Article 9 of the Saudi Finance Lease Law
المادة 9 من نظام الإيجار التمويلي
The lessee does not bear loss of the asset unless through its transgression or negligence; the lessor bears it if due to the lessor or force majeure, and cooperative insurance is on the lessor and may not be imposed on the lessee.
Official text (Arabic)
This article has not been amended since the law was issued.
1- لا يتحمل المستأجر تبعة هلاك الأصل المؤجر ما لم يتعدَّ أو يفرط، فإن كان الهلاك بتعدٍّ أو تفريط من المستأجر؛ فيتحمل المستأجر قيمة الأصل عند الهلاك باستثناء ما يغطيه التأمين.
2 - يتحمل المؤجر تبعة الهلاك إذا كان بسببه أو بقوة قاهرة.
3 - يتحمل المؤجر التأمين التعاوني على الأصل المؤجر، ولا يجوز اشتراطه على المستأجر.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 9 explained in plain English
This article answers an important question: who bears the loss if the leased asset is lost? It has three paragraphs:
- The rule is that the lessee does not bear the loss, unless it transgresses or is negligent. If the loss is through its transgression or negligence, it bears the value of the asset at the time of loss, except for what insurance covers, meaning it does not pay the part that insurance covers.
- The lessor bears the loss if it is due to the lessor or to force majeure.
- Cooperative insurance is on the lessor: the lessor bears the cooperative insurance on the leased asset, and it may not be made a condition on the lessee. So any term in the contract that makes the lessee bear this insurance contradicts the text.
Transgression is doing what is not permitted with the asset, and negligence is failing to safeguard it. This is linked to Article 8, which prevents the lessee from changing or modifying the asset without the lessor's written consent, since observing the limits of permitted use is part of safeguarding the asset.
In practice, the lessee would do well to review its contract to make sure it is not made to bear the cost of cooperative insurance on the asset, and to keep evidence of its proper use and safeguarding of the asset. If a loss occurs and the parties disagree on its cause, you can consult a lawyer specializing in banking, finance and finance lease cases.
Practical example
Abdullah leased a car in Abha under a finance lease, and a violent flood destroyed it while it was parked in a lawful parking space. This is loss by force majeure, so the lessor bears it, not Abdullah. But if Abdullah caused the accident by reckless driving, he bears the value of the car at the time of loss, except for what insurance covers.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 9 of the Saudi Finance Lease Law
Who bears the loss if the leased asset is damaged?
The lessee does not bear it unless it transgressed or was negligent, and the lessor bears it if the loss is due to the lessor or to force majeure.
Can the company make me bear the cost of insuring the asset?
No, the lessor bears the cooperative insurance on the leased asset and it may not be made a condition on the lessee.
If the asset is damaged through my negligence, how much do I pay?
The lessee bears the value of the asset at the time of loss, except for what insurance covers.
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The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.