Impermissibility of rent-to-own contract
10-5-2011 | IslamWeb
Question:
Is the rent-to-own contract permissible or prohibited? It is a contract that states that the lessee pays monthly installments in the form of a lease then after the total price is paid, the ownership of the real estate is transferred to the lessee. This contract also includes a condition that states that in case the lessee does not pay any of the installments, he should pay them later on with an interest that depends on the duration of time during which he did not pay. This contract (rent-to-own contract) entails selling the real estate to a third party that is not its owner, but there are companies that buy these pieces of real estate and sell them according to this way. They buy these pieces of real estate and sell them with deferred payment in return for higher prices. The real estate that we rented will be used as a mosque in order to carry out some activities for the Muslim community here.
Answer:
All perfect praise be to Allaah, the Lord of the worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.
Rent-to-own contract according to the form that is known to economists is impermissible as it includes many violations of Sharee‘ah (Islamic law) rules such as uncertainty, as the lessee may be unable to pay the last installment and in this case, he would lose all that he had paid. This is because the real estate will be returned to the property owner and this makes him take both the lease and the real estate. Moreover, in this contract, the installments that the lessee pays are usually more than the real lease of that real estate.
The Islamic Fiqh Academy offered two Sharee‘ah–approved alternatives: The first one is selling on installments while obtaining sufficient guarantees. The second one is to conclude a lease contract whereby the owner gives the lessee the option to extend the lease term, end the lease contract and return the real estate to its owner or purchase the estate after the lease period and full payment of the due rent at the prevailing market price.
As for the kind of purchase that you mentioned which entails paying a fine in case of delayed payment, it is prohibited as this is pure Riba (usury).
As for the third point that you mentioned, it would be alright if the company, institution or bank bought the real estate from the owner then leased it or sold it on installments to a third party provided that this sale does not include any of the prohibited conditions as what you mentioned above.
Allaah Knows best.