Commercial Appeal - Lease Contract Duration and Annual Municipality Attestation - Federal Supreme Court Judgment No. 663/2025

Commercial Appeal Judgment No. 663/2025

The Federal Supreme Court issued its ruling on the enforceability of commercial lease contract durations and clarified the legal characterization of annual municipal contract registrations.

Background and Material Facts

The plaintiff company, operating in fish and shrimp farming, leased a plot of land from the second defendant for five years from May 1, 2023, to April 30, 2028, at an annual rent of AED 85,000 to construct and equip farming pools and installations. The lessee paid the first year's rent, obtained relevant operation permits, and paid rent for the first two months of the second year.

On May 13, 2024, the lessor disconnected the electricity supply, causing the destruction of fifty tons of farmed shrimp. The lessor subsequently sold the land to the first defendant without notice. Consequently, the lessee initiated Case No. 3014/2024 claiming AED 1,408,750 in damages for equipment losses and lost profits. In response, the new purchaser filed Counterclaim No. 3540/2024 seeking eviction and unpaid rent from March 31, 2024.

Procedural History

On January 16, 2025, the Court of First Instance dismissed the primary compensation claim and granted the counterclaim, ordering eviction and handover of the land. On May 28, 2025, the Court of Appeal upheld that judgment in Appeal No. 99/2025, finding that the lease was limited to a single year expiring on March 31, 2024, without renewal. The lessee filed the present cassation appeal before the Federal Supreme Court.

Legal Issues and Court's Reasoning

The core legal issue addressed whether annual municipal attestation overrides a mutually agreed multi-year commercial lease duration, and whether the appellate court committed a defect of reasoning by overlooking the lessee's substantive defenses.

Contractual Stability and Interpretation of Terms

The Federal Supreme Court established that a validly executed lease contract constitutes the law between the contracting parties. Modifying or rescinding its terms requires mutual consent and compliance with good faith and the transaction's intended purpose. Although the trial court has authority to interpret contracts, it cannot deviate from the explicit wording or mutual contractual intent.

Nature of Annual Municipal Attestation

The Supreme Court found that the appellate judgment erred in dismissing the five-year term agreed upon in the initial attested contract. The court held that: annual municipal attestation is a formal administrative procedure that does not supersede the true mutual intent of the parties. Furthermore, the court emphasized that:

• The lessor was fully aware of the nature of the aquaculture investment, which inherently required substantial time and preparatory equipment to yield returns.

• The lower court completely neglected the lessee's documented partial payment for the second year, which evidenced mutual continuation and execution of the primary five-year lease.

Final Ruling

The Federal Supreme Court accepted the appeal in form, concluded that the lower court committed a misapplication of law and insufficiency of reasoning, and quashed the appealed judgment.