Law of Off-Plan Sale and Lease of Real Estate Projects

Purpose and scope

• Regulates selling and leasing real estate units off-plan before construction is complete, to protect buyers, tenants and their money and ensure projects are finished.
• It applies to the off-plan sale and lease of real estate projects and to those involved, including developers, chartered accountants and consulting offices (Article 2).

Key rules, rights and obligations

• No developer may sell or lease off-plan unless entered in the developers' register, nor advertise or exhibit a project before it is licensed (Article 3).
• The developer applies for a specific licence for each project with the documents set by the law (Article 6), and the land deed is annotated to prevent dealings outside the law (Article 8).
• A separate escrow account is opened for each project to receive buyers' payments; it may be used only for the project and cannot be attached by the developer's creditors (Articles 9 and 10).
• Payments from escrow require a payment document signed by the developer, the consulting office and the chartered accountant (Article 11); 5% of construction cost is retained after the completion certificate, or a bank guarantee for the same amount (Article 14).
• Neither developer nor landowner may deal in the common parts before the units are subdivided (Article 16), and a buyer may inspect the accounting records relating to him (Article 17).
• The developer must finish on time; for unjustified late delivery the buyer is owed pre-agreed compensation for developed land, or the market rent for a residential unit (Article 20).

Violations, penalties and common problems

• Selling off-plan or collecting money from buyers without a licence, false documents, advertising a fictitious project, embezzling project funds, or not depositing booking money in escrow: up to five years' imprisonment or a fine of up to SAR 10 million, or both (Article 24).
• This also covers a chartered accountant who knowingly issues a false report and a consultant who knowingly certifies false documents (Article 24).
• Other violations: a fine of up to SAR 1 million imposed by a committee (Article 21); the authority may suspend the project until the breach is remedied (Article 20).
• The developer's registration may be cancelled if construction does not start within six months of licensing without excuse, for repeated delays, bankruptcy or a serious violation (Article 25).
• Common problems: paying an unlicensed developer or outside escrow, and no clear clause on delivery date and compensation for delay.

Procedures and key deadlines

• Committee decisions may be challenged before the administrative court within sixty days of notification (Article 21).
• The Public Prosecution investigates and prosecutes Article 24 offences (Article 26).
• Before buying, check the project licence and escrow account number on the off-plan sales platform, and pay into escrow only.

An advisory summary prepared by Al-Bayan Al-Wadih Law Firm. It is not an official text and does not replace the law, its implementing regulations, or advice from a specialised lawyer. The official published text and its amendments prevail.