Escrow Accounts in Saudi Off-Plan Projects: Rules and Responsibilities
An escrow account is an important legal and financial safeguard under Saudi Arabia's off-plan property development regulatory framework.
Developers may receive purchaser payments, reservation amounts, and project financing before construction is complete. Saudi law regulates how qualifying funds are deposited, managed, and withdrawn.
An off-plan escrow account is a dedicated bank account for a regulated real estate project. Withdrawals must follow the applicable legal requirements, supported by the necessary documents and professional approvals.
Atyar Advocates & Legal Consultants provides legal advisory services involving real estate development agreements, investment structures, contractual guarantees, and legal risk assessment.
What Is an Escrow Account in a Saudi Off-Plan Project?
An escrow account is a bank account established specifically for a real estate project, into which qualifying funds are deposited by purchasers, tenants, or financiers in accordance with Saudi law.
The framework provides for an independent account for each real estate project covered by the applicable rules. This separates the project's funds from the developer's other business activities.
What Is the Legal Basis for Off-Plan Escrow Accounts in Saudi Arabia?
Articles 9 through 14 of Saudi Arabia's Law of Selling and Leasing Off-Plan Real Estate Projects establish key requirements concerning project accounts, deposits, withdrawals, expenditure limitations, surplus funds, and post-completion safeguards.
The Implementing Regulations provide further details concerning the bank agreement, withdrawal documentation, and the responsibilities of the developer, engineering consultant, and legal accountant.
When Is an Off-Plan Escrow Account Established and Activated?
Article 9 provides for an independent escrow account in the name of each relevant real estate project.
Activation is linked to obtaining the relevant project licence and recording the applicable notation on the property's registered title, in accordance with the Law.
Account Establishment
Prepare the banking arrangements and dedicated account agreement for the project.
Account Activation
Fulfil the applicable licensing, title, and legal requirements before using the account.
What Funds Must Be Deposited Into the Escrow Account?
The account holds relevant project funds in accordance with the Law, contracts, and applicable project authorisation.
- Purchaser payments for covered property units.
- Tenant payments covered by the regulatory framework.
- Financing obtained for the licensed project.
- Reservation amounts subject to marketing-licence conditions.
- Qualifying funds associated with project agreements.
- Deposits requiring identification by unit or transaction reference.
Can Escrow Funds Be Used for Another Property Development?
The escrow account is dedicated to the licensed project. The funds must not be used to finance unrelated developments contrary to the governing restrictions.
Article 10 also contains protection against attachment of escrow funds for the developer's creditors.
Who Is Responsible for Managing an Off-Plan Escrow Account?
Responsibilities are distributed between the developer, bank, engineering consultant, legal accountant, and the competent regulatory authority.
Real Estate Developer
Prepares withdrawal requests, maintains documentation, and uses project funds for permitted purposes.
Escrow Bank
Operates the account, processes permitted transfers, and follows the contractual and regulatory restrictions.
Engineering Consultant
Reviews relevant technical matters and participates in certifying withdrawal documentation.
Legal Accountant
Reviews financial documentation, expenditure limits, and certifications within the applicable professional scope.
Real Estate General Authority
Exercises the regulatory and supervisory functions assigned under the applicable framework.
How Are Withdrawals Made From an Off-Plan Escrow Account?
Article 11 requires withdrawal documentation signed by the developer, engineering consultant, and legal accountant, subject to the special rules governing exceptional circumstances.
The supporting documentation must satisfy the relevant professional and regulatory requirements.
1. Identify the Project Expense
Confirm that the proposed expenditure relates to the licensed development.
2. Prepare Supporting Documents
Assemble the relevant invoices, payment certificates, and project records.
3. Issue the Withdrawal Request
The developer prepares the request stating the amount and justification for payment.
4. Obtain Consultant Review
The engineering consultant reviews the relevant technical aspects of the expense.
5. Obtain Accountant Certification
The legal accountant verifies the applicable financial requirements and limits.
6. Submit to the Bank
The certified withdrawal documentation is submitted for processing.
7. Process the Payment
The bank executes the permitted payment under the relevant account restrictions.
8. Maintain Transaction Records
Preserve documentation for financial review, regulatory monitoring, and contractual records.
What Must the Escrow Agreement With the Bank Include?
Article 26 of the Implementing Regulations establishes requirements for the agreement between the developer and the escrow bank.
- An independent account for each project.
- Account denomination in Saudi riyals.
- Spending limited to the project.
- Specified withdrawal documentation and procedures.
- Payments by permitted cheques or bank transfers.
- Deposit references identifying relevant property units.
- Account statements available to the authority on request.
- Restrictions on closing the account without approval.
- No ATM or credit cards issued for the account.
- Compliance with further applicable banking restrictions.
Can Marketing and Administrative Expenses Be Paid From Escrow?
Article 12 allows developers to request payment of qualifying administrative, marketing, and other non-construction expenses associated with the licensed project.
Statutory Expenditure Limit
Aggregate non-construction expenses are limited to 20% of the total value of property units sold, subject to the statutory calculation rules.
Verification and Certification
The legal accountant verifies compliance with the relevant expenditure limit, while normal supporting documentation and certification requirements continue to apply.
Can a Developer Withdraw Surplus Funds From Escrow?
Article 13 provides a conditional mechanism for a developer to request withdrawal of amounts exceeding the actual total cost required to finish the project and its related services.
Such a request requires the competent authority's approval and the supporting professional reports specified by the Law.
What Escrow Retention Is Required After Project Completion?
Article 14 addresses the retention of 5% of total construction costs within the escrow account or the provision of a qualifying bank guarantee for an equivalent amount.
These provisions relate to the completion certificate, applicable retention period, and relevant rules concerning construction defects.
Comparison of Key Financial Percentages in Off-Plan Projects
| Issue | Percentage or Rule | Application |
|---|---|---|
| Marketing-stage Reservations | Maximum 5% of unit value, subject to conditions. | Project marketing licence period. |
| Non-Construction Expenses | Aggregate limit of 20% of the total value of units sold. | Qualifying project expenditure under Article 12. |
| Surplus Withdrawal | Authority approval and applicable 20% retention. | Surplus determination under Article 13. |
| Post-Completion Safeguard | 5% of construction costs or an equivalent bank guarantee. | Post-completion requirements under Article 14. |
What Happens to Escrow Funds if an Off-Plan Project Is Delayed?
Delay or project distress can affect purchaser rights, contractor obligations, and the use of remaining escrow balances.
The Implementing Regulations provide for specified situations in which the competent authority may request payments from the escrow account.
These may include eligible purchaser refunds, certain outstanding project obligations, transfer of funds to a replacement developer's escrow account, or permitted defect remediation.
What Are the Legal Risks of Escrow Non-Compliance?
Mixing Project Funds
Using one project's funds to support unrelated development activities contrary to the rules.
Uncertified Withdrawals
Paying expenses without the required documents, signatures, or professional approvals.
Exceeding Expenditure Limits
Breaching the statutory limits on qualifying non-construction expenses.
Inadequate Records
Failing to preserve the financial documents and reports necessary for review.
Banking Agreement Breaches
Operating or closing the escrow account contrary to the applicable restrictions.
Unclear Professional Roles
Poor coordination among developers, bankers, consultants, and accountants.
Legal Compliance Checklist for an Off-Plan Project Escrow Account
| Review Area | Compliance Question |
|---|---|
| Project Licence | Have account activation requirements been met? |
| Account Independence | Does the project have its own dedicated account? |
| Currency | Is the account denominated in Saudi riyals? |
| Purchaser Payments | Can each payment be linked to its property unit? |
| Project Financing | Are qualifying financing amounts deposited appropriately? |
| Withdrawals | Are all required signatures and certifications obtained? |
| Non-Construction Expenditure | Are statutory expenditure limits observed? |
| Surplus Funds | Are supporting reports and authority approvals available? |
| Construction Defect Safeguard | Has the retention or guarantee requirement been addressed? |
| Bank Agreement | Does the agreement comply with the Regulations? |
| Financial Records | Are deposits and withdrawals adequately documented? |
| Project Distress | Are procedures in place to address financial and legal risks? |
Atyar's Experience in Real Estate Investment and Development Agreements
Atyar Advocates & Legal Consultants has worked on legal assessments and agreement drafting in significant property investment and development transactions.
Real Estate Investment and Development Agreement Exceeding SAR 4 Billion in Riyadh
Atyar provided legal services concerning the acquisition, development, and investment of property north of Al-Takhassusi Road in Riyadh.
The work involved transaction structuring, property rights, development obligations, financing, guarantees, and allocation of contractual responsibilities.
Exceeding SAR 4 billion.
North of Al-Takhassusi Road, Riyadh.
Legal study and development agreement drafting.
This work illustrates the importance of defining financing obligations, development rights, contractual safeguards, and responsibilities in major projects.
Additional Real Estate Investment and Development Experience in Makkah
Investment and Development Agreement Exceeding SAR 1 Billion
Atyar provided legal advice, contract analysis, and agreement drafting for a major real estate development transaction in Makkah.
The engagement concerned ownership rights, development agreements, financing, contractual guarantees, and allocation of obligations.
Investment and Development Agreement Exceeding SAR 800 Million
Atyar provided legal services associated with a substantial property investment and development transaction in Makkah.
The work addressed development stages, financing, costs, safeguards, and the consequences of delay or contractual breach.
How Can Atyar Assist With Escrow-Related Legal Obligations?
Atyar Advocates & Legal Consultants provides legal services relating to property investment, development agreements, financing-related obligations, guarantees, and contractual risk.
- Reviewing development and investment agreements.
- Analysing financial contractual responsibilities.
- Reviewing funding clauses and guarantees.
- Defining the rights and duties of contracting parties.
- Assessing delay and default consequences.
- Preparing legal studies and memoranda.
- Reviewing project documentation and contracts.
- Assessing disputes and available legal remedies.
Related Legal Case Studies in Development Financing and Contractual Obligations
The following property development matters demonstrate Atyar's broader experience addressing financing, investment, and contractual safeguards.
Frequently Asked Questions About Saudi Off-Plan Escrow Accounts
Is an escrow account mandatory for off-plan projects?
The Law provides for an independent escrow account for each relevant real estate project subject to its provisions.
Can a developer withdraw escrow funds directly?
Withdrawals are subject to required documents, certifications, and statutory procedures, rather than the developer's unilateral discretion.
Who signs the escrow withdrawal documentation?
Article 11 provides for signatures from the developer, engineering consultant, and legal accountant, subject to the applicable exceptions.
Can escrow funds finance a different development?
Project funds must not be used outside their permitted purposes contrary to the Law and Implementing Regulations.
Can marketing expenses be paid from the escrow account?
Qualifying non-construction project expenses may be paid subject to the applicable percentage limits, documentation, and approval requirements.
Can surplus escrow funds be withdrawn before completion?
The Law provides a conditional mechanism requiring professional reports, authority approval, and statutory retention.
What does the 5% post-completion retention mean?
It concerns a statutory construction safeguard after project completion, separate from the 5% marketing-stage reservation limit.
What happens to escrow funds if a developer is in distress?
The applicable rules may allow specified regulatory actions, including eligible refunds or transfer of funds to a replacement developer in qualifying circumstances.
