Daniel goodwin real estate law

1. REAL ESTATE LAWS IN THE
KINGDOM OF SAUDI ARABIA
DANIEL GOODWIN, Senior Associate
Property & Construction
14 SEPTEMBER 2014

2. 1
TOPICS WE WILL COVER
• Real estate ownership and restrictions
• How the conveyancing process works and the role of the Notary
Public
• The status of leases in Saudi Arabia
• Requirements for off-the-plan sales of real estate
• Introduction to real estate mortgages

3. AUTHORITY FOR REAL ESTATE
OWNERSHIP
Basic Law of Governance Royal Order No. (A/91) Sha’ban 1412H – 1
March 1992
– Article 1: The Holy Qur’an and the Sunnah are the constitution.
– All land is owned by the Crown, unless it is owned privately or owned
by a municipality.
– Article 14: All natural resources that God has deposited underground,
above ground, in territorial waters or within the land and sea domains
under the authority of the State, together with revenues of these
resources, shall be the property of the State, as provided by the Law.
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4. NO SPECIFIC PROPERTY LAW – LAW OF
CONTRACT
“Muslims are bound by their stipulations, except a stipulation which
makes lawful that which is unlawful.”
Shari’ah law recognizes the maxim “the contract is the law of the
parties”.
Transferring land or change in possession of land are rights in
contract
The original title deed (certified by the notary public) is the instrument
which proves the ownership of the land
Freehold ownership – owner of the land to the exclusion of all others
(except as required by law)
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5. IDENTIFYING LAND
Description of the parcel of land as stated on the Title Deed
Cadastral Survey – The Law of General Survey Authority
Implementation of cadastral surveys – Ministry of Municipal and Rural
Affairs
Register of Land Ownership
Current difficulties in identifying land owner (due diligence)
Currently through local Notary Public only
New Laws creating Registration of Land Titles
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6. IDENTIFYING LAND (continued)
Each parcel will have its own unique identification number
In Phase Two the registration of long term leases, easements,
caveats etc will be recorded on the title register
System of Ownership of Units, Estates, Apartments and their Sorting
Issued by Royal Decree No. 5. on 11/2/1423 corresponding to
24/4/2002 (“Strata Law”)
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7. CONVEYANCING - TRANSFER OF
OWNERSHIP
• Notary Public is a public government official who is trained in
Shari’ah law
• Ministry of Justice, Notary Public Department
• Parties negotiate the contract and reach agreement
• They or their authorised representatives attend at the Notary Public
• The Notary Public confirms authorisations, identity documents,
articles of association (if necessary) and checks the title deed for
authenticity.
• In Riyadh - notifies the records department, issues new title deed
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8. CONVEYANCING - TRANSFER OF
OWNERSHIP (continued)
• Both parties then attend a second meeting with the Notary Public
where the new title deed with the Buyer’s name is produced
• Both parties sign a standard form required for the transfer of the land
• Exchange of payment and title deed
• Buyer signs Notary Public register to confirm receipt of the title deed
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9. EASEMENTS, SERVITUDES, RIGHT TO
USE LAND, RIGHT OF ACCESS
• Law of Contract
OTHER RESTRICTIONS
• Marginalization Instrument
• Planning Controls
• Government Rights of Resumption
• Existing mortgage (in some cases)
• Industrial Cities, KAEC – restrictive covenants, long term leasehold
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10. LEASE
• Right to use of the land
• Exclusive possession – Should be expressly stated
• Does not have to be in writing (but recommend) or registered
• Still must comply with local laws concerning use of the land
• Law of Contract between Landlord and Tenant / Lessor and Lessee
• Eviction?
• Generally unless agreed in the lease, there is no right to sublease
• Difficulty in establishing right of Landlord or Sub-Lessee to lease
premises
• Tenure, Risk, Value – Terms?
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11. LICENCE
• Saudi nationals, GCC nationals, other foreign nationals.
• Foreigners (including GCC Nationals) are not permitted to own
ownership in the holy cities of Mecca and Madina
• Foreigners (including GCC Nationals) can lease in the holy cities of
Mecca and Madina, but this is limited to two years
• GCC nationals are permitted to purchase property up to 3,000m2 (in
total) but is restricted to personal use as a residence
• GCC companies can own or lease land for business but not for the
purpose of trading the land – it must be used by the business
• GCC companies or foreign nationals can purchase land for
development, but it must be developed within 5 years and for a
values of no less than 30M Riyals 10

12. SALES OFF THE PLAN
The Regulations for the Sale of Real Estate Units on a Map were
implemented by Ministerial Decree No.983 on 2/2/1431H
corresponding to 18 March 2010
Licence Requirements
– safety record;
– feasibility study for the project;
– forecast costs to complete (including marketing costs);
– sales contract forms;
– development permits and approvals; and
– agreements with accountants, auditors, building contractors and the
consulting engineer.
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13. SALES OFF THE PLAN (continued)
• Operation of Escrow Account
All payments by buyers must be paid into the escrow account for the
project together with any financing received.
Monies can only be released from the escrow account to make
progress payments to the principal contractor or other consultants
(including marketing and sales), provided certain conditions are met
and sign-off for the payment is given by the developer, the consulting
engineer and a chartered accountant.
• Checks & Balances
Reports and forecasts must be provided
Inspections by Ministry of Commerce and Industry (MoCI)
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14. SALES OFF THE PLAN (continued)
• Sales & Marketing
An additional licence for marketing off the plan is required
• Other Considerations
Penalties for breaches
Rights of MoCI to take over and liquidate in the event of breach of
insolvency
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15. MURAHBAHA
One of the existing methods of financing real estate – or borrowing
against real estate
The financier / bank retains the title to the asset
The borrower pays off the loan over a period of years
At the end of the loan the land is transferred from the bank to the
borrower who purchases the land from the bank.
The new Real Estate Mortgage Law requires a mortgage to be
entered into instead now, rather than transferring title.
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16. NEW SYSTEMS OF REAL ESTATE
MORTGAGES
The Real Estate Mortgage Law, Royal Decree No. M/49 dated
13/8/1433 (3 July 2012)
Will be regulated and overseen by Saudi Arabian Monetary Agency
Permits second ranking mortgages, the sales of mortgages, a
system of registration and recoding of the sale price of residential
property
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17. THANK YOU
Daniel Goodwin
Senior Associate
Sky Tower, South Tower S.2.A, 2nd Floor, King Fahad Rd
PO Box 300400, Postal Code 11372, Riyadh, KSA
T: +966 11 416 9666 F: +966 11 416 9555 M: +966 50 958 2087
www.tamimi.com
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