Article 21 of the Saudi Law on Security Rights in Movable Assets

Article 20 makes security rights that are effective against third parties rank ahead of other debts in priority of payment, including workers' rights and government dues. But this article lets the creditor change his position by choice.

The rule: the secured party may waive the priority rank given to his security right, subject to the following controls:

1. Writing: the waiver must be in writing.
2. No prejudice to others: the waiver is without prejudice to other security rights, that is, it does not harm holders of security rights who were not party to it.
3. Effectiveness without registration: the waiver is effective against third parties without needing to be registered in the Registry.

When is this used? In practice this happens when the grantor needs new financing and the new financier requires to rank ahead of the existing financier, so the existing financier agrees to waive his rank in his favor. Waiving the rank does not mean waiving the security right itself; the waiving party remains a secured creditor but at a later rank.

This article comes at the end of the chapter on priority, and is followed by Article 22, which opens the provisions on the right to follow the collateral. When drafting an agreement waiving priority, it is advisable to consult a lawyer specialized in commercial and finance matters.