The official Umm Al-Qura newspaper published full details of the real estate contributions system that was recently adopted by the Saudi Council of Ministers.
The decision, which was published by the newspaper under No. (881) and dated 12/23/1444 AH, included 7 chapters that included 38 articles explaining definitions and general provisions, as well as details of licensing and subscriptions.
The first chapter included general definitions and provisions, which was specified in its first article: “For the purpose of applying this system, the following terms and expressions – wherever they appear in it – shall mean the meanings indicated in front of each of them, unless the context requires otherwise:
The system: the real estate contributions system.
Regulations: the executive regulations of the Law.
Authority: The Real Estate General Authority.
Board: The Board of Directors of the Authority.
Chairman: The Chief Executive Officer of the Authority.
Real Estate Shareholding: A real estate development project in which a group of persons participates in order to achieve a benefit, by owning a property and developing it into residential, commercial, industrial, agricultural, etc., then selling and ending the shareholding. This does not include real estate investment funds.
Shareholder: A person who owns a common share in a real estate shareholding.
License: A real estate shareholding license issued by the Authority.
Licensee: The person who obtained the license.
Real Estate Shareholding Manager: The person appointed to manage the real estate shareholding.
Escrow Account: The bank account of the real estate contribution.
Shareholders Register: A register in which the names of the shareholders, their shares, and any change that occurs in the ownership of their shares are recorded.
Assembly: Shareholders’ Assembly.
The system aims to regulate real estate shareholding activity, raise the level of transparency and disclosure therein, and protect the rights of all real estate shareholding parties.
Without prejudice to the competencies of other government agencies, the Authority shall regulate the activity of real estate contributions in accordance with what is determined by the Law and the Regulations, and in particular it shall have the following:
1- Issuing, amending and revoking the license, and the Regulations specify the conditions, requirements and procedures necessary for this.
2- Classifying real estate contributions according to size, type, or location, and setting appropriate conditions, requirements, and time periods for real estate contributions, according to their classification.
3- Setting conditions for qualifying and classifying real estate developers for the purpose of offering real estate contributions.
4- Set conditions for qualifying and classifying practitioners of the real estate shareholding activity.
5- Laying down principles that determine the licensee’s entitlements for his fees and commissions.
6- Monitoring and supervising real estate contributions.
The Authority may seek the assistance of any other government agency or the private sector. To carry out any task assigned to it under the law or regulation.
A real estate shareholding may not be offered, advertised, marketed, or fund-raised except after the approval of the Capital Market Authority and obtaining a license from the Authority – in accordance with the provisions of the Law and Regulations – after verifying the following:
1- The real estate subject of the real estate shareholding must be owned by virtue of a valid title deed, whose integrity is proven, based on a statement from the authority that issued it.
2- The real estate subject of the real estate shareholding must have obtained the necessary approvals for its development from the competent authorities, as determined by the regulations.
Chapter Two – Licensing and Subscriptions
Article Five: The licensee must be qualified and classified by the Authority to practice the activity of real estate contributions as specified by the Regulations.
Article Six: The real estate share capital, on the basis of which the number and amount of shares are calculated, is determined through the estimated cost by a licensed appraiser, after the approval of the Authority and the Capital Market Authority, as determined by the regulations.
Article Seven: The Authority may require the addition of a reserve amount to the capital of the real estate shareholding that does not exceed (15%) of its estimated cost, in order to meet any unexpected additional expenses. The disposition of the reserve amount shall be with the approval of the Assembly. The regulations specify the conditions necessary for this, and how to return it to the shareholders in the event that it is not disposed of.
Article Eight: The contributor has the right to participate in the real estate contribution, with a share in kind or in cash. The regulation determines the type of in-kind share and the conditions that must be met.
Article Nine: 1- The real estate shareholding capital shall be divided into shares of equal value and rights, and the liability of the shareholders shall be within the limits of the shares they own in the real estate shareholding.
2- The Capital Market Authority organizes the register of shareholders for the real estate contribution.
Article Ten: It is not permissible to lend from the capital of a real estate shareholding, and it is permissible to borrow against the security of the funds or assets of the real estate shareholding, provided that this is included in the shareholding agreement, and the regulations specify the requirements regulating this.
Article Eleven: The net assets of the real estate shareholding shall consist of fixed assets, in cash and in kind, or rights with third parties. Owned by real estate. The creditors of the shareholders, the licensee, or the manager of the real estate shareholding have no right to the money or assets of the real estate shareholding except for the shares they own in the real estate shareholding.
Article Twelve: 1- The percentage of the licensee in the real estate shareholding must not be less than the percentage determined by the regulations, and he must retain ownership of this percentage until the end of the real estate shareholding.
2- The rest of the shareholders in the real estate shareholding may dispose of their shares in accordance with the conditions specified by the regulations.
Chapter Three – Real Estate Contribution Management
Article Thirteen: The licensee shall be responsible for all matters relating to the real estate shareholding towards the shareholder, the Authority, the Capital Market Authority and any of the relevant government agencies and third parties. The regulation defines the powers of the licensee and the limits of his responsibilities.
Article Fourteen: Subject to the provisions of Article Nineteen of the Law, the licensee must supervise the work of the real estate shareholding manager and enable him to carry out his duties.
Article Fifteen: The licensee shall open an escrow account in one of the licensed banks in the name of the real estate shareholding. The Authority, in coordination with the Central Bank of Saudi Arabia, shall establish the necessary controls for the escrow account.
Article Sixteen: The Capital Market Authority organizes the issuance of a real estate shareholding certificate proving that the shareholder owns a share in the real estate shareholding.
Article Seventeen: The real estate shareholding acquires a legal personality upon the issuance of a license by the Authority, and it is subject to the provisions of the Law and Regulations.
Article Eighteen: The licensee must appoint a chartered accountant and an engineering consultant for each real estate contribution. The regulations specify the conditions, requirements, responsibilities, tasks, work mechanism of each of them, and the consequences thereof with regard to real estate contributions.
Article Nineteen: The real estate shareholding is managed by the director of the real estate shareholding, who is appointed by the licensee. The regulation defines the conditions and requirements of the real estate shareholding manager, his powers, duties and responsibilities.
Article Twenty: The licensee, the Authority and the Association have the right to dismiss the real estate shareholding manager as determined by the regulations in the event that he abuses his powers or fails to implement his obligations, without prejudice to any penalty that may be imposed on him as a result.
Article Twenty-One: Without prejudice to the provisions of Article (14) of the Law, neither the licensee nor the real estate shareholding manager may take any decision or action if there is an existing or potential conflict of interest in this decision or action. The regulation defines the method of dealing with cases of conflict of interest.
Chapter Four – Shareholders’ Assembly
Article Twenty Two: The real estate shareholding company shall have an assembly consisting of all the shareholders registered in the real estate shareholding register. The bylaw defines the terms of reference of the association.
Article Twenty Three: The meetings of the association shall be held at the invitation of the licensee, the real estate shareholding manager, or shareholders representing (10%) of the real estate shareholding capital, or at the request of the Commission. The venue for the meeting shall be specified in the invitation to the meeting.
Article Twenty Four: The licensee – or his representative – shall chair the assembly, and all shareholders are entitled to attend the meetings of the assembly.
Article Twenty-five: The (first) assembly meeting is not valid unless it is attended by shareholders representing not less than (two-thirds) of the real estate shareholding capital. The decisions of the assembly in the (first) and (second) meetings are issued by the majority of the shares represented in the meeting, and in the event of equal votes, the vote is repeated again. If the necessary quorum is not present in the (second) meeting, an invitation is sent to a (third) meeting to be held within the (seven) days following the (second) meeting.
Article Twenty Six: It is permissible to hold meetings of the association and vote on its decisions. By means of modern technology specified by the Regulations.
Chapter Five – Termination of the real estate contribution
Article Twenty Seven: It is not permissible to sell real estate shareholding assets except after evaluating the assets by accredited evaluators according to the approved evaluators system, and in accordance with the procedures specified by the regulations. Any act that violates the provisions of this Article shall be considered null and void.
Article Twenty Eight: The sale of real estate shareholding assets shall take place in one of the following ways: 1- Selling by public auction.
2- Direct sale of all or part of the real estate shareholding.
3- Any other method specified by the Regulations.
Article Twenty Nine: Without prejudice to the provisions of Article (Seventeen) of the Law, the real estate shareholding retains the legal personality to the extent necessary for its liquidation, and it expires in one of the following cases: 1- Selling it in accordance with the provisions of the Law and the Regulations.
2- The expiration of the specified period unless it is extended in accordance with the provisions of the Law and the Regulations.
3- The impossibility of realizing the purpose for which it was established.
4- Cancellation in accordance with the provisions of the Law and Regulations.
5- The issuance of a final court ruling for its liquidation.
Article Thirty: All financial returns related to the real estate contribution must be deposited directly in the escrow account.
Chapter Six – Violations and Penalties
Article Thirty One: Violations of the provisions of the Law or Regulations are monitored by employees of the Authority and from any other authority the Authority deems to seek the assistance of its employees. A decision of the Chairman is issued for their appointment after approval of their authorities. The control officials may enter the sites and projects related to the activities covered by the system, including the licensee’s headquarters, and they must control the violations and keep the documents, documents and evidence related to them in accordance with the control procedures issued by the Authority and they shall be under the supervision of the Authority, and they may seek the assistance of the security authorities when needed. The regulation defines their work method, powers, and rewards.
Article Thirty-Two: Without prejudice to the provisions of Article (thirty-five) of the Law, anyone who violates any of the provisions of the Law or the Regulations shall be punished with one or more of the following penalties: 1- Warning.
2- Suspension of the license for a period not exceeding one year.
3- Revocation of the license.
4- A fine not exceeding 10 million riyals.
5- Preventing the licensee or the manager of the real estate shareholding from carrying out – in the future – any work related to the real estate shareholdings for a period not exceeding (10) ten years.
The Board shall issue a table that includes a classification of the violations and the penalties prescribed for them based on the provisions of this Article.
Article Thirty-Three: One or more committees shall be formed by a decision of the Chairman of the Commission, the number of its members shall not be less than three. It shall review the violations and impose the penalties stipulated in Article (32) of the system, according to the type of violation committed, its seriousness and the extent of its impact. The committee’s decision shall be approved by the Chairman of the Authority or whoever he authorizes. The chairman issues the committee’s work rules and determines the remuneration of its members.
Thirty-fourth Article: It is permissible to appeal against the decision of the committee stipulated in Article (thirty-third) of the system before the Administrative Court within (sixty) days from the date of notification of the decision.
Article Thirty-Five: Without prejudice to any penalty stipulated in any other system, whoever violates any of the provisions of the following articles: (fourth), (twenty-first), (twenty-seventh), and (thirty) of the system shall be punished with imprisonment for a period not exceeding (three) years, and shall be referred to the Public Prosecution; for investigation and prosecution before the competent court.
Chapter Seven – Final Provisions
Article Thirty Six: Without prejudice to the powers of the Authority, the Capital Market Authority, in agreement with the Authority, regulates the collection of funds for the purpose of offering the real estate shareholding.
Article Thirty Seven: The Board shall issue the Regulations in agreement with the Capital Market Authority, within (one hundred and twenty) days from the date of issuance of the Regulations, and shall come into force as of the date of its enforcement.
Article Thirty Eight: The system shall be published in the Official Gazette, and it shall come into force 120 days after the date of its publication, and all provisions that conflict with it shall be repealed.