The delay in delivering real estate units is one of the most prominent challenges facing buyers in off-plan sales projects, especially families whose housing plans are linked to a specific date for receiving the unit, or who bear additional financial burdens as a result of continuing to rent in conjunction with paying the installments due to the developer.
The matter does not stop at the delay in moving to the new residence. Extending the implementation period beyond the agreed date may result in direct financial damages to the buyer, which raises questions about his legal rights, when the developer becomes obligated to provide compensation, how the value of this compensation is calculated, and what procedures can be taken if the developer refuses to respond to the claim.
In this context, Saudi regulations have established a clear framework to protect the rights of buyers in off-plan sales projects, through the Off-Plan Real Estate Sales and Leasing System and its executive regulations, which define the developer’s obligations, cases of delay and default, and provisions related to compensation for non-delivery on the specified date.
When does a delay in delivery turn into an obligation to compensate?
The regulations governing off-plan real estate sales and leasing obligate developers to complete projects by their specified deadlines. Article 20 stipulates that buyers are entitled to financial compensation if developers delay delivering the land or property unit without a reason beyond their control. Therefore, while the expiration of the contractual delivery date is a crucial point for examining the developer's liability, it is not sufficient on its own to determine entitlement to compensation. The cause of the delay must be investigated, including whether it was beyond the developer's control, and any approved extensions and contractual provisions must be reviewed.
According to Article 34 of the Executive Regulations, a developer is considered to be in delay if he does not complete the project after the end of its specified period without a reason beyond his control, while the General Authority for Real Estate may grant him an additional period to implement the project not exceeding one year.
How is compensation for delayed delivery calculated?
The executive regulations did not leave the value of compensation to the developer’s discretion alone, but set a minimum limit that varies according to the nature of the real estate project. For developed lands, the compensation is determined by agreement between the two parties, provided that it is not less than 2% of the annual sale value.
If the delay is related to a real estate unit, Article 35 obliges the developer to pay compensation agreed upon by both parties, provided that its value is not less than the fair market rent for the unit, according to the assessment of an accredited appraiser. This means that the basis for calculating compensation in this case is related to the rental value that a similar unit can achieve in the market, and not a fixed percentage of the purchase price.
This point is of particular importance to buyers of residential units, as it allows them to rely on a professional assessment of the fair rental value of their unit during the delay period, instead of settling for a lump sum that does not reflect the nature, location, or specifications of the property.
Is the developer entitled to extend the delivery date?
The executive regulations of the General Authority for Real Estate allow the developer to be granted an additional period to complete the project, provided that it does not exceed one year after the end of the original period, but this extension is not open without controls, and the buyer should not treat any new date announced by the developer as a regular approved extension.
The regulations differentiate between delay and failure. A project is considered to be in a state of failure if it is not completed after the end of its original period and the additional period granted to it, or if the implementation work has stopped for more than 180 days at any stage of the project, unless the developer provides a legitimate reason that is acceptable to the authority.
This means that a delay in delivery does not necessarily equal a project failure, as each case has its own controls and effects. Also, the existence of an approved extension requires reviewing its effect on the final delivery date and entitlement to compensation.
When is the developer exempt from liability for delays?
The system links the entitlement to compensation to the developer’s delay without a reason beyond his control. Therefore, the existence of exceptional circumstances may affect the determination of his liability if they are proven to be directly related to the disruption of implementation and are accepted in accordance with the regulatory procedures.
However, the mere fact that the developer announces difficulties in financing, delays by the contractor, or operational problems does not automatically exempt him from compensation, because the nature of the circumstance, its impact on the implementation of the project, and the extent to which the competent authority accepts the justifications provided must be considered.
It is also important for the buyer to review his own compliance with financial payments and contractual deadlines, because any breach on his part may be considered when investigating the dispute and determining the responsibility of each party.
What steps can protect the buyer's rights?
Before moving to litigation or taking escalatory measures, the buyer needs to build a documented file proving their contractual obligation, delivery date, and reasons for delay. The first step begins with reviewing the sales contract, confirming the specified delivery date, and the provisions for extension, compensation, and termination of the contract.
The developer should also be formally contacted to obtain a written statement explaining the reasons for the delay and the expected delivery date, while keeping all correspondence and exchanged notices, and documenting the project status and completion stages with available photos and reports.
If the claim relates to a residential unit, it is important to use an accredited appraiser to determine the fair market rent, as it is the minimum that the regulations rely on in calculating compensation for the delay in delivering the real estate unit.
The claim submitted to the developer should ideally include the agreed delivery date, the duration of the delay, the legal basis for the claim, and the amount of compensation requested, along with a copy of the contract, proof of payment, and supporting documents.
What happens if the project falters and delivery is no longer possible?
The buyer's protection is not limited to compensation for delays, as the system has granted the competent authority the power to take the necessary measures if a circumstance arises that leads to the inability to complete the licensed real estate project, in order to ensure work on completing it or liquidating it and returning the amounts paid, in accordance with the controls specified in the regulation.
These powers allow for addressing delays beyond mere late delivery dates through procedures aimed at protecting buyers' rights and resolving the project's status. Therefore, prolonged work stoppages or a lack of tangible progress necessitate monitoring the project's status with the General Authority for Real Estate, rather than relying solely on verbal promises from the developer.
Can the buyer cancel the contract instead of waiting for delivery?
A delay in delivery does not give the buyer an absolute right to unilaterally terminate the contract without adhering to the established procedures and conditions. Article 20 of the Implementing Regulations mandates that the contract include provisions regarding compensation and fair market rent in case of developer delays, in addition to provisions concerning contract termination and any extensions that may be granted to the developer.
Therefore, the buyer must review the terms of termination of the contract, distinguishing between delays that can be remedied by compensation, and situations that may necessitate terminating the contractual relationship or applying procedures specific to stalled projects.
Before buying an off-plan unit, don't ignore the delivery date.
Buyer protection begins before the contract is signed, not after a project delay is discovered. Therefore, it's essential to ensure the contract clearly specifies the delivery date, includes provisions for compensation for delays, allows for extensions, outlines contract termination terms, and establishes a dispute resolution mechanism.
It is also advisable to check the project and developer's license, review project data and progress reports available through the General Authority for Real Estate, and not rely on promotional dates or verbal promises that are not clearly reflected in the contract.
Compensation is a right governed by regulations; the contract is the starting point.
Saudi regulations provide off-plan property buyers with clear protection against delivery delays, by obligating the developer to provide compensation for delays without a reason beyond their control, and by setting a minimum compensation for real estate units based on fair market rent as assessed by an accredited appraiser.
However, accessing this right requires verifying the delivery date, any approved extensions, and the reason for the delay, in addition to documenting the claim and relying on the contract and its implementing regulations. The clearer the documentation, the stronger the buyer's position to protect their rights and claim the compensation due.
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