Fahd bought a café in Al Khobar “with all its contents” for SAR 180,000. Two months later, the coffee supplier claimed SAR 35,000 for invoices from before the sale, and the landlord sent a message saying he never agreed to transfer the lease. Who is responsible?
The direct answer: if the trade name passed to the buyer with the shop, Article 11 of the Trade Names Law transfers to the buyer the rights and obligations that arose under that name, unless otherwise agreed. Even so, the seller and the buyer remain jointly liable to creditors, and your agreement does not bind a creditor unless he accepts it. Workers' wages for the earlier period are also owed by both of them jointly under the Labor Law. So a clause saying “the debts are on the seller” governs only the relationship between the two of you.
What does selling a shop include?
“Selling a shop” can mean different things: equipment and stock only; a running business with its name, customers and contracts; or the property itself if it is owned. Each has its own effect. So state the type of deal clearly in the contract, and attach a schedule of assets: the equipment with its condition and serial numbers, the stock with quantities and expiry dates, digital accounts and contact numbers, and anything excluded from the sale. If some devices are leased or pledged to a supplier, the fact that they are inside the shop does not mean the seller owns them.
Who pays the shop's debts after the sale?
This is where most disputes happen. The Civil Transactions Law and the Trade Names Law answer from two angles:
- If you agree with the buyer that he will take over a specific debt, this is an assignment of debt (hawalat dayn) between the two of you. But it binds the creditor only if he accepts it (Article 249 of the Civil Transactions Law). If the supplier refuses, the seller remains his debtor, and the buyer is bound to the seller to pay it.
- If the trade name passes with the shop, the earlier obligations under that name pass to the new owner unless you agreed otherwise. The seller and buyer remain jointly liable to creditors, and a claim against the buyer for the seller's debts will not be heard after five years from the transfer of ownership (Article 11 of the Trade Names Law, Royal Decree M/83 dated 19/3/1446H).
- Workers' rights that arose before the sale, such as wages and end-of-service award, are owed by the seller and buyer jointly. The employment contracts remain in force and service is treated as continuous (Article 18 of the Labor Law).
The practical result: the buyer may be asked to pay a debt he did not know about, and the seller may be asked to pay a debt he thought he had got rid of. The solution is a full list of debts before signing, and holding back part of the price until the known debts are settled.
Is the shop lease transferred automatically when the shop is sold?
No. Most shops are rented, and buying the business does not make you the tenant automatically. Article 255 of the Civil Transactions Law does not allow the tenant to pass his position to someone else without the landlord's consent. The consent can be given in advance in the lease if it says so. If the landlord does not consent, the seller remains bound by the lease jointly with the buyer, unless otherwise agreed (Article 256). So get the landlord's written consent, or a new lease in your name, before you pay most of the price.
The commercial registration, trade name, trademark and municipal licences are separate elements, and each has its own procedure with its own authority. Do not accept a general promise that “all the licences go with the shop”, especially in activities that need special requirements or qualifications.
Can the buyer end the workers' contracts?
Selling the shop does not end the workers' contracts. Article 18 of the Labor Law keeps the contracts in force and treats service as continuous. In a sole proprietorship, the seller and buyer may agree to move all the workers' earlier rights to the buyer, but only with each worker's written consent. If a worker does not consent, he may ask to end his contract and receive his dues from the seller.
A sweets shop is sold for SAR 250,000. It has three workers, each with four years of service.
The seller and buyer agree that the workers move with their rights. Two workers sign written consent; the third refuses.
The third worker may end his contract and take his end-of-service award for the four years from the seller. The earlier rights of the other two are now on the buyer, so it was wise to deduct their value from the price.
How do you write a shop sale contract that protects you?
| Clause | What to write |
|---|---|
| Assets | A detailed schedule of equipment, stock and accounts, and a signed handover record |
| Debts | A list of every known debt, who pays it, and the seller's declaration that there are no others |
| Price | Payments linked to steps: landlord consent, transfer of licences, final stocktake |
| Retained amount | Part of the price held for an agreed period to cover debts that appear later |
| Workers | A list of their names and dues, and each worker's position on moving his rights |
| Lease | The landlord's written consent or a new lease |
What if a dispute appears after the sale?
If one party breaches the contract, the other may, after giving him formal notice, ask for performance or cancellation, with compensation where justified. The court may refuse cancellation if the breach is minor (Article 107). If a defect appears in the equipment, a defect claim will not be heard after 180 days from delivery, unless the seller agreed to a longer warranty or it is proved that he hid the defect by fraud (Article 344). Lower profits than the buyer expected are not a defect in themselves, unless the income figures the seller gave were false and were part of the agreement.
A dispute between two traders about their commercial business is heard by the Commercial Court (Article 16 of the Commercial Courts Law). A claim filed by a non-trader against a trader under a commercial contract goes to the Commercial Court only if the claim is more than SAR 500,000 (Article 31 of the Implementing Regulations).
This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.
Practical solutions for both sides
If you are the seller:
- Pay the known supplier debts before handover, or get each creditor's written acceptance of the transfer of his debt.
- Agree clearly on what happens to the trade name. Whether it stays with you or passes to the buyer changes who carries the liability.
- Get the workers' written consent if you will move their rights; otherwise settle their dues.
- Do not hand over the keys before you receive the payment linked to handover.
If you are the buyer:
- Ask for a detailed list of debts and a signed declaration that there are no others.
- Hold back part of the price long enough for old claims to appear.
- Do not pay most of the price before the landlord's written consent.
- Count the stock and equipment yourself on handover day and sign a record with the seller.
If you are about to buy or sell a shop, send the draft contract, the list of debts and the lease on WhatsApp, and we will review them with you before you sign.
Need advice on your own case?
Every case turns on its own facts and documents. Send us a short summary and we'll arrange a session with a licensed Saudi lawyer who will tell you clearly where you stand.
Frequently asked questions
Does the buyer pay the shop's old debts?
If the trade name passed with the shop, yes: Article 11 of the Trade Names Law transfers the earlier obligations to him unless otherwise agreed, and he and the seller remain jointly liable to creditors. A claim against him will not be heard after five years from the transfer.
We wrote in the contract that the debts are on the seller. Does this protect me as the buyer?
It protects you only in your relationship with the seller, so you can claim back from him what you paid. The agreement does not bind a creditor unless he accepts it.
Can the buyer dismiss the workers after buying the shop?
The sale is not a reason to end the contracts. Article 18 of the Labor Law keeps them in force and treats service as continuous. Any later termination is governed by the ordinary rules of the Labor Law.
Can I transfer the shop lease to the buyer?
Only with the landlord's consent under Article 255 of the Civil Transactions Law. If he does not consent, you remain bound by the lease jointly with the buyer.
General information, not legal advice. The official Arabic texts of Saudi laws prevail over any translation. Disclaimer