Many commercial disputes in Riyadh today would not have occurred had the original contract been drafted carefully. Common mistakes aren't always in complex legal language — they're often in overlooking essential clauses that many assume to be "obvious." Here are eight clauses you must ensure are present in every major commercial contract before signing.
1. Precise Definition of Contract Subject Matter
This may seem obvious, but in reality, a major portion of commercial disputes begin from ambiguity in defining what was actually agreed upon. If the contract is for supplying goods, what exactly are they? Specifications, quantity, quality, origin, packaging, instructions. If it's for a service, what exactly are the deliverables? Acceptance criteria? How is success measured?
The practical rule: if a neutral third party reads the contract, can they precisely understand what each party is required to do?
2. Payment Terms and Details
This clause must specify:
- Total amount and whether it includes tax or not.
- Payment schedule (advance, milestone, final payment).
- Payment method (bank transfer, check, Mada Business).
- Consequences of late payment (late penalty, right to suspend work).
- Currency (important in international contracts).
3. Contract Duration, Renewal, and Termination Mechanism
Every commercial contract needs to answer three questions: When does it start? When does it end? How can it be terminated early? Defining early termination is very important — is 30 days' notice sufficient? 60 days? Does it require substantial cause or can it be terminated "for convenience"? What are the consequences of termination on outstanding and due payments?
4. Dispute Resolution Clause (Arbitration or Court)
One of the most neglected clauses — despite its critical importance when a dispute arises. Choose deliberately:
- Commercial Court in Riyadh: The default option. Applies if you don't specify otherwise.
- Arbitration: Faster, confidential, but higher cost. Recommended for contracts over SAR 500,000 or those involving foreign parties.
- Mediation before arbitration/litigation: A smart clause that requires an attempt at amicable resolution before escalation.
Suggested arbitration clause wording
"Any dispute arising out of this contract shall be referred to arbitration under the rules of the Saudi Center for Commercial Arbitration in Riyadh. The language of arbitration shall be Arabic, and the award shall be final and binding on the parties."
5. Governing Law
For purely domestic contracts this is clear: Saudi laws. But if one party is foreign, explicit language is essential. The rule: in contracts to be performed in Saudi Arabia or having assets in the Kingdom, always stipulate Saudi law to ensure enforceability.
6. Confidentiality and Information Protection
If the contract will lead to exchange of sensitive commercial information, explicit confidentiality provisions are mandatory. Must include:
- Definition of "confidential information" (broad but clear scope).
- Obligations (non-disclosure, non-use for other purposes).
- Confidentiality duration (typically 3-5 years after contract end).
- Penalties for breach (actual damages + liquidated penalty).
7. Force Majeure
COVID taught everyone the importance of this clause. Force majeure is circumstances beyond both parties' control that prevent contract performance. Good drafting specifies:
- What constitutes force majeure (and what doesn't).
- Required notice from the affected party.
- Suspension of obligations vs. contract termination.
- Distribution of losses if force majeure occurs.
8. Amendment Clause
A simple but golden rule: "No amendment to this contract shall be effective unless in writing and signed by both parties." This clause protects you from claims that "we agreed verbally to amend" months into contract execution.
Pre-Signing Checklist
- Have you read the entire contract (not just the summary)?
- Do you understand every clause? (If not, ask before signing.)
- Have you reviewed the contract with a specialized attorney?
- Have you verified that names, addresses, and numbers are correct?
- Have you anticipated every possible scenario: What if delivery is late? What if the other party becomes insolvent? What if a dispute arises?
- Have witnesses and signature attestation been properly completed?
Conclusion
A small investment of time in reviewing the contract before signing saves you years of litigation and millions of Riyals. The golden rule: "Don't sign a contract worth over SAR 100,000 without specialized attorney review" — the cost is low compared to the risks of overlooking a substantive clause.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice. See our full disclaimer.