Last week, our article was about the basics of Saudi commercial mortgage regulations.
Before we move further, it would be better to define what is a commercial mortgage once again for the uninitiated. A commercial mortgage is a loan secured on a commercial property and used to acquire, refinance or develop commercial property.
In this article, we shall highlight the latest amendments to the commercial mortgage law in the Kingdom, including a mortgage transfer.
Keep in mind that if the commercial establishment were a company, its mortgage contract would include only its movable assets (material and intangible), its rights and commercial location.
The mortgagor must be the owner of the mortgaged money upon the conclusion of the contract and is qualified to dispose of it. If it is found to be the contrary after signing the contract, then the mortgagee, in good faith, may adhere to his right to mortgage a substitute for the mortgaged money by a new contract, or the deadline of the secured debt and demand to fulfill it immediately.
The pledged money must be something that can be sold or whose value can be estimated. It is not permissible to mortgage funds or rights from bequests that are not under the property of the mortgagor, except in the case of an agreement to provide future money in the full mortgage, provided that the existence of future money is expected from both parties and that the mortgagor owns it before the deadline of the secured debt.
The mortgagee is also entitled to trace the mortgage asset into the hands of third parties, and to survive the death of the mortgagor.
Another point to keep in mind is that in case of transfer or selling, the party which gets the money or mortgaged asset has the right to execute all mortgage-related rights even if he did not know about it at the time of transfer. However, the new party can revert to the mortgagor for compensation or waive its rights in writing.
Moreover, a mortgaged debt can be inherited or transferred through a will. Here the question arises: Is it permissible for an individual, who inherited the debt, to purge it by paying the debt and the expenses and costs incurred by the mortgagee?
The answer is in the affirmative.
Finally, the pledge shall expire in cases such as the expiration of the debt secured in its entirety by fulfillment or release or otherwise by which the debt is extinguished and if the mortgaged money perishes. This is unless the mortgagor and the mortgagee agree to replace it with another.
The pledge does not expire by rescheduling or renewing the secured debt.
At termination, the asset reverts to the lessor unless the contract provides to the contrary. The lessor may include provisions that grant it the right to terminate the contract and retrieve the leased asset if the lessee defaults on certain payments in accordance with the principles to be established under the regulations so as to ensure justice between the contractual parties.
The contract terminates on destruction, or partial destruction where the lessor does not reinstate (with or reduced rentals payable during the period of repair) and governmental intervention preventing use.
Regulation is to determine the amounts payable in such circumstances in a way, which does justice between the parties, taking into account Shariah principles and insurance compensation received.
• Dimah Talal Alsharif is a Saudi lawyer and legal consultant. Twitter: @dimah_alsharif
