Judicial Contract Rescission

Judicial rescission is the ending of a bilateral contract by court judgment at the request of one party because the other failed to perform after being formally notified, with compensation awarded where warranted. It differs from "dissolution" (infisakh), which occurs automatically when performance becomes impossible for reasons beyond the debtor's control, and from mutual cancellation (iqala), which happens by agreement. In Saudi Arabia rescission is governed by the Civil Transactions Law, in force since December 2023. Article 107 gives a party, after formally notifying the defaulting party, the choice between demanding performance or rescission, with compensation in either case, and the court may refuse rescission if the unperformed part is minor. Article 108 allows the parties to agree on a right to terminate without a court judgment upon breach, but this does not dispense with formal notice unless expressly agreed. Under Article 111 the parties return to their pre-contract position, and if that is impossible the court awards compensation; in time-based contracts such as leases, however, rescission has no retroactive effect. A dispute-resolution clause such as arbitration survives rescission unless agreed otherwise. For leases specifically, the law lets a tenant seek rescission or a rent reduction when a defect, partial destruction or interference deprives him of the use of the premises. Substantive disputes over terminating leases or over rent are filed with the General Court, unlike the collection of rent due under a documented Ejar lease, which goes straight to the Execution Court. The Saudi Real Estate Arbitration Center under the Real Estate General Authority (REGA) is an optional route that requires an arbitration clause or agreement. A common error is for the aggrieved party to stop performing or walk away without a judgment or an express termination clause, turning himself into the party in breach.