Definition and Scope (the Ijarah standard)
Ijarah (إجارة) is a contract for the right to benefit from an asset over a specified period in exchange for a known rental. The standard covers operating leases and Ijarah Muntahia Bittamleek (lease-to-own). It does NOT cover labor contracts.
The Ijarah contract is BINDING — neither party may unilaterally terminate without consent. The lessor must SPECIFY THE DURATION — a lease with unspecified duration is VOID for Gharar.
Promise to Lease (the Ijarah standard)
A customer may request the institution to acquire an asset and then lease it. The institution may require a SECURITY DEPOSIT to ensure seriousness. The deposit may be held as: (1) simple trust (cannot invest); (2) investment trust/Mudarabah (customer permits investment); (3) advance rental.
If the customer breaks the promise, deductions from security are limited to ACTUAL DOCUMENTED DAMAGES ONLY. The bank cannot deduct general expenses or opportunity costs.
Acquisition of the Leased Asset (the Ijarah standard)
The institution must ACQUIRE the asset or its usufruct BEFORE concluding the Ijarah contract. Key rules: (1) If institution already owns the asset, Ijarah may be executed immediately; (2) If the customer is to acquire the asset on behalf of the institution, the Ijarah must NOT be a condition of the sale; (3) A lessee may sub-lease unless the owner prohibits it.
Ijarah Contract: Duration (the Ijarah standard)
The lease contract MUST SPECIFY THE DURATION — no duration = void for Gharar. The period commences on execution date UNLESS parties agree on a future commencement date.
If the lessor FAILS TO DELIVER by the specified date, NO RENTAL IS DUE for the delay period. The lessee may either accept delivery (rental reduced), extend the lease by the delay period, or terminate the contract.
Earnest Money ('Arboun) vs Security Deposit (Hamish Jiddiyyah) (the Ijarah standard)
'Arboun (earnest money) is CREDITED AGAINST THE RENTAL (advance payment). Hamish is a separate security deposit. The lessee may have the right to terminate within a specified period; if the lessee terminates, the lessor may keep 'Arboun only if the lessee caused the termination.
Subject Matter of Ijarah (the Ijarah standard)
The leased asset must: (1) be capable of use while preserved (not consumed); (2) provide permissible benefit; (3) have specified duration; (4) give lessor liability for defects.
| Condition | Rule | Example |
|---|---|---|
| Preservation | Asset must retain substance during use | Car OK; fuel NOT OK |
| Permissible benefit | Use must be Shari'ah-permissible | Residence OK; liquor sales NOT OK |
| Duration | Must be stated; no unspecified lease | Lease for 2 years valid; "as needed" void |
| Lessor liability | MUST fix defects impairing use | Lessor responsible for faulty AC |
| Lessee obligations | Must use suitably, avoid negligence | Lessee liable for abuse |
Maintenance: Lessor vs Lessee (the Ijarah standard, -8)
Lessor MUST bear: Major maintenance (engine overhaul, roof repair) to keep asset usable. Lessor cannot shift to lessee even if agreed.
Lessee must bear: Operating/ordinary maintenance (oil changes, filters, light repairs). Lessor may delegate to lessee to execute, but AT LESSOR'S COST.
Insurance: Lessor must maintain at lessor's expense. Lessor may delegate to lessee to arrange, but lessor pays. Lessor may NOT charge lessee extra after signing unless anticipated at time of rent-setting.
Lease Rental Rules (the Ijarah standard)
Rental may be: in cash, kind, or service; fixed or variable; lump sum or installments; paid in advance, installments, or partially deferred.
Floating Rental: If rental changes, the FIRST PERIOD must be specified as lump sum. Subsequent periods may be tied to a BENCHMARK PROVIDED: (1) formula is clear; (2) benchmark applies a CEILING (max/min limits); (3) parties agree at contract inception.
Rental Payment & Late Payment (the Ijarah standard)
Lessor entitlement begins when lessee STARTS TO BENEFIT or when lessor MAKES ASSET AVAILABLE — not necessarily at contract signing. If rental is in installments, lessor may stipulate ACCELERATION (all remaining due immediately) if lessee delays payment without valid reason. But NO INCREASE IN RENTAL for late payment. Instead, lessee MAY VOLUNTARILY donate a portion to CHARITY.
Changes and Termination (the Ijarah standard)
Future rental amendments are permissible only for FUTURE PERIODS by mutual agreement. Past rental not yet paid becomes a debt and CANNOT be increased. If lessor SELLS to lessee, Ijarah terminates. If lessor SELLS to a THIRD PARTY, rights and obligations transfer to the new owner — lessee's consent NOT required.
What May Be Leased — Asset Eligibility
Two distinct objects of lease are recognised. The first is the usufruct of a specific tangible asset — a particular flat, a particular vehicle, a particular machine — where the asset is named, identified, or held under the lessor's ownership at the moment of contracting. The second is the usufruct of a described liability — a class of asset (a vehicle of given make and specification, a unit in a future development) that the lessor undertakes to make available at a specified date. The first kind binds immediately; the second kind binds the lessor to perform delivery and may be assigned to deliver any asset matching the description.
Either way the asset must be capable of producing benefit while remaining in substance — meaning it cannot be a consumable, where use destroys the thing. Loaning rice to be eaten is not Ijarah; renting a building to live in is. Ijarah may also be of services (the work of an identified person, or a class of work, for a stated period) but not of acts a person cannot lawfully delegate to another.
Sub-Leasing and Replacement
- Unless the contract prohibits it, the lessee may sub-lease the asset to a third party — at the same rental, at a higher rental (the lessee retaining the surplus), or at a lower rental.
- If the lessor has prohibited sub-leasing, an unauthorised sub-lease is invalid and the lessor may elect to terminate the head lease.
- In a lease of a described liability, the lessor retains the option to substitute one specific unit for another matching the description, provided the substitution does not impair the lessee's use.
- Where the lessee sub-leases to the original lessor at a different rental, the result is doctrinally suspect — that pattern is the structural fingerprint of ʿinah and is generally prohibited.
Loss of Benefit and Rental Adjustment
If the asset becomes unusable or its benefit materially diminishes through no fault of the lessee — destruction, fundamental defect, or external interference — the lease is suspended for the affected period and rental is not due for that period. If repair is feasible and the lessor performs it within a reasonable time, the lease resumes. If repair is not feasible, the lease terminates and rental is owed only for the period of actual benefit. Where the loss is attributable to the lessee's negligence or breach, the lessee remains liable for the rental and for the cost of restoring the asset.