The Commencement of Lease

Unlike the contract of sale, the agreement of ijarah can be effected for a future date. Thus, while a forward sale is not allowed in Shariah, an ‘ijarah’ for a future date is allowed, on the condition that the rent will be payable only after the leased asset is delivered to the lessee.

In most cases of the ‘financial lease’ the lessor i.e. the financial institution purchases the asset through the lessee himself. The lessee purchases the asset on behalf of the lessor who pays its price to the supplier, either directly or through the lessee. In some lease agreements, the lease commences on the very day on which the price is paid by the lessor, irrespective of whether the lessee has effected payment to the supplier and taken delivery of the asset or not. It may mean that lessee’s liability for the rent starts before the lessee takes delivery of the asset. This is not allowed in Shariah, because it amounts to charging rent on the money given to the customer which is nothing but interest, pure and simple.

The correct way, according to Shariah, is that the rent be charged after the lessee has taken delivery of the asset, and not from the day the price has been paid. If the supplier has delayed the delivery after receiving the full price, the lessee should not be liable for the rent of the period of delay.

Source: Republished with the kind permission of Sheikh Muhammad Taqi Usmani.