Derayah Financial, in its capacity as manager of Derayah REIT, announced a significant legal development that strengthens the fund's asset stability and underscores the robustness of the legislative environment in the Kingdom of Saudi Arabia. A preliminary ruling was issued by the competent circuit of the General Court in Riyadh dismissing the lawsuit filed against the fund, which sought to nullify the purchase agreement for the Smart Tower property, due to the plaintiff's lack of standing.
Details and implications of the court ruling
Derayah Financial clarified in an official statement published on the Saudi Stock Exchange (Tadawul) that the court ruled to dismiss the lawsuit filed by the former tenant of the property, Al-Thamra Modern Operation and Maintenance Company. The plaintiff company had sought to annul the purchase agreement for the Smart Tower property, which the fund had signed on August 7, 2017. The ruling clearly stated that the plaintiff lacked the legal standing to file such a lawsuit. This is a fundamental legal principle meaning that the right to litigation is limited to those with a direct interest in the dispute, which does not apply to a former tenant seeking to challenge a sale transaction between the property owner and the new buyer.
Background of the conflict and its legal history
This lawsuit was not the first of its kind; the same plaintiff company had previously filed a similar lawsuit seeking to invalidate the same sale contract. That dispute was definitively resolved in favor of Derayah REIT, with a final ruling issued by the Fifteenth Circuit of the Riyadh Court of Appeal. The appeals court upheld the initial ruling, which dismissed the plaintiff's case, making the judgment final and unappealable. The refiling of the lawsuit confirms the continued attempts to influence the fund's ownership of the property, but once again, the judiciary has had the final say.
The importance of governance for the Real Estate Investment Trusts (REITs) sector
This ruling reinforces confidence in the Real Estate Investment Trusts (REITs) sector in the Saudi financial market, a key investment vehicle that allows small investors to participate in large, income-generating real estate projects. Protecting the assets of these funds through sound judicial rulings ensures their stability and growth, safeguarding the rights of thousands of investors (unit holders). It also sends a strong message that the Kingdom's investment environment boasts a robust legal and judicial framework capable of protecting property rights and enforcing contracts, aligning with the objectives of Saudi Vision 2030 to develop the financial sector and attract both domestic and foreign investment.
Expected impact on Derayah REIT fund and the market
Domestically, this ruling removes any uncertainty surrounding one of Derayah REIT’s key assets, Smart Tower, ensuring the uninterrupted flow of rental income from it without any legal impediments. This stability positively impacts the fund’s performance and the market price of its units. More broadly, such clear judicial rulings enhance the attractiveness of the Saudi real estate market for international investors, who consistently seek markets characterized by transparency and the rule of law, where their investments are protected from undue disputes.
