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Contracts & Leasing

Annual Lease

Synonyms: Annual Rental، Yearly Lease، 12-month Lease

Last updated: 2026-05-06

Short Definition

One-year lease, most common in Saudi Arabia, providing stability at lower rent than short-term contracts.

Overview

The annual contract is the most common form of rental contracts in Saudi Arabia, with a duration extending to a full Hijri or Gregorian year, starting from handover date and ending with year expiration. It represents over 85% of residential rental contracts in the Kingdom, due to its balance between lessee stability and lessor flexibility. Residential annual contract features full VAT exemption (since the 2024 decree), sufficient duration for family stability without long commitment, auto-renewal unless objected, and lower rent than short-term contracts. For the lessor, it provides regular income and reduces repeated search costs for tenants. The annual contract is subject to all Civil Transactions Law and Ejar Platform Regulation provisions, and is registered to the day in Ejar. Parties have the right at expiration to: renew under same terms (automatic), renew under amended terms (requires new signature), or not renew (requires notice before the agreed period). Renewal increase is legally available but not mandatory.

Legal Basis

The annual contract is regulated by the Civil Transactions Law issued by Royal Decree No. (M/191) of 1444 AH, and the Ejar Platform Regulation. The VAT exemption on annual residential rent is based on the 2024 amendment to the VAT executive regulation, which distinguishes between long-term exempt contracts and short-term taxable ones.

Sources

Practical Example

A family leases a Mecca apartment with an annual contract at SAR 36,000 (3,000/month installments). When documenting in Ejar: 'Annual - Residential' is selected, VAT-exempted, payment mechanism set (monthly via SADAD), and auto-renewal alert is given. At first year expiration, Ejar sends an alert to both parties 60 days prior. The lessor proposes 5% increase (SAR 1,800). The lessee negotiates and accepts 3% (SAR 1,080). The contract is renewed in Ejar at new value (SAR 37,080) without any branch visit. The family stayed 5 years in the apartment with successive annual renewals.

Common Mistakes

  • ✗Starting an annual contract intending to vacate after 6 months without an early termination clause — obligates the lessee to remaining 6 months rent.
  • ✗Neglecting to review contract at automatic renewal — there may be clauses no longer suitable (like deposit, payment method).
  • ✗Remaining silent before contract end thinking it auto-ends — actually, it auto-renews unless notice is sent.
  • ✗Considering an annual contract as flexible as monthly in changing rent monthly — annual contract has fixed rent throughout the year.
  • ✗Neglecting to verify the termination notice clause (usually 60 days) — delay costs an additional notice period.

International Differences

In the UAE, the annual contract is the default, subject to registration fees (5% of rent value) and no residential VAT exemption exists. In Turkey, the minimum for residential is one year, with annual increase capped to inflation. In Egypt, annual contract has fixed rent throughout the term. The Saudi advantage: residential VAT exemption + rapid digital renewal.

FAQs

Is annual residential contract VAT-exempt?▾
Yes, since the 2024 decree, long-term residential rental (one year or more) is fully exempt. Annual commercial remains 15% taxable.
What's the difference between Hijri and Gregorian years in Ejar?▾
Ejar records dates in both calendars automatically. Hijri year = 354 days, Gregorian = 365 days. The 11-day difference may affect high-value contracts but rarely a dispute.
Can I sign an annual contract renewable for 5 years at once?▾
A 5-year contract (multi-year) can be signed directly instead of annual renewals. Benefit: rent fixation; reverse benefit: inability to negotiate increases.
When should non-renewal notice for annual contract be sent?▾
Per the agreed clause, usually 60 days before expiration. Delay obligates a new year under same terms (auto-renewal).
Can the annual rent be paid as a lump sum?▾
Yes, the most common with some lessors. Better to obtain a discount (5-10%) for advance payment. Ejar supports both options.

In Other Languages

Arabic
الإيجار السنوي

عقد إيجار مدته سنة، الأكثر شيوعاً في السعودية، يوفر استقراراً وأجرته أقل من قصير المدى.

English
Annual Lease

One-year lease, most common in Saudi Arabia, providing stability at lower rent than short-term contracts.

Turkish
Yıllık Kira

Bir yıllık sözleşme; Suudi Arabistan'da en yaygın, istikrar sağlar ve kısa vadeliden daha düşük ücretli.

Related Terms

Rental Period

The agreed-upon time period for renting property, typically one year renewable, with longer durations possible for commercial contracts.

Monthly Lease

Short-term lease that renews monthly, common in furnished and serviced apartments, offering flexibility at higher rent.

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