permits to be issued, and includes registering specific units as holiday homes with details of the ultimate tenants, including  a copy of the title deed of the property. Where a company seeks to act as the sub-lessor, the managers’ or administrators’ details must be provided to the DTCM.

Long term sub-leasing is dealt with directly under Dubai Law No. 26/2007 on the Organisation of the Relationship between the Lessors and Tenants in the Emirate of Dubai, and is generally regulated as per the agreements between the parties, subject to some basic provisions in the foregoing law. In such cases, the initial lease and the sub-lease are treated similarly in most cases, where the tenant of the initial lease becomes the landlord in the sub-lease. Accordingly, the regulator in such cases is the Real Estate Regulatory Agency (RERA).

How does the Evernest scam impact the landlords involved? 

The ultimate landlords (the property owners) will need to take legal action against Evernest, and its principals and managers, in order to get a conviction of fraud. This appears to be a clear case of fraud, evidenced by its well-planned scheme to deprive the ultimate landlords of rental income so that Evernest can gain the largest amount of rent from its tenants before suspicions are raised. The goal should be to get an arrest warrant against the principals and managers of Evernest followed by the seizure of the fraudulently obtained money .

In some cases, the property owners may also need to consider taking action against the tenants, some of whom have paid very little in rent, and seek to reach an agreement whereby the tenant pays additional rent with an extension to the lease, thereby reaching a fair outcome for both parties. 

How will Evernest be tracked and held to account? What is the legal process from now?

Fraud is an internationally recognised crime, which means it can lead to the involvement of Interpol, who could issue international arrest warrants for the perpetrators. That would likely lead to the arrest of the perpetrators in whichever country they have now fled to. ‘

Further forensic work would be carried out in an attempt to trace the money obtained as a result of the fraudulent scheme, ideally resulting in compensation for the victims.