What Are the Types of Contracts in Saudi Arabia?
Translation of the attached article:
Contracts are among the key foundations that govern all civil and commercial transactions. They protect the rights of the contracting parties, define their obligations, help avoid legal disputes between them, and ensure compliance with local regulations. Contracts are divided into several types depending on the nature of the contractual relationship and its purpose, such as commercial contracts, employment contracts, sale contracts, and others.
In this article, we will explain the types of contracts in Saudi Arabia and the importance of drafting them in a precise and clear legal manner, so that they include all essential clauses that protect the rights of the parties and prevent any future dispute.
Types of Contracts Under Saudi Law: Overview and Legal Basis
A contract is legally defined as a binding agreement between two or more parties, under which the rights and obligations of each party are determined in relation to a specific subject matter. This agreement must meet certain legal requirements in order to be valid and enforceable.
One of the characteristics of a contract is that it is legally binding. Once signed, it becomes binding on the contracting parties. A contract is only formed when there is agreement between the parties on its terms, and its subject matter must not violate public order or the law.
If one party fails to comply with the contract, the other party may resort to the courts to enforce the agreed obligations.
Types of Contracts in Terms of Formation, Binding Effect, and Duration
Contracts differ from one another in terms of formation, binding effect, and duration as follows:
First: Types of Contracts in Terms of Formation:
The types of contracts in terms of formation are as follows:
Consensual Contract:
This is a contract that is concluded by mere mutual consent and does not require a specific form or writing. Examples include lease contracts and sale contracts. In such contracts, writing is a requirement for proof only, not a requirement for the validity of the contract.
Formal Contract:
This contract is not concluded by mere mutual consent; rather, it requires a specific form and procedures prescribed by law, such as writing for the validity of the contract. This means the contract is not formed unless the parties’ consent takes a specific form determined by law.
Real Contract:
This contract is not concluded by mere mutual consent alone. In addition, the subject matter of the contract must be delivered to the contracting party in order for the contract to be completed.
Second: Types of Contracts in Terms of Binding Effect:
The types of contracts in terms of binding effect are as follows:
Bilateral Contract:
This contract creates reciprocal obligations for both contracting parties, so each party is both a debtor and creditor of the other at the same time, such as a sale contract.
Unilateral Contract:
This is a contract that creates obligations on only one party from the time of its conclusion, while the other party bears no obligations. One party is therefore a debtor and the other is a creditor, such as a deposit contract.
Third: Types of Contracts in Terms of Duration:
Contracts in terms of duration include continuing contracts and instantaneous contracts, explained as follows:
Instantaneous Contracts:
These are contracts in which time is not an essential element. They involve performance that can be carried out immediately, such as a sale contract in which the seller is obliged to transfer ownership of the item to the buyer. The contract remains instantaneous even if delivery of the sold item is postponed to the future.
Continuing Contracts:
These contracts are reinsurance contracts that do not include a fixed expiry date. They continue through renewal and remain in force until one of the contracting parties terminates them.
Named and Unnamed Contracts in Saudi Arabia and When Each Type Is Used
Contracts in the Kingdom are divided into two main types: named contracts and unnamed contracts. Named contracts include all contracts specifically defined by commercial regulations, as they are subject to their respective provisions, such as purchase and sale contracts, transportation contracts, supply contracts, agency contracts, mortgage contracts, and others.
Unnamed contracts, on the other hand, include contracts that are not specifically defined by commercial regulations. They are agreements between contracting parties, such as employment contracts, exchange contracts, contracting agreements, and insurance contracts.
Civil Contracts in Saudi Arabia: Ownership, Benefit, Work, and Aleatory Contracts
There are many types of civil contracts regulated by Saudi law. The most prominent include:
1- Ownership Contracts:
The types of contracts relating to ownership include the following:
Sale Contract:
A sale contract is a contract that obliges the seller to transfer ownership of a specific item to the buyer in exchange for a sum of money, which is the price. This contract is characterized as a contract that transfers ownership, meaning ownership passes from the seller to the buyer directly once it is concluded.
Barter Contract:
This is an agreement between two parties to exchange specific services or goods without using money. The value is determined between the parties based on the benefits each provides to the other.
Gift Contract:
A gift contract is a contract under which a person called the donor gives from their own property without compensation to another person called the recipient. It is one of the donation contracts and is based on the donor’s intention to enrich the recipient without return.
Loan Contract:
This contract creates an obligation on the lender to transfer ownership of a sum of money or another fungible item to the borrower, in return for the borrower returning an equivalent item of the same quality, type, and amount at the end of the loan.
Settlement Contract:
Through this contract, the settling parties resolve an existing dispute or avoid a potential dispute, such as when each party waives their claim or part of it in return.
2- Benefit Contracts:
The types of contracts relating to benefit include the following:
Lease Contract:
Under this contract, the lessor enables the lessee to benefit from a non-consumable item for a specified period in exchange for rent.
Lending for Use Contract:
Under a lending for use contract, the lender enables the borrower to benefit from a non-consumable item for a specific purpose or period without compensation, provided that the borrower returns it.
3- Work Contracts:
The types of these contracts include the following:
Contracting Agreement:
Under this contract, the contractor undertakes to perform work or make something in exchange for payment, without being a representative or subordinate of the employer.
Employment Contract:
Work is the effort exerted in all human activities in execution of an employment contract, whether written or unwritten, regardless of its type or nature.
Commercial Contracts in Saudi Arabia: Validity Conditions and Key Practical Applications
To ensure the validity and enforceability of commercial contracts, the following conditions must be met:
- The contract must clearly express the main objectives that the parties seek to achieve through the contractual relationship.
- The contract must define each party’s responsibility and role in detail to avoid misunderstanding or overlap in duties.
- The contract must include clear clauses specifying how disputes will be handled, such as resorting to the competent court or commercial arbitration.
- The contract must include clauses explaining how it may be terminated, whether upon achieving its purpose, expiry of its term, or by mutual agreement of the parties for early termination.
Contact us now to benefit from the experience of the best corporate and institutional cases lawyer in drafting and reviewing different types of contracts, and to receive legal support that protects your rights and helps avoid future disputes.
Types of Government and Administrative Contracts in Saudi Arabia and Approved Contracting Models
Government entities in the Kingdom use several types of contracts to implement their projects and works. These contracts differ according to the size and nature of the project and include the following:
Supply Contracts:
This is a contract under which one party undertakes to deliver goods periodically over a certain period to another party in exchange for a specified amount, all or part of which may be deferred.
Service Contracts:
Through these contracts, an agreement is made between a government entity and a service provider to carry out specific works or provide specific services without supplying physical products, such as operation, maintenance, and consulting services.
Works and Construction Contracts:
This type of contract is based on an agreement between the employer and the contractor to carry out construction, building, or development works according to specific technical and engineering specifications and within an agreed timeframe.
Information Technology Contracts:
These are used to update and develop the digital infrastructure of government entities, including creating electronic systems, operating digital platforms, and providing integrated technical solutions that support digital transformation.
Consulting Services Contracts:
This is an agreement concluded between an administrative authority and a specialized office, individuals, or a licensed company to prepare preliminary studies for public projects, whether in terms of implementation costs, economic feasibility, or preparation of designs and specifications related to the project.
Manufacturing Contracts:
This contract is based on an agreement between the government entity and the manufacturer to produce goods or equipment according to predefined terms and specifications, while complying with precise delivery schedules.
Employment Contracts in Saudi Arabia: Types, Parties’ Rights, and Lawful Termination
There are several types of employment contracts that may be concluded in the Kingdom, including the following:
Fixed-Term Employment Contract:
This contract is linked to completing a specific task or work within a specified period. It ends when its agreed term expires, and the parties may renew it by mutual agreement.
Indefinite-Term Employment Contract:
This contract is not linked to a specific time period. The parties may terminate it if there is a legitimate reason, which must be stated in a written notice sent to the other party before termination within the period specified in the contract.
Temporary Employment Contract:
By its nature, this contract falls within the employer’s usual business activity. Its completion requires a certain period or relates to a specific work and ends upon its completion. In both cases, it does not exceed 90 days.
Flexible Work Contract:
Under this contract, a part-time worker works for one or more employers and is paid on an hourly basis. The working hours under this contract must be less than half the working hours specified at the establishment.
Remote Work Contract:
This is one of the new types of contracts that aims to give employers and workers greater flexibility in performing their work, especially with technological development and the availability of visual communication tools and means.
Before choosing the appropriate contract type for your activity, you may first need to understand the difference between an establishment and a company, so you know the legal capacity under which you will contract and determine the obligations and responsibilities arising from each entity.
Sale, Lease, and Supply Contracts: Key Differences and Most Important Practical Clauses
Sale, lease, and supply contracts differ in terms of the nature of the legal obligation and the purpose of contracting. A sale contract is based on transferring ownership of a specific item from the seller to the buyer in exchange for a specified price. A lease contract, on the other hand, is limited to enabling the lessee to benefit from the leased property for a specified period without transferring ownership. A supply contract concerns the obligation of one party to provide goods or services periodically or continuously over a specified period.
The key differences between these contracts lie in the scope of obligations. While the seller in a sale contract is obliged to deliver the sold item and transfer its ownership, the lessor in a lease contract is obliged to ensure that the leased property is fit for use. Meanwhile, the supplier in a supply contract is obliged to deliver the agreed quantities according to a specified timetable and specifications.
In terms of practical clauses, there are essential elements that must be focused on in each type, such as accurately defining the subject matter of the contract, stating the value or financial consideration, clarifying the contract term in lease and supply contracts, delivery terms, quality guarantees, contract termination mechanisms, and compensation in case of breach of obligations.
International Contracts and Electronic Contracts: When Do Conditions and Obligations Differ?
International contracts and electronic contracts have a special nature that makes them different from traditional contracts, whether in terms of the legal framework or the method of conclusion and execution. International contracts include a foreign element, such as different nationalities of the parties or the place of contract performance, which requires determining the applicable law and dispute resolution mechanism. Arbitration is often agreed upon as a method for resolving disputes.
Electronic contracts are contracts concluded through digital means without the need for the parties to be physically present. They rely on electronic means of proof such as messages, email, and digital platforms.
The conditions and obligations in these contracts differ in terms of the need to include additional clauses, such as determining jurisdiction in international contracts, ensuring data protection and privacy in electronic contracts, in addition to regulating payment methods, verification mechanisms, and termination terms.
Because the strength of a contract depends not only on its clauses but also on how it is drafted, you may want to learn about the types of contract drafting and the importance of each type.
Documenting and Proving Contracts in Saudi Arabia: When Is Writing Sufficient and When Is Notarization Required?
Notarization is a set of procedures aimed at proving the rights of the parties to a concluded contract. In the past, transactions relied on mutual trust between the parties, which could result in denial and loss of rights between debtors and creditors.
Notarization provides legal protection for the contracting parties by having the contract clauses reviewed by the notary and ensuring that all elements and information of the contract are present, which helps protect the parties’ rights.
Contract notarization helps reduce legal disputes by clarifying the contract terms, obligations, and rights of the parties, and preventing any disputes resulting from misunderstanding the contract clauses.
You should also read about common mistakes in contract drafting to avoid them and ensure that your legal position is fully strong.
Best Contract Drafting Firm in Saudi Arabia
Choosing a lawyer specialized in writing and drafting contracts is an essential and necessary step to protect your interests and rights and avoid any future disputes that may arise due to unclear clauses or inaccurate drafting.
The contract must be written in a legal and organized manner. This is where the role of Nawaf bin Awad Al-Harbi Law Firm comes in, with its team of distinguished lawyers who have sufficient experience in drafting and preparing various types of contracts in accordance with Saudi regulations.
Contact us now to benefit from the experience of the best contract notarization lawyer in reviewing, drafting, and notarizing contracts properly and legally, ensuring the protection of your rights and avoiding future disputes.
Conclusion
The types of contracts differ depending on the type of legal disputes and the contracting parties. Drafting these contracts requires deep legal understanding and legal experience, which you will find at Nawaf bin Awad Al-Harbi Law Firm, which includes a group of the best lawyers specialized in writing and drafting legal contracts of various types.
Before concluding commercial contracts or signing sale, supply, and partnership agreements, you may first need to know how to open a commercial registration, so that you can start your activity legally and enter into contracts with a clear legal capacity.
Frequently Asked Questions
What are contracts and their types?
A contract means a binding agreement between two or more parties that results in the creation of mutual rights and obligations based on what has been agreed. There are several types of contracts, such as commercial contracts, civil contracts, administrative contracts, and employment contracts.
What are the conditions for contract validity?
For a contract to be valid and legally binding, several conditions must be met, such as legal capacity, consent and agreement, legality of the subject matter, and lawful cause.
What is an employment contract in the Kingdom of Saudi Arabia?
An employment contract is a contract concluded between an employer and a worker, under which the worker undertakes to work under the employer’s management and supervision in exchange for a specific wage.