The new real estate contribution system represents an important developmental phase that keeps pace with economic activity, and developments in the real estate market by establishing sufficient safeguards to protect the rights of all parties. The system requires obtaining a license from the General Real Estate Authority and approval from the Capital Market Authority before offering a real estate contribution.

What are real estate contributions?

Real estate contribution: A real estate development project in which a group of people participate to achieve a benefit, by acquiring a property and developing it into residential, commercial, industrial, agricultural, or other types of real estate, then selling it and terminating the partnership; this does not include real estate investment funds.

Overview of the System

According to the new Real Estate Contribution System , the General Real Estate Authority is responsible for regulating real estate contribution activities, through which it will issue licenses and classify real estate contributions based on size, type, or location, and establish appropriate conditions, requirements, and timeframes for real estate contributions according to their classification, and establish qualification and classification criteria for real estate developers for the purpose of offering real estate contributions, as well as qualification and classification criteria for practitioners of real estate contribution activities.

The new regulation also stipulates that, for any real estate contribution to be approved, the property subject to the contribution must be owned under a valid title deed, with its validity confirmed by the issuing authority, and that the property subject to the real estate contribution has obtained the necessary approvals for its development from the competent authorities, in accordance with the provisions of the system’s implementing regulations, which will be issued by the General Real Estate Authority in the coming period.

Conditions for Real Estate Contributions

Confirmed Real Estate Contribution System A real estate contribution may not be offered, advertised, marketed, or funded until after approval by the Capital Market Authority and obtaining a license from the Authority—in accordance with the provisions of the law and regulations—and after verifying the following:

• The property subject to the real estate contribution must be owned under a valid title deed, the validity of which is confirmed by the issuing authority.
• The property subject to the real estate contribution must have obtained the necessary approvals for its development from the competent authorities, in accordance with the provisions of the regulations.

Regulations of the Real Estate Contribution System

Chapter One - Definitions and General Provisions

Article 1:

For the purposes of this System, the following terms and expressions—wherever they appear herein—shall have the meanings set forth opposite each, unless the context requires otherwise:

The System: The Real Estate Contribution System.

The Regulations: The Executive Regulations of the System.

The Authority: The General Real Estate Authority.

The Board: The Board of Directors of the Authority.

The President: The Chief Executive Officer of the Authority.

Real Estate Contribution: A real estate development project in which a group of persons participate for the purpose of realizing a benefit, by acquiring real property and developing it for residential, commercial, industrial, agricultural, or other purposes, followed by the sale and termination of the contribution; this does not include real estate investment funds.

Shareholder: A person who owns a share in the real estate partnership.

License: A real estate partnership license issued by the Authority.

Licensee: The person who has obtained the license.

Real Estate Joint Venture Manager: The person appointed to manage the real estate joint venture.

Escrow Account: The bank account designated for the real estate joint venture.

Shareholders" Register: A register in which the names of shareholders, their shares, and any changes in the ownership of their shares are recorded.

General Meeting: The meeting of shareholders.

Article 2:

The purpose of this Regulation is to regulate real estate contribution activities, to enhance transparency and disclosure in such activities, and to protect the rights of all parties to the real estate contribution.

Article 3:

Without prejudice to the powers of other government agencies, the Authority shall regulate real estate investment activities in accordance with the provisions of this Law and the Regulations, and shall, in particular, have the following powers:

1- Issuing, amending, and revoking licenses; the regulations shall specify the conditions, requirements, and procedures necessary for this.

2- Classifying real estate contributions by size, type, or location, and establishing the appropriate conditions, requirements, and timeframes for real estate contributions according to their classification.

3- Establishing qualification and classification criteria for real estate developers for the purpose of offering real estate contributions.

4- Establishing qualification and classification criteria for practitioners of real estate contribution activities.

5- Establishing the basis for determining the licensee’s entitlements in exchange for their fees and the commissions they receive.

6- Monitoring and supervising real estate contributions.

The Authority may seek the assistance of any other government entity or the private sector to carry out any task assigned to it under the Law or the Regulations.

Article 4:

A real estate contribution may not be offered, advertised, marketed, or funds collected for it until after approval by the Capital Market Authority and obtaining a license from the Authority—in accordance with the provisions of the Law and the Regulations—and after verifying the following:

1- The real estate subject to the real estate contribution must be owned pursuant to a valid title deed, the validity of which is confirmed by a statement from the issuing authority.

2- The property subject to the real estate contribution must have obtained the necessary approvals for its development from the competent authorities, in accordance with the provisions of the regulations.

Real Estate Contribution System

Chapter Two – Licensing and Subscriptions

Article 5:

The licensee must be qualified and classified by the Authority to engage in real estate contribution activities in accordance with the provisions of the regulations.

Article 6:

The capital of the real estate contribution, on the basis of which the number and value of shares are calculated through the estimated cost by a licensed appraisal entity, shall be determined following approval by the Authority and the Capital Market Authority in accordance with the provisions of the regulations.

Article 7:

The Authority may require the addition of a reserve amount to the real estate contribution capital not exceeding (15%) of its estimated cost, to cover any unexpected additional expenses. The reserve amount may be utilized with the approval of the general assembly. The regulations shall specify the necessary conditions for this and the manner of its return to the shareholders in the event it is not utilized.

Article 8:

A shareholder is entitled to participate in the real estate partnership with a contribution in kind or in cash. The regulations shall specify the type of contribution in kind and the conditions that must be met for it.

Article 9:

1- The capital of the real estate partnership shall be divided into shares of equal value and rights, and the liability of the shareholders shall be limited to the shares they hold in the real estate partnership.

2- The Capital Market Authority shall maintain the register of shareholders for the real estate partnership.

Article 10:

No loans may be made from the capital of the real estate partnership; however, borrowing against the funds or assets of the real estate partnership is permitted provided that this is included in the partnership agreement, and the regulations shall specify the conditions governing such borrowing.

Article 11:

The net assets of the real estate partnership shall consist of fixed assets, whether in cash or in kind, or claims against third parties, owned by the real estate partnership. Neither the creditors of the shareholders, the licensee, nor the manager of the real estate partnership shall have any right to the funds or assets of the real estate partnership other than their respective shares in the real estate partnership.

Article 12:

1- The licensee’s share in the real estate partnership must not be less than the percentage specified in the regulations, and the licensee must retain ownership of this share until the real estate partnership is dissolved.

2- The remaining shareholders in the real estate partnership may dispose of their shares in accordance with the conditions specified in the regulations.

Chapter Three - Management of the Real Estate Joint Venture

Article 13:

The licensee shall be responsible for all matters relating to the real estate partnership vis-à-vis the partner, the Authority, the Capital Market Authority, and any relevant government agencies and third parties. The regulations shall specify the licensee’s powers and the limits of his responsibilities.

Article 14:

Subject to the provisions of Article (19) of the Law, the licensee shall be obligated to supervise the work of the real estate contribution manager and enable him to perform his duties.

Article 15:

The licensee shall open a security account at a licensed bank in the name of the real estate share. The Authority, in coordination with the Saudi Central Bank, shall establish the necessary controls for the security account.

Article 16:

The Capital Market Authority shall regulate the issuance of real estate contribution certificates attesting to the shareholder’s ownership of a share in the real estate contribution.

Article 17:

The real estate share shall acquire legal personality upon issuance of the license by the Authority and shall be subject to the provisions of the Law and the Regulations.

Article 18:

The licensee must appoint a certified public accountant and an engineering consultant for each real estate share. The regulations shall specify the conditions, requirements, responsibilities, duties, and working mechanisms of each, as well as the resulting obligations with respect to real estate shares.

Article 19:

The real estate contribution shall be managed by a real estate contribution manager appointed by the licensee. The regulations shall specify the qualifications and requirements of the real estate contribution manager, as well as his powers, duties, and responsibilities.

Article 20:

The licensee, the Authority, and the Association shall have the right to remove the real estate contribution manager in accordance with the regulations in the event of abuse of his powers or failure to fulfill his obligations, without prejudice to any penalty that may be imposed on him as a result.

Article 21:

Without prejudice to the provisions of Article (14) of the Regulation, neither the licensee nor the real estate contribution manager may take any decision or action if there is an actual or potential conflict of interest in such decision or action. The regulations shall specify the manner of dealing with conflicts of interest.

Real Estate Contribution Regulation

Chapter Four - Shareholders" Association

Article 22:

The real estate contribution shall have a general meeting composed of all shareholders registered in the real estate contribution register. The regulations shall specify the powers of the general meeting.

Article 23:

Meetings of the association shall be convened upon the invitation of the licensee, the manager of the real estate contribution, or shareholders representing (10%) of the real estate contribution’s capital, or at the request of the Authority; the location of the meeting shall be specified in the invitation.

Article 24:

The licensee—or his representative—shall preside over the assembly, and all shareholders shall be entitled to attend the assembly’s meetings.

Article 25:

The first general meeting shall not be valid unless attended by shareholders representing no less than two-thirds of the real estate share capital. If the quorum required to hold the first general meeting is not met, a notice shall be issued for a to be held within the (fifteen) days following the (first) meeting. The (second) meeting shall not be valid unless attended by shareholders representing no less than (half) of the real estate share capital. Resolutions of the General Assembly at the first and second meetings shall be adopted by a majority of the shares represented at the meeting; in the event of a tie, the vote shall be repeated. If the required quorum is not met at the second meeting, a notice shall be issued for a third meeting to be held within seven days following the second meeting, and the meeting shall be valid regardless of the percentage of shares represented therein, provided that the number of attendees is not less than three persons, and the General Assembly’s resolutions shall be issued by a majority of the shares represented at the meeting.

Article Twenty-Six:

Meetings of the assembly and voting on its resolutions may be conducted using modern technological means specified by the regulations.

Real Estate Contribution System

Chapter Five - Termination of the Real Estate Contribution

Article 27:

The assets of a real estate contribution may not be sold until they have been appraised by certified appraisers in accordance with the Certified Appraisers System and the procedures specified in the regulations. Any act that constitutes a violation of the provisions of this Article shall be deemed null and void.

Article 28:

The sale of real estate contribution assets shall be conducted in one of the following ways:

1- Sale by public auction.

2- Direct sale of all or part of the real estate share.

3- Any other method specified by the regulations.

Article 29:

Without prejudice to the provisions of Article (17) of the Law, the real estate holding shall retain its legal personality to the extent necessary for its liquidation, and shall be dissolved in any of the following cases:

1- Its sale in accordance with the provisions of the Law and the Regulations.

2- The expiration of its specified term unless extended in accordance with the provisions of the Law and the Regulations.

3- The impossibility of achieving the purpose for which it was established.

4- Its dissolution in accordance with the provisions of the Law and the Regulations.

5- The issuance of a final court ruling ordering its liquidation.

Article 30:

All financial returns related to the real estate contribution must be deposited directly into the guarantee account.

Real Estate Contribution System

Chapter Six—Violations and Penalties

Article 31:

Violations of the provisions of the system or the regulations shall be investigated by employees of the Authority and of any other entity whose employees the Authority deems necessary to engage; their appointment shall be issued by a decision of the President following approval by their respective entities. Enforcement officials shall have the right to enter sites and projects related to activities covered by the Law, including the licensee’s premises, and they shall detect violations and seize related documents, records, and evidence in accordance with the enforcement procedures issued by the Authority. They shall operate under the supervision of the Authority and may seek assistance from security authorities when necessary. The regulations shall specify their mode of operation, powers, and remuneration.

Article Thirty-Two:

Without prejudice to the provisions of Article (35) of the Regulation, anyone who violates any of the provisions of the Regulation or these Rules shall be punished with one or more of the following penalties:

1- A warning.

2- Suspension of the license for a period not exceeding one (1) year.

3- Revocation of the license.

4- A fine not exceeding ten million (10,000,000) riyals.

5- Prohibiting the licensee or the real estate contribution manager from engaging in any work related to real estate contributions in the future for a period not exceeding ten (10) years.

The Board shall issue a schedule containing a classification of violations and the penalties prescribed for them in accordance with the provisions of this Article.

Article Thirty-Three:

By decision of the Authority’s President, one or more committees shall be formed, each comprising no fewer than three members, one of whom shall be designated as chairperson; among them shall be a Sharia or legal advisor; The committee shall be responsible for reviewing violations and imposing the penalties stipulated in Article 32 of the regulations, in accordance with the type of violation committed, its severity, and its impact. The committee’s decision shall be approved by the Authority’s President or his delegate. The President shall issue the committee’s rules of procedure and determine the remuneration of its members.

Article Thirty-Four:

An appeal may be filed against the Committee’s decision referred to in Article (33) of the Regulation before the Administrative Court within (sixty) days from the date of notification of the decision.

Article 35:

Without prejudice to any penalty stipulated in any other regulation, anyone who violates any of the provisions of the following articles shall be punished by imprisonment for a term not exceeding (three) years: (4), (21), (27), and (30) of this Regulation, and the case shall be referred to the Public Prosecution for investigation and prosecution before the competent court.

Real Estate Contribution Law

Chapter Seven - Final Provisions

Article 36:

Without prejudice to the Authority’s powers, the Capital Market Authority shall, in agreement with the Authority, regulate matters related to the raising of funds for the purpose of offering real estate contributions.

Article 37:

The Council shall issue the regulations in agreement with the Capital Market Authority within (one hundred and twenty) days from the date of issuance of this Law, and they shall take effect from the date of its implementation.

Article 38:

The Real Estate Contribution System shall be published in the Official Gazette and shall take effect one hundred and twenty (120) days from the date of its publication, and any provisions contrary thereto shall be repealed.

Real Estate Contribution Regulation

Real Estate Contribution Regulation