The Ministry of Commerce and Investment has adopted the Commercial Mortgage System as an effective and catalytic step within its ambitious plans to build a legislative framework for commercial regulations in line with “Saudi Vision 2030,” which seeks to improve the business and investment environment, and to raise the Kingdom’s credit rating and its standing in targeted international indices. The trade and investment system is committed to establishing a legislative framework that stimulates and supports commercial and investment activity and empowers private sector enterprises. It is scheduled to take effect 90 days after its publication in the Official Gazette.

The new commercial mortgage... a quantum leap for the sector

The Council of Ministers recently approved the new and improved commercial mortgage system, which regulates its implementation in a manner that safeguards the rights of all parties and maximizes its benefits and impact, It also contributes to strengthening the credit market and enabling private sector enterprises to obtain the necessary financing for their economic operations, while benefiting from the collateralization of their operating assets and preserving and investing the pledged funds.

The new mortgage system includes a set of principles and concepts aligned with international best practices, aimed at bringing about a qualitative leap in the commercial and investment sectors and building sustainable economic entities that benefit the business community, as the new system primarily aims to strengthen the credit market in the Kingdom by creating conditions that improve commercial entities’ access to financing and enable asset owners to benefit from the value inherent in their assets.

Utilizing Assets as Collateral for Debts

A commercial mortgage is defined as the mortgagor providing movable property as collateral to secure debt repayment. The system aims to expand the scope of assets eligible for mortgaging and enable asset owners to benefit from their value by using them as collateral for debt, enabling small and medium-sized enterprises to benefit from their operational assets, expanding the scope of commercial pledge agreements, safeguarding borrowers’ rights to receive their entitlements, and streamlining enforcement procedures on pledged assets in the event of default.
The commercial mortgage contract shall include the names and addresses of the mortgagor, the mortgagee, the debtor, and the notary, a description of the pledged property, its condition, and its value as of the date of the contract; a specification of future property and the date of its availability; a general description of the secured debt, its amount, or the maximum limit to which it extends; the date of the pledge contract; and the due date of the secured debt or the expected due date of the debt that is not fixed in the debtor’s liability. The provisions of the law apply to a written mortgage contract executed on impaired property to secure a debt.

Protecting the Rights of Parties to Commercial Transactions

On the same subject, Dr. Majid Al-Qasabi, Minister of Commerce and Investment, emphasized that the commercial mortgage system protects the rights of parties to commercial and financial transactions, enables private sector enterprises to leverage their operating assets and obtain financing effectively, It also strengthens the private sector’s contributions to development, boosts the national economy’s growth rates and performance efficiency, and enhances its competitiveness in light of global developments.

Al-Qasabi explained that the system maximizes small and medium-sized enterprises’ utilization of their assets, allowing them to pledge their operational assets while continuing to use them, and facilitates foreclosure procedures on pledged assets in the event of default.

A commercial mortgage is executed upon the transfer of possession or its registration, and the mortgage is terminated by agreement between the mortgagor and the mortgagee, the repayment of the debt, or the destruction of the mortgaged property. It also provides for the establishment of a unified commercial mortgage registry. Enforcement against the mortgaged property is carried out through the Board of Grievances, the Enforcement Court, or direct enforcement, and covers current or future movable property and future rights.

Expanding the Scope of Financing

The commercial mortgage system contributes to accelerating the pace of economic growth and supports private sector enterprises in leveraging their operating assets and obtaining financing effectively, maximizing the benefit economic entities derive from their assets, as they can pledge their operating assets and utilize them simultaneously, pledge a single asset to more than one financing entity, and pledge future funds. The adoption of the system improves the Kingdom’s credit rating and its position in international indices.
The Ministry of Commerce and Investment had sought the opinions of the public and stakeholders regarding the new commercial mortgage system and received their views and suggestions on the draft of the new system through its website and a dedicated email address, based on the principles of participation and transparency.