RIYADH: The General Assembly of the Saudi Supreme Court has ordered the waiving of overdue rents on businesses hit by the coronavirus disease (COVID-19) pandemic, and called for a review of such contracts between tenants and owners.
The steps have been taken in view of the circumstances caused by the pandemic, wherein an obligation or contract cannot be implemented without unusual losses.
The president of the Supreme Court, Khalid bin Abdullah bin Muhammad Al-Luhaidan, approved the decisions backed by 32 members of the assembly, Okaz newspaper reported.
Authorities have set conditions that have to be met before a case can be considered for review under the new regulations.
If a contract was concluded before the commencement of the preventive measures announced in the wake of the pandemic, then the impact was direct and unavoidable. If in such a case, an affected party was not compensated or did not reach a deal to mitigate the impact of the health crisis, then it qualifies for a review and the new regulations will then take effect, said legal sources.
The Supreme Court said a competent court will issue its verdict based on facts and circumstantial evidence, and may order amendments to a contract.
It also said the new provisions will be applicable to tenancy contracts and movable properties affected by the pandemic.
It clarified that if, due to the pandemic, a tenant was unable to use the leased property, in whole or in part, the court would reduce the rent as much as the usually intended benefit was reduced.
A lessor, meanwhile, does not have the right to terminate the contract if a tenant is late in paying rent for the period during which it was impossible to fully or partly use the property due to the pandemic.
The new regulations also cover construction contracts, supply contracts, and the like, which have been affected by the pandemic.
If the pandemic causes an increase to the cost of materials and labor wages, etc., the court shall increase the value of the contract while ensuring the obligor can afford to bear the expense. The obligee, upon increasing the obligation, has the right to request the termination of the contract. If the increase in the cost of materials is temporary, the court reserves the right to temporarily suspend the contract.
If the pandemic causes a shortage of material in the market, the court can reduce the quantity to the extent it deems sufficient to protect the obligor from harm.
Moreover, if the shortage of materials is temporary, the court can temporarily suspend the contract if the person obligated to it is not severely affected by this suspension. If he is harmed, he may request termination of the contract. If the materials were not available at all, leading to the impossibility of implementing the contractual obligations or some of them, the court will terminate the clauses that are impossible to implement upon the request of one of the parties to the contract.
If a contract obliges one of the parties to carry out a task, which cannot be completed on time due to the pandemic, the court can temporarily suspend the implementation of the obligation. If the other party fears unusual damage due to the suspension, he may request termination of the contract.
In addition, the court also stressed the need to carefully assess the damages on a case-to-case basis, and that one or more experts should do the assessment. While assessing damages, it should be made clear what losses were incurred directly due to the pandemic and had nothing do to with seasonal upswing in certain activities.
The Supreme Court explained that a court is bound, when considering cases arising from contracts and obligations affected by the pandemic, not to apply penalty clause or fines in whole or in part — depending on the case.
In the event that a contract includes a clause of exemption from liability for one of the contracting parties when an emergency or force majeure occurs, the condition has no effect, and the party that breaches the obligation must provide evidence that the pandemic was the reason for the breach.
The affected contracts that are not covered by the provisions of this principle shall be subject to the legal and statutory litigation principles, said the court.
Commenting on the decision, Talal Albotty, the regional director of the Central Region, Salama Insurance Co., said there is a type of insurance called “suspension of operations” because of continuous epidemics, and falls under property insurance.
“This type of insurance can be found in European countries and some Asian countries but it is not applicable in Saudi Arabia,” he told Arab News. “The insurance against projects does not exist because when the project stops, insurance stops.”
Regarding the rise in prices of commodities, or the increase in prices because of pandemics and suspension of imports, a condition must be added stating that the value of property or project must increase by 10-25 percent, he added.
“Now most reinsurance companies around the world stopped offering insurance related to pandemics and contagious diseases in most countries, including COVID-19, because their impact was huge and the companies sustained huge losses,” he said.
Saudi lawyer Reem Alajmi said the resolution aims to treat and remedy the losses incurred by parties to the contract in terms of obligations.
“The parties could not fulfil their obligations because of a lack of sufficient resources or suspension of working hours during the pandemic. Fulfilling the obligation fully or partially was difficult because COVID-19 pandemic was a force majeure,” she told Arab News.
According to Alajmi, the effects or damage caused by the pandemic must not be covered by other laws. “Proving the occurrence of damage is the responsibility of the plaintiff and the defendant based on evidence submitted to the court,” she added. “The contracts and obligations are amended accordingly.”