Lease option agreement

21 Aug 2019 Ref-No#: 2128

Is lease option agreement is halal.

WHAT IS A LEASE OPTION?

A lease option is a legal agreement that allows you to control a property and generate income from it, with the right (but not the obligation) to buy it later.

It’s actually two separate agreements bundled into one, and it’s easier to understand when you separate them:

Lease: You agree a monthly payment to the property owner, which allows you to manage the property and rent it out to tenants for a profit.Option: You agree a price at which you can buy the property later, if you want to.

At the heart of any lease option agreement, there are 4 main terms that need to be agreed:

The monthly payment: which is usually whatever the owner needs to cover their mortgage and any other costs
The purchase price: that you have the option to buy the property for in the future.

The length of the agreement: after which you have to hand the property back if you haven’t used the option to buy.

The upfront payment: you’ll give them in exchange for the option (which in law is called a consideration)

For the agreement to be legally binding there needs to be at least some upfront payment but this can be as little as £1. So if you’ve seen people talking about buying a house for £1 It’s lease options that they’re talking about.

JazakAllah khayra

Answer

Wa’alaykum as Salam wa rahmtullahi wa barakatuhu,

Since the option to buy back is not binding, it will be very easy to make the contract Shariah compliant. The upfront fees which are paid should be for admin, rather than purchasing a right. We advise that you forward the contract to a qualified scholar who can edit the clauses to make them all in conformity with Shariah.