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| The General Features of Current Real Estate Mortgage Law. |
The consultation council has lately passed the new current real estate mortgagor law, after it had effected amendments thereon, through adding to and deleting from some articles. However, approval of the new law is expected to take place soon, after it had been approved by the cabinet to render its provisions applicable on the aspects relating to the Kingdom's real estate mortgage issues.
The first chapter had set aside, in its first clause of the law, a definition for the registered real estate mortgage, as follows:-
a. A contract registered in accordance with this law by which the mortgage (the creditor) earns a right in kind & specie, by virtue of being the first who shall be entitled to receiving back his debt out of the price of the real estate, registered of the person or entity in whose possession such a real estate is.
b. If the real estate is registered, in accordance with the provisions of the landed real estate law so, the mortgage shall be registered as per the provisions of that law.
c. Registration of the mortgage on the real estate – upon which specie or in kind real estate registration law has not been applied – shall be made by marking "Seen" on its register with the competent court, or notary public. The validity of the landed property shall be null and ineffective on others, unless the real estate is registered in accordance with clause (B) of this article and the mortgage shall abide by paying the mortgage contract and registration charges, provided that such charges – if paid by other than the mortgagor – shall be included in the mortgage debt and its class, unless agreed otherwise.
Article Two of the law has stipulated that the mortgagor must be the owner of the real estate and is eligible for disposing of it. However, it is possible that the mortgagor debtor himself, or a proxy in kind, who offers landed property which he gives in pledge to the interest and benefit of the creditor, even if, without his permission. Article Four had set it clearly defined that, exiting, or its existence is a probable saleable object, provided that the property mortgage is a definitely known and a specified one, which actually exists and is stated in the mortgage contract itself, or in a subsequent contract, whose sale shall be affected by public sale. It is also possible to mortgage the benefit of the real estate a part from the asset, subject to the terms of the mortgage and its registration.
Article Five hinted at the inclusion of the annexes of the mortgaged real estate, such as buildings and plants and what has been prepared for serving such annexes, as well as the constructions and improvements, which may arise following the contract, unless it is agreed otherwise, without prejudice to the rights of others connected to the annexes. The mortgage issued by all the owners of the common real estate are deemed influential and powerful, whether what is mortgaged is divisible, or not.
Article Seven of the proposed law states that, if a partner gives his joint share wholly, or in part in pledge, the mortgage shall divert after dividing it, to the part set aside as his share. Clause {B} of the same article states that, while para. "B" of that very same article denotes that, if a partner gives his joint share wholly, or partly in pledge and his share – after division – became property and assets other than those he has pledged, his share shall be credited with some part therefrom and the mortgage shifts to an amount of these assets equal to the value of the share, or the portion which was originally pledged and such an amount shall be defined and registered by the order of the competent judge, provided that – the amount due to the mortgagor, resultant from the shares in equilibrium, or from the price of the pledged property, to settle the debt secured by the pledged – shall be assigned to the mortgagor.
Article Eight has stipulated that, the pledgee – in case of a joint pledge – may not request divisioning, prior to having fully collected his right from the property pledged, unless with the consent of mortgagor.
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Article Nine of the law has stated clearly that, it is conditional that the mortgage be an arising firm obligatory debt, or a promised specified one, or a secured asset, treated as a pending debt bound by a condition, or a future debt, or a prospective debt, or its maximum are determined in the pledge contract. Article Ten stated that every part of the secure real estate, act as a guarantor to the entire debt and that every portion of the debt, shall be guaranteed by the pledged real estate unless agreed otherwise.
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Chapter Two has, however, handled elaborately the effects of the mortgage, stating that the pledgor may – if the property is registered according to the provisions of a specie real estate registration law – dispose of this mortgaged real estate, otherwise he cannot do so, unless it is agreed otherwise and such an agreement has been certified in his title deed and register. Article Thirteen referred to the commitment of the pledgor to maintain the safety of the mortgaged property as from the date of the fulfillment of the debt and the mortgagee shall has the right to oppose and protest against anything that may devalue the mortgaged property, or expose it to destruction or defects. He shall also be entitled to take all regular precautionary measure to secure the safety of his right and shall have the right to recourse to pledgor for the expenses.
Articles Seventeen, Eighteen, Nineteen and Twenty dealt with the pledge, wherein article Seventeen denoted that the pledge may – while taking into account the provisions of disposing of debts – transfer, his right of fulfilling the debt together with pledge warranting it, to others, unless agreed otherwise.
Article Nineteen states that the following stipulation cannot be made in the contract of pledge:-
a. That the utilities of the pledged property shall be for the pledgee and the pledgee shall – with the consent of the pledgor collect the returns and revenues, provided he shall not benefit from them.
b. That the pledgee shall own the pledged property against his debt, if the pledgor did not pay such a debt on due date. The pledge is in, both cases, valid and correct, but the condition is invalid and incorrect.
Articles Twenty One, Twenty Two and Twenty Three tackled the right of others, and the effect of the registered pledge shall accordingly, be valid vis-à-vis others, effective its registration date, unless this "other" has gained a right in kind on the pledged real estate prior to the registration of it. No protest shall be lodged as to the non-contractor, regarding the transfer of the debt, which is secured by a registered pledge, or relinquishing its class, unless this had been registered in the original deed of the pledge and the real estate register.
Articles Twenty Four and Twenty Five both handle the right of applying, where giving, a registered real estate pledge for a number of pledges successively in pledge, along with determining the rank of the pledge according to its entry No. and registration date. It shall keep its class until what indicates that it has expired by the legally competent registration authority. The rights of the pledgees shall be paid out of the pledge price, or out of the money which has taken its place, according the class of each.
Article Twenty Eight states that the pledgee shall have the right to take the measures necessary to expropriate the pledged real estate and sell it, if the debtor did not pay on due date, after he had notified the debtor and the possessor of the pledged real estate, according to the law of execution. Article Thirty Four resolve that, if the price of the pledged real estate, exceeded the value of the debts registered, the excess shall go to the pledgor landlord.
Chapter Three handles the provisions related to the expiry of the real estate pledges, whereas article Seventy Three resolves as follows:
a. The pledge follows the debt and shall be redeemed with the settlement of all the debt it is attested by.
b. If the debt has already elapsed and came to an end, and then for one obligatory reason or another it recurred, then it shall revert as it were with the recurrence of the debt, without afflicting, or affecting the accrued rights of others having good intents and faith, in the interim of the expiry of the debt and its recurrence.
Article Thirty Eight demonstrates the following:-
a. If the settlement of the whole debt, or part of it took place prematurely with the consent of the two contractors, or by virtue of the contractor, or the judiciary, part of the debt shall be retained according to the standards and criteria of early settlement, provided for in Financing Companies Control Act.
b. If the debtor was lagging behind in the settlement of the debt wholly or partly and the court sold the entire mortgage prior to its maturity date, it shall order the payment of the current installments due to the creditors and shall deposit the remaining amount in the bank account. However, the creditors may request the release of the amount, if the debtor effected an early settlement of outstanding indebtedness, or submitted a bank guarantee against the payment of the remaining debt.
Article Thirty Nine, Forty, Forty One and Forty Two of this proposed law, tackled the winding up and expiry of the registered pledge, stating that the registered mortgage expires with the forced sale of the hypothecated real estate, according to the law, along with paying its price to the creditor pledger, according to the class and standing of each, or depositing such a price in the account of the court. Also, the registered mortgage expires by the pledgor having both rights i.e. the right to pledge and the right of ownership in the hand of one person, whether through the transfer of the mortgaged real estate ownership to the pledger, or through the conveyance of the right of pledging to the pledgor. If the rights to mortgage and own have both ceased to exit with a retroactive effect, the mortgage returns to its state. The registered pledge also winds up, if the pledgee waived it through a certified assignment – he shall be entitled to surrender the right of pledging, with the persistence of the debt. The mortgage shall also terminate with the destruction and ruin of its place. The provisions governing destruction and ruin, provided for in this law, shall be observed.
The pledgor and the holder may request redemption after the elapse of the hearing of the certified debt claim of the certified mortgage provided for in the other laws. However, article Forty Four states that the mortgage shall not be null and void with the death of the pledgor, or the pledgee, or due to eligibility forfeiture, if he passes away, his successor, or inheritor shall take his place and act for him. If he lost his eligibility, his guardian shall act on his behalf.
Article Forty Five refers – with the exception of the securities [Financial papers], - to the provisions of the law of the registered pledge, applied on the property conveyed, which has a regular register, such as the car, the aircraft and the like. This law cancels the provisions of the commercial mortgage law, which contradicts with it in such a type of transfers.
The proposed law specified that, the competent court shall be the only judicial body assuming the consideration and judgment of the disputes arising out of the application of the provisions of this law. However, we shall elaborately tackle the provisions of this law in our coming issues. |
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| Allowing Non-Resident Foreigners to Invest in Saudi Stocks |
The Saudi Capital Market Authority decided lately to allow non-resident foreigners, based on exchange agreement, to own shares and subsequently shall have the right to invest in stocks listed in the Saudi Capital Market.
The Resolution reads: It has been decided to permit non-licensed individuals to execute exchange agreements, hence the Saudi investors shall be the owners of such shares and the resident or non-resident foreign investors shall reap the economic benefits of such shares listed in the Saudi Capital Market. Non-resident foreign persons means individuals and firms.
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| However, economist believe that such move shall enhance the capital markets performance thus lures new liquidity. It is worth mentioning that foreign individuals and firms, based on such resolution, shall reap all benefits resulting except the right of voting which the Saudi shares' owner right in general assemblies. Moreover, such foreign investors shall have the right to invest in all sectors provided such investors pay in full the |
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relevant share values. The aim behind having Saudis to retain ownership of such shares is to protect shares transactions; therefore, it is not permissible for foreigners to own the shares but only make use of the benefits resulting out of the transactions of such shares. Such resolution is another step following many initiatives already taken in this regard in the past hence all aimed to open the investment hence extend the opportunity of trading to different segments. Moreover, such resolution is a response to foreign individuals and firms which were looking forward to such action.
The exchange agreements enables foreign investors to subscribe in capital increases for public firms; in spite of that such agreements contains a term that restricts real estate shares trading by foreign investors specifically in Makkah and Madinah but in exceptional cases as such investment is strictly for Saudis.
The exchange agreements is one of the many financial byproducts that enables both parties to exchange cash flow for limited assets (companies shares) during an agreed upon period of time and based on the stock exchanges performance indicators. Moreover, foreign investors are not allowed to invest directly in companies listed in the stock exchange as their brokers approved shall assume such tasks by owning the shares legally hence the capitals shall remain foreign property.
Such resolution also shall entice international firms to conduct researches and studies relates to local stock so to define fare price based on profits forecasted and competitiveness. Moreover, the foreign investors shall be able to enter directly to the Saudi financial markets thus boosting fair standards as it is expected that foreign investors shall implement exchange agreements for share less than the fair price and finishing such agreements with fair or real prices and this will lead to market stability, limits trading and boosts liquidity. It is also anticipated that such resolution shall impact positively the new products to be launched in the Saudi Capital Markets through transfer of foreign firms' knowledge to the local market and this shall subsequently enrich the variety of investment products and byproducts available for investors thus enhancing the market. |
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| Future Horizons of Social Responsibility |
Until the mid of the last 20th century, social responsibility was a vivid concept to many as firms in general were dedicated to boost profits in any way possible. As enhanced profit making become under constant attack, many firms become more aware of the importance of social responsibility towards the environment. Among the definitions of social responsibility, it is defined social responsibility as "a firm commitment towards society", and since such definition spread, scholars all over the world commenced studying the social responsibility concept thus in different manners.
Another opinion is that social responsibility is "a reflection of the society expectation from the firms operating within thus making profit hence observing the minimum requirements of the law". Other point of view say that social responsibility is a commitment by a given firm towards society through contributing in social activities such as elevation of poverty, improvement of health services, pollution control, creation of new jobs, and further to contribute to solving housing, transportation, water, power problems and so on.
However, other thinkers differentiate between social responsibility and social responsiveness based on a number of dimensions such as moral considerations in conducting business and observance of ethics in a long term basis where social responsiveness is a response using various means in terms of social changes based on medium and short terms basis.
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| The role of social responsibility and the nature of contributions to be extended is controversy in the academic and scientific circles as will as within businessmen. However, there are two point of views, the first asserts that economic entities are firms aims to boost profits hence such leads to a positive impact on life; hence, the second say that organization and firms are a social entities thus have a social responsibility towards the society. |
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As such, we can realized that there are three understandings of social responsibility as a role to be adopted by organizations and firms. The first is based economically, the second is socially and the third is social-economical role. Despite of such three roles, boosting profit is a legitimate endeavor hence social responsibility is a mandatory role that must be adopted without jeopardizing the organization's competitiveness and development.
Accordingly, we can summarize the definition of social responsibility as a commitment by a given firm towards the society within in terms of contributing to a better life to society, protection of environment and other social activities within the law requirements.
As the social responsibility concept becomes a reality in the western world hence adopted by firms, organizations and businesses, it is now imperative for the Arab organizations, firms and businesses to adopt such concept mainly in environment protection and contribution to sustainable development locally or any other regions such firm or organization have operations thereat. True, such requirements by social responsibility is a new role to Arab firm but should take examples from multinational firms that already adopted locally and regionally thus demonstrated the importance of social responsibility.
As the Arab firms and organizations went global, such firms are expected to play a role in terms of social responsibility at place they operate hence according to standards and boundaries specified; and, if they fail to do so, multinational firms abstain from contracting or working with such firms that ignores social responsibility role or do not contribute to social development activities. Moreover, Arab firms and organization which intends to go global shall have to adhere to international standards governing social responsibility contribution in social activities, programs and sustainable development, education and welfare of native populations.
In Saudi Arabia, however, Jeddah and Riyadh Chambers of Commerce & Industry took the initiative by creating two counsels for social responsibility despite the social responsibility concept is new; hence, such concept was received well by many firms, organizations, businesses and other entities and it is anticipated such concept shall become soon a reality although the results of such contributions shall not become tangible in the near future but needs some time. More important, the concept of social responsibility shall not be limited only to firms and businesses but shall extend to involve the various segments of the society thus shall become a regular behavior by all without exception.
However, there is no doubt that social responsibility needs media support, awareness campaigns and other efforts in order to boost such culture within the various firms, organizations and businesses and to depict the role, benefits and importance of social responsibility not only to the private sector but also to other entities that should or can contribute to the welfare of the society in general. Moreover, the social responsibility concept must be taught and included in educational curriculums from elementary schools to university education in order to ensure proper contribution in the future. |
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| Disclaimer |
| Material contained in this newsletter is for general information only and should not be interpreted as legal advice on any particular matter. Readers are advised to consult their legal advisor directly on any issues discussed herein. Transmission of this document does not create any attorney-client relationship. Although considerable care has been taken to ensure the accuracy of the material in legal update, the Law Firm of Dr. Khalid Alnowaiser is not responsible for any errors contained herein. |
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