Saudi Commercial Mortgages Law

Publication June 2018


A new commercial mortgages law (CML) was promulgated in the Kingdom of Saudi Arabia by Royal Decree number M/86 dated 08/08/1439H (corresponding to April 24, 2018) and by Council of Ministers Resolution number 426 of the same date. The CML came into force on April 24, 2018. The implementing regulations to the CML were issued pursuant to resolution number 43902 of the Minister of Commerce and Investment and came into force on May 02, 2018.

The CML takes the place of an earlier commercial mortgages law which had been issued by Royal Decree number M/75 dated 21/11/1424H (corresponding to January 14, 2004). The CML is more extensive than the previous law and introduces a number of new concepts not covered by the previous law, such as floating charges, and codifies the order of priority of security. The CML also overturns certain provisions of the previous law by, for example, permitting security to be taken over future property.

Affected parties have until September 24, 2018 to ensure that any security instruments to which they are a party dated prior to April 24, 2018 are amended to comply with the provisions of the CML. The priority of security executed prior to April 24, 2018 will not be affected by the CML until September 24, 2018, following which the provisions of the CML will govern the priority of such security.

The following summarizes the new features of the CML as compared with the previous law.

Securing future debt

Under the previous law only quantifiable, known or crystallized, debts could be secured. The CML explicitly permits the securing of debts arising in the future, including contingent debts. In addition, additional drawing of a debt (e.g. a loan facility) or the rescheduling of the same will not now affect the effectiveness of the underlying security. This clarifies the position around the extent to which a security instrument executed on a particular date would legally cover all future drawdowns under the financing to which it relates.

The CML requires that property over which security is granted is either (i) capable of being sold or (ii) capable of being valued. In order to grant security over future rights the value of such future rights, as well as the date on which they are to become vested in the person providing the security, ought to be specified in the relevant security document.

Security valuation

The CML further requires that property over which security is provided is to be valued according to methodology agreed between the person granting the security and the person in whose favor the security is granted, whether in the relevant security document or in a document entered into after the date of the security document.

Should the valuation methodology not have been previously agreed each of the parties is required to appoint a certified valuer with the final valuation then being the average of the two valuations computed by each of the two valuers.

Security over fluctuating amounts

The previous law was explicit in not applying to security being taken over amounts arising in the future. The CML reverses this position by permitting such security to be taken, provided the secured amounts are expected to arise prior to the repayment date of the secured debt. This would suggest that taking security over future proceeds, such as receivables for example, may now be legally enforceable in the Kingdom of Saudi Arabia.

Extent of security

The CML explicitly permits the taking of security over a portion of an indivisible movable asset, with the security right considered to apply generally to the relevant portion of such asset as is covered by the security instrument. In addition, a person may grant multiple security interests over the same asset.

Perfection of security

In order for security to be perfected under the previous law, the secured party or its agent had to have constructive possession of the secured property. Under the CML security is, as a general rule, perfected by way of registration at the Unified Centre for Lien Registration (UCLR) or by granting the secured party or its agent constructive possession of the secured property. This clarifies the position surrounding certain forms of security, such as assignments, taken in the Kingdom of Saudi Arabia and the enforceability thereof. One exception to the registration requirement is in respect of commercial goods where possession of the commercial goods is required for security over them to be perfected, unless they are subject to a floating charge.

Floating charges

The CML introduces the concept of a floating charge, which may be taken over the entirety, or part of, the movable goods of a going concern notwithstanding that the assets subject to the floating charge are expected to fluctuate from time to time. It would appear that the floating charge does not cover fixed assets. It is worth noting, however, that the CML does provide for a variation on the floating charge whereby, in respect of an incorporated entity, the floating charge is understood to include that entity’s place of business.

The floating charge provided for under the CML crystallizes over the secured property once an event of default occurs and the floating charge is enforceable. The assets that are subject to the floating charge may be dealt with in the normal course of day to day business until the floating charge has crystallized. As an exception to the flexibility generally associated with a floating charge, the CML does impose more particular requirements in respect of floating charges taken over a specified class of commercial goods in which case, for example, information about the location of the goods, their value and quantity is required to be specified with periodic reports being made in respect of the secured goods.

Order of priority of security

The previous law did not clarify the order of priority of security. The CML, on the other hand, is clear in that a security instrument has priority upon registration at the UCLR or upon the secured party or its agent obtaining constructive possession of the secured property. As between registered and unregistered security instruments, a security instrument registered at the UCLR has priority over an unregistered security instrument. With respect to unregistered security instruments, the secured party with possession of the secured property has priority over a secured party that does not have possession of the secured property. As between security instruments registered at the UCLR, priority is determined on the basis of the date of registration of the security instrument. Should security instruments have been registered at the UCLR on the same date, priority is granted to the security instrument dated earlier in time. Finally, a fixed charge over an asset would have priority over a floating charge over the same asset, unless the relevant parties had agreed otherwise.

Security over accounts

The CML is explicit in permitting security to be taken over accounts, something which was not touched upon in the previous law. Such security would be perfected by registration at the UCLR or at any other register that is otherwise relevant. The bank holding the account is required to have had notice of the security over the relevant account and agreed to comply with the relevant provisions of the security instrument as they would relate to the usage of the secured account. Security over an account includes the balance standing to the credit of the account on the date on which the relevant security instrument is executed as well as any amounts deposited after the date of the security instrument. The person granting the security over the account balances may not withdraw or transfer amounts from the account unless otherwise agreed upon.

Security over shares

The CML permits security to be taken over a specified share in an indivisible asset. As such, security may be taken over the ownership interest of a shareholder in the share capital of a limited liability company. Pursuant to the Saudi companies regulations, however, the recourse of the security holder will be limited to the dividends accruing to such shares. The security holder will only be able to sell the shares by way of court auction.


Whereas the previous law had the Board of Grievances as the judicial body through whom security over commercial property was to be enforced, the CML adopts a different approach. Security may be enforced either directly by the secured party presenting a security instrument, issued by the UCLR, providing for immediate enforcement to the relevant authorities or by providing an instrument providing for the enforcement of the security, issued by the UCLR, to the Enforcement Court.

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