{"id":145056,"date":"2025-07-12T01:59:17","date_gmt":"2025-07-11T22:59:17","guid":{"rendered":"https:\/\/www.salamahlaw.com\/?p=145056"},"modified":"2025-07-12T01:59:40","modified_gmt":"2025-07-11T22:59:40","slug":"termination-of-the-smart-tower-lease","status":"publish","type":"post","link":"https:\/\/www.salamahlaw.com\/en\/termination-of-the-smart-tower-lease\/","title":{"rendered":"Termination of the Smart Tower Lease"},"content":{"rendered":"

A <\/span>primary court in Riyadh<\/b>, specifically the Second Large Claims Division, recently ruled in favor of the <\/span>Derayah REIT Fund<\/b>, terminating an electronic lease agreement with <\/span>Al Thimara Al Haditha Co.<\/b>, the tenant of <\/span>Smart Tower<\/b> in Riyadh. The termination was based on the company\u2019s failure to pay the SAR 20 million annual rent.<\/span><\/p>\n

The public disclosure of this ruling sheds light on a fundamental legal and financial truth: safeguarding cash flow requires respecting contractual principles before a crisis emerges \u2014 not after.<\/span><\/p>\n

 <\/p>\n

What Actually Happened?<\/b><\/h2>\n

Derayah REIT acquired a prime office tower in Riyadh\u2019s Olaya District from the tenant itself. The tower represented <\/span>approximately 17%<\/b> of the fund\u2019s total portfolio, and was leased for SAR 20 million annually over a <\/span>10-year<\/b> term.<\/span><\/p>\n

However, the tenant defaulted on rent payments for <\/span>two consecutive years<\/b> and even filed a lawsuit to annul the property’s sale. The court dismissed the tenant\u2019s claims and subsequently issued a ruling to <\/span>terminate the lease<\/b>.<\/span><\/p>\n

 <\/p>\n

Analyzing the Fund\u2019s Crisis Management<\/b><\/h2>\n

In many cases, contract termination is seen as a last resort \u2014 and it appears the fund <\/span>delayed invoking this right<\/b>, possibly in hopes of a negotiated resolution. Unfortunately, this delay allowed the <\/span>debt to balloon to SAR 40 million<\/b>.<\/span><\/p>\n

Had the negotiation window been shorter, action could have been taken before the lease renewed for another year. Here lies the critical role of legal counsel in anticipating litigation timelines \u2014 in this case, <\/span>seven months<\/b>, which is considered remarkably efficient \u2014 and advising fund managers accordingly.<\/span><\/p>\n

 <\/p>\n

Why Was Automatic Termination Not Enforced After the First Breach?<\/b><\/h2>\n

This remains unclear. The lawsuit focused on lease termination, whereas many standard lease agreements grant the <\/span>right of termination to the aggrieved party<\/b> in the event of rent default. In this case, it might have been more effective to file a <\/span>declaration of termination<\/b> rather than requesting it via lawsuit.<\/span><\/p>\n

Had the termination occurred earlier, the fund might have been entitled to the <\/span>contractually agreed rent<\/b>, rather than settling for <\/span>market-based rent (Ejrat Al-Mithl)<\/b> \u2014 which could be significantly lower.<\/span><\/p>\n

 <\/p>\n

Recovery After Termination: Harder Than You Think<\/b><\/h2>\n

With a <\/span>SAR 40 million debt<\/b> and the tenant being a <\/span>limited liability company<\/b>, termination is <\/span>far from a full victory<\/b>. Recovery becomes the real challenge \u2014 especially if the company lacks the liquidity to settle.<\/span><\/p>\n

This underscores the <\/span>crucial importance of attaching enforceable guarantees<\/b> to lease agreements (e.g., mortgage, surety, or financial disclosures). There\u2019s no indication that such mechanisms were activated in this case \u2014 if they existed at all.<\/span><\/p>\n

The key takeaway? Winning the lawsuit isn\u2019t enough \u2014 you must ensure you can actually collect on the judgment.<\/b><\/p>\n

 <\/p>\n

The Attempt to Terminate the Property Sale<\/b><\/h2>\n

The tenant also <\/span>lost a separate lawsuit<\/b> attempting to annul the sale of the property. While the exact motives behind this suit remain unclear, asset sales are typically backed by full due diligence and valuation reports.<\/span><\/p>\n

Moreover, the tenant had paid rent and operated the building for years as a <\/span>former owner-turned-lessee<\/b>, making the claim highly questionable.<\/span><\/p>\n

It would be interesting to learn the rationale behind this legal maneuver.<\/span><\/p>\n

 <\/p>\n

In Conclusion<\/b><\/h3>\n

This was <\/span>not just a dispute over unpaid rent<\/b> \u2014 it was a <\/span>test of strategic thinking in managing high-stakes real estate conflicts<\/b> in an institutional investment environment.<\/span><\/p>\n

Those who read between the lines will see that legal battles are not won <\/span>in court alone<\/b>, but also <\/span>behind closed doors<\/b> \u2014 in boardrooms, between legal advisors, risk managers, and portfolio directors.<\/span><\/p>\n

The real question isn\u2019t <\/span>\u201cWho was right?\u201d<\/b> but rather:<\/span>
\n<\/span> \u201cWho thought ahead before the crisis hit?\u201d<\/b>
\n<\/b> \u201cWho drafted their contract with the future in mind?\u201d<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

A primary court in Riyadh, specifically the Second Large Claims Division, recently ruled in favor of the Derayah REIT Fund, terminating an electronic lease agreement with Al Thimara Al Haditha Co., the tenant of Smart Tower in Riyadh. The termination was based on the company\u2019s failure to pay the SAR 20 million annual rent. The…<\/p>\n","protected":false},"author":34,"featured_media":145053,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[26],"tags":[],"class_list":["post-145056","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general-articles"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/145056","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/users\/34"}],"replies":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/comments?post=145056"}],"version-history":[{"count":1,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/145056\/revisions"}],"predecessor-version":[{"id":145057,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/145056\/revisions\/145057"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/media\/145053"}],"wp:attachment":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/media?parent=145056"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/categories?post=145056"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/tags?post=145056"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}