Saudi Arabia Security Deposit Limits and Return Rules

Following the enactment of the Civil Transactions Law (Royal Decree No. M/191), which became effective on 16 December 2023 (1445 AH), security deposits in Saudi Arabia are governed by standardized contractual principles and mandatory digital processes. For residential properties, the Real Estate General Authority (REGA) acts as the custodian of the deposit. Collecting a security deposit is a standard practice to protect landlords, but it must now be paid through Ejar’s digital payment channels (Mada or SADAD) to be held in escrow by the system.

Security Deposit Limits

Historically, landlords in Saudi Arabia have demanded varying amounts for a security deposit, typically ranging from one to two months' rent.

Contrary to common misconceptions, Article 14 of the Real Estate Brokerage Law does not impose a statutory 5% cap on residential lease security deposits. While that law applies a 5% cap to earnest money (Arboon/reservation fees) for property transactions, lease security deposits (Tameen) remain a matter of mutual agreement between the landlord and the tenant under the freedom of contract principles affirmed by the Civil Transactions Law.

• Market Custom: In most residential transactions, a deposit equivalent to one month's rent is considered standard.
• Contractual Freedom: Landlords and tenants are free to negotiate the deposit amount, provided it is clearly documented in the Ejar unified contract.

The Ejar Escrow System

To reduce disputes over the withholding of security deposits, Saudi Arabia utilizes the Ejar platform as a mandatory custodian for residential funds, as regulated by REGA.

1. Recording Phase: The agreed-upon security deposit amount must be specified in the Ejar unified contract and paid via the platform's digital channels.
2. Custody Phase: Ejar acts as the mandatory custodian (escrow) for residential security deposits. The Real Estate General Authority (REGA) holds the funds until the lease is terminated and the handover process is completed.
3. Return Phase: Upon the termination of the lease and the issuance of the Property Handover Report, the landlord has a maximum of fifteen (15) days to submit a claim for deductions (for damages or unpaid utilities) through the Ejar platform. If the landlord does not submit a claim within this 15-day window, the system is designed to automatically initiate the refund of the full deposit to the tenant's registered IBAN.

Allowable Deductions

Under Article 577 of the Civil Transactions Law, the lessee must return the property in the same condition it was received, except for what is consumed by normal use. A landlord may request deductions through the Ejar platform for:

• Property Damage: Repairing damage that exceeds normal, anticipated wear and tear (e.g., broken windows, severe wall damage).
• Unpaid Bills: Covering unpaid utility bills such as water, electricity, or internet if they were the tenant's responsibility under the lease.
• Cleaning Costs: In some cases, if the property is left in an unsanitary condition contrary to the handover state.

According to Article 577(2), if the lessee keeps the property after the expiry of the lease without a right, they shall be liable for any damage occurring to it even if it is not due to their fault.

Normal Wear and Tear

Landlords cannot deduct from the deposit for normal wear and tear. Examples of normal wear and tear include:

• Minor fading of paint or wallpaper over years of use
• Slight wearing of carpets in high-traffic areas
• Minor scuffs on floors

The Dispute Resolution Process

If a landlord claims deductions that the tenant disputes, the Ejar platform and REGA provide a structured resolution path:

1. Initial Assessment: The landlord submits evidence of the damage via Ejar within the 15-day window. The burden of proof lies heavily with the landlord, who should ideally provide before-and-after photos and a signed move-in checklist.
2. REGA Mediation: Experts from REGA may act as mediators to assess the validity of the deduction claim.
3. Judicial Appeal: If the parties cannot reach an agreement through mediation, the matter may be escalated to the General Court or specialized chambers for a final ruling.

Best Practices for Landlords

To ensure a smooth move-out process and protect your right to necessary deductions:

• Use the Ejar Checklists: Always complete a thorough, documented property inspection when the tenant moves in and when they move out.
• Take Photographs: Time-stamped visual evidence is the best way to prove the condition of the property at handover.
• Monitor the 15-Day Window: Ensure any claims for damages are filed promptly through Ejar after the handover report is issued to avoid automatic refunds.

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