Sell and Leaseback in Islam

11 Oct 2018 Ref-No#: 1079

Assalum a Alaikum Mufti Sahib,

The answer to this question will not only help me but many others also.

I have an opportunity to buy a hotel apartment in Pakistan.In technical terms it is called “sell and leaseback” deal .The scheme works like following:

1. I will buy the hotel apartment at price X. However the developer will ask my to lease back the apartment to him at an agreed monthly rental ( which is quite attractive) where he intends to run hotel business.

2. There will be 25% increase in rental every three years.
3. At the end of 10 years, there is a buy back option at double price , that is at 2X times the original price i paid. Else the rental contract will be renewed for another period as per mutually agreed terms between me and the developer.

So far so good. The deal seems very attractive.

This made me research furthur into it from islamic point of view.

i found out that leaseback is valid in Shairah only if it does in done in proper way.That is the the sale and lease contracts must be two different contracts and they should not be combined into one.because as per Sharia” one transaction cannot be made a precondition for another transaction”. My understanding is that a sale contract CAN NOT have a rental condition by seller.

Although the developer will be giving me two contracts,one for sale and the other for lease. however the sale contract itself does mention a single clause that the apartment will be leased back to the developer at agreed rent which is mentioned ( Apparently developer would like to protect itself by inserting this clause as a condition for the sale).

This single clause is bothering me , which seem to me against the Shariah, even though the developer will also sign with me a different lease contract.

Kindly I need your advice on whether the developer is following correct Shariah way and should i proceed with this deal ?

If there is anything else in this deal, which is against shariah, please let me know

Answer

Wa’alaykum as Salam wa rahmatullahi wa barakatuhu,

You have correctly stated that it is prohibited to combine two transactions in one contract. In a narration of Musnad Ahmad it is related that ‘Abdullah bin Mas’ud (may Allah be pleased with him) said,

عن عبد الرحمن بن عبد الله بن مسعود، عن أبيه، قال: ” نهى رسول الله صلى الله عليه وسلم عن صفقتين في صفقة واحدة  (رواه أحمد في مسنده – 6/ 324)

“The Prophet (sallallahu alayhi wa sallam) prohibited two transactions in one transaction.” (Musnad Ahmad, 6/324)

Therefore, the two transactions must be completely independent and separate from each other. You will have to remove the clause of rental from the initial contract. You may scratch out that one clause and both parties can initial next to it. Once the sale is done, you may sign a new agreement for rental.

Alternatively, you may sign the rental agreement first. You can draw up an agreement which says that you will rent out the property to the developer after you purchase the property.  Signing a binding contract for rental on a future date is permissible.

By removing that one clause, the entire deal will become permissible.

References

وقد جعل أحد العقدين شرطا في الآخر، وذلك مفسد للعقد لنهي النبي – عليه الصلاة والسلام – عن صفقتين في صفقة.   (المبسوط للسرخسي – 23/ 84)

بيع المعاملة وبيع الوفاء واحد، وإنه بيع فاسد، لأنه بيع بشرط لا يقتضيه العقد، وإنه يفيد الملك عند اتصال القبض به كسائر البيوع الفاسدة   (الفتاوى السراجية – ص 422)