The handover of a real estate unit and the signing of a handover record may appear to mark the end of the developer’s obligations. However, legal liability does not automatically end upon delivery of the keys, the purchaser’s unconditional acceptance, or even the issuance of an occupancy certificate.
The continuation of the developer’s liability depends on several factors, including the type of defect, when it appeared, the developer’s role in the project, the warranties set out in the contract, and whether the purchaser inspected the unit and reported the defect in a timely manner.
Accordingly, determining liability after handover requires a distinction between the warranty against defects in the sold property, contractual warranties, and the ten-year structural warranty relating to the safety and durability of the building.
First: Which obligations continue after the unit is handed over?
A real estate developer’s obligation is not limited to placing the purchaser in possession of the unit. The developer remains responsible for completing the project in accordance with the agreed specifications, remedying defects covered by the applicable warranty, and performing contractual obligations that continue after handover.
For off-plan sale projects, Article 14 of the Implementing Regulations of the Law of Selling and Leasing Off-Plan Real Estate Projects requires the developer to provide the purchaser with the as-built plans of the unit and to complete the project in accordance with the specifications stated in the contracts and feasibility study.
The law also requires 5% of the total construction cost to be retained in the escrow account, or an equivalent bank guarantee to be provided. This amount may not be released to the developer until one year has passed from the licensed project completion date, unless the developer provides latent-defect insurance in accordance with the applicable rules.
The expiry of this one-year period does not end all of the developer’s liabilities. It relates to a regulatory financial safeguard and does not eliminate the warranty against defects, contractual warranties, or liability for serious structural defects.
Second: Not all defects have the same legal effect.
The developer’s liability varies according to the nature of the defect. Defects may be divided into three principal categories:
1. Apparent defects.
These are defects known to the purchaser at handover or discoverable through an ordinary inspection, such as visible breakage, damaged finishes, or noticeable differences in materials.
Under Article 339 of the Saudi Civil Transactions Law, the seller is not liable for a defect if the purchaser knew of it at the time of sale or could have discovered it through an ordinary inspection, unless the seller intentionally concealed it or warranted that the property was free from that specific defect.
Article 340 also requires the purchaser to inspect the property when reasonably able to do so and to notify the seller of a covered defect within a reasonable period. Otherwise, the purchaser is deemed to have accepted the property with the defect.
2. Latent defects.
A latent defect is one that cannot be discovered through an ordinary inspection at handover and that reduces the value or utility of the unit in light of its intended purpose.
Article 338 of the Saudi Civil Transactions Law makes the seller liable for a defect that diminishes the value or utility of the sold property, even if the seller was unaware of the defect.
When a defect that could not have been detected by an ordinary inspection appears, the purchaser must notify the developer as soon as it is discovered. A delay in notification may be treated as acceptance of the unit in its defective condition.
3. Structural defects covered by the ten-year warranty.
Not every latent defect is a structural defect covered by the ten-year warranty. This warranty is limited to total or partial collapse and latent defects that threaten the durability and safety of the building.
Under Article 29 of the Implementing Regulations of the Saudi Building Code Application Law, the supervising designer and the contractor are jointly liable for such defects for ten years from the date the occupancy certificate is issued.
Paint defects, scratches, and limited finishing issues that do not affect structural safety are not automatically covered by the ten-year warranty. They may, however, fall within the warranty against defects in the sold property or a specific contractual warranty.
Third: Does the handover record prevent the purchaser from making a claim?
Signing a handover record without reservations may constitute evidence that the purchaser accepted apparent defects discoverable through an ordinary inspection. It does not, however, provide the developer with an absolute release from all subsequent liability.
The handover record does not prevent a claim where the defect was:
· Latent and could not have been discovered at handover.
· Caused by a condition that existed before handover.
· Intentionally concealed by the developer.
· A threat to the durability and safety of the building.
· Connected to a separate breach of specifications or contractual warranties.
In these circumstances, a technical report is essential to determine the source of the defect and whether it resulted from defective design or execution, misuse, or alterations made by the purchaser after handover.
Fourth: When do the warranty periods expire?
There is no single period that applies to every defect and claim. The applicable period depends on the legal basis of the claim.
Warranty against defects in the sold property.
Article 344 of the Saudi Civil Transactions Law provides that a defect-warranty claim will not be heard after 180 days from delivery of the sold property, unless the seller undertook to provide a longer warranty.
The seller may not rely on this period if it is established that the defect was fraudulently concealed.
Contractual warranty.
The sale contract may provide a longer warranty or specific repair or replacement obligations. In that case, the developer’s liability continues throughout the contractual period and within the agreed scope of the warranty.
Ten-year structural warranty.
The ten-year structural warranty runs for ten years from the issuance of the occupancy certificate, rather than from delivery of the keys or execution of the handover record.
By law, this warranty applies to the supervising designer and the contractor. A developer is subject to it where the developer also acted as the contractor or supervising designer, in addition to the developer’s separate liability as seller and contracting party.
Fifth: Can the parties agree to exempt the developer from liability?
The answer depends on the type of warranty.
For the ordinary warranty against defects, Article 343 of the Saudi Civil Transactions Law permits the parties to exclude, restrict, or extend the seller’s liability, unless the seller intentionally concealed the defect.
By contrast, the contractor and supervising designer may not be exempted from the ten-year warranty, nor may its period be reduced. Any term to that effect is void.
A distinction must therefore be drawn between contractual terms governing ordinary defects in the unit and mandatory liability for collapse or defects threatening the safety of the building.
Sixth: Who is liable when several parties are involved?
A development project commonly involves a developer, contractor, designer, and engineering supervisor. The involvement of several parties does not release the developer from obligations owed to the purchaser where the developer is the contracting seller.
Liability is allocated according to the cause of the defect and the role of each party:
· The developer is liable for contractual obligations, including delivery of a unit that conforms to the agreed specifications.
· The contractor is liable for defects resulting from execution.
· The designer is liable for design defects.
· The supervising designer and contractor are jointly liable for defects covered by the ten-year structural warranty.
· Where several parties are responsible for a harmful act, they may be held jointly liable, with each party’s share determined according to its contribution to the damage.
Identifying the responsible party therefore requires a technical expert to determine the cause of the defect and connect it to the work performed by each party.
Seventh: What remedies are available to the purchaser?
If a defect covered by the seller’s warranty is established, the Saudi Civil Transactions Law permits the purchaser to seek rescission of the sale or retain the unit and claim the difference in value. Compensation may also be claimed where its requirements are satisfied.
Depending on the contract, the nature of the defect, and the applicable warranty, the purchaser may also demand performance and repair after formally notifying the developer of the breach.
In an off-plan project, where construction or finishing defects are established by a report from a licensed expert, the Real Estate General Authority may issue a decision requiring their repair. If the developer does not begin repairs within five days of notification, the retained amount may be used or the bank guarantee called within the estimated repair cost, pursuant to Article 31 of the Implementing Regulations.
Eighth: How can the purchaser preserve a claim?
When a defect is discovered after handover, the purchaser should take the following steps:
1. Document the defect immediately through photographs, video, and inspection records.
2. Retain the contract, handover record, plans, correspondence, and warranties.
3. Notify the developer in writing, identifying the defect, its location, and the date it was discovered.
4. Request inspection and repair within a specified period.
5. Obtain a report from a licensed expert if the developer disputes the existence or cause of the defect.
6. Avoid substantial repairs before the unit’s condition is technically documented, unless immediate intervention is necessary to prevent danger or worsening damage.
Notification should not be delayed. A purchaser’s silence after discovering a defect may affect the claim, particularly where the defect could have been identified through an ordinary inspection.
An occupancy certificate does not end liability.
An occupancy certificate does not establish that the unit is free from every defect, nor does it release the developer, contractor, or designer from defects that appear later.
Instead, issuance of the certificate marks the beginning of the ten-year structural warranty period. Likewise, final handover or expiry of a contractual warranty may end some obligations relating to ordinary defects, but it does not end the ten-year warranty before its full term or prevent a latent-defect claim where the legal requirements are met.
Conclusion.
A real estate developer’s liability does not end merely because the unit has been handed over. Its nature and scope change according to the type, source, and timing of the defect.
Apparent defects are affected by inspection, reservations, and timely notice. Latent defects are governed by the warranty against defects or a longer contractual warranty, while defects threatening the durability and safety of the building fall within the ten-year structural warranty beginning on the date the occupancy certificate is issued.
A handover record should therefore not be understood as a comprehensive waiver of rights. Preserving a claim begins with documenting the defect, reporting it without delay, and obtaining a technical assessment that identifies its cause and the party responsible.