Commercial Security Deposits in Saudi Arabia

In many Western jurisdictions, commercial security deposits are entirely unregulated, allowing landlords to demand six months or a year's worth of rent upfront to secure a prime retail location. Saudi Arabia takes a approach centered on contractual freedom under the Civil Transactions Law.

Commercial Security Deposit Regulations

Under the Civil Transactions Law, security deposits for commercial properties are governed by the terms explicitly agreed upon between the landlord and the tenant in the lease contract. There is no statutory cap on the amount of a commercial security deposit, nor is there a requirement for these funds to be held by a government authority.

• Negotiation: The amount and form of the security deposit (e.g., cash, bank guarantee) are subject to mutual agreement during lease negotiations.
• Advance Rent: Landlords may request advance rent payments as part of the commercial agreement, which is distinct from a security deposit.

Custody of Commercial Deposits

Commercial lease agreements are governed by the contract terms and the Civil Transactions Law. Unlike residential leases, there is no requirement for commercial security deposits to be held in escrow via the Ejar platform.

1. Payment: The commercial tenant transfers the security deposit directly to the landlord or the designated financial institution as stipulated in the lease agreement.
2. Custodial Holding: The funds are typically held by the landlord or a third-party financial institution (in the case of bank guarantees) according to the contract terms. Ejar does not act as a neutral escrow agent for commercial security deposits.
3. End of Term: Upon lease termination, the refund or application of the deposit is handled directly between the landlord and the tenant based on the contractual obligations and the condition of the property.

Alternative Security

Commercial landlords frequently utilise alternatives to cash deposits:

• Bank Guarantees / Letters of Credit: Particularly common for large corporate tenants.
• Parent Company Guarantees (PCGs): Where a subsidiary is the tenant, the parent company guarantees the lease obligations.
• Personal Guarantees: For small business tenants operating through limited companies.

Deductions for Commercial Damages

A commercial landlord may deduct funds from the security deposit for:

• Severe damage to the shell or structure of the building.
• Unpaid, contractually obligated utility bills.
• Failure to return the property to its original state (if the contract explicitly required the tenant to demolish their custom build-out upon exit).

Normal Wear and Tear

Commercial landlords cannot deduct for standard wear and tear inherent to operating a business (e.g., minor scuffs on warehouse floors or faded paint in a high-traffic retail zone).

Resolving Disputes

If a business disputes the landlord's deduction claim, the process is governed by the terms of the lease and the Civil Transactions Law:

1. Parties should first attempt to resolve the dispute through the mechanisms outlined in their lease agreement.
2. If mediation fails, the dispute is escalated to the competent commercial courts for a final, binding ruling.

Commercial landlords typically rely on strict vetting of a company's financial health and contractual protections rather than statutory deposit limits.

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