Financial Rights and How They Are Exercised and Transferred - Scope of the Standard

Transcription

1. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred Statement of the Standard 1. Scope of the Standard This Standard provides a description of financial rights, their types, rules, conditions, parameters, the way they are exercised and transferred and the mechanisms used to protect them. It also addresses the most important rights exercised in the transactions of financial institutions. This Standard does not cover non-financial rights; Khiyarat (options to terminate a contract); e.g., Khiyar al-Shart (an option stipulated by the parties giving one or both of them the right to revoke the contract within a specified period of time) and Khiyar al-Naqd (an option giving the seller the right to revoke the contract for non-payment within a specified time etc.); or rights relating to Waqf (endowments), as they have already been covered in separate standards. 2. Definition of Financial Rights A financial right is the prerogative of a (natural or artificial) person recognized by the Shari’ah to have rights and responsibilities and the legal capacity to enter into transactions. 3. Types of Financial Rights Financial rights are of three types: 3/1 Personal rights (rights in personam): These are rights arising from the liability of another person, such as debts payable by a debtor. 3/2 Proprietary rights (rights in rem): These are rights attached to specific property conferring to the owner direct authority over it without interference from another person, whether such rights are primary or secondary. 3/2/1 Primary proprietary rights, such as rights arising from full and complete ownership, are independent rights that do not rely on the existence of any other right. 1044
2. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred 3/2/2 Secondary proprietary rights; these are proprietary rights that have no purpose of their own except to protect the fulfillment of personal rights, such as the rights of a creditor in security provided by an obligor. 3/2/3 The distinction between proprietary and personal rights: The owner of a proprietary right is able to directly enforce his right to specific property using permissible means. The owner of a personal right, on the other hand, cannot enforce his right by claiming any specific property. 3/3 Rights to intangible assets: 3/3/1 These are financial rights to intangible assets, whereby the owner is exclusively entitled to their output. 3/3/2 Types of rights to intangible assets: Rights to intangible assets are of many kinds, including rights to trade name, trading addresses, trademarks, commercial licenses; intellectual property, technical and industrial know-how, patents and copyrights. 3/3/3 Rules governing rights to intangible assets: 3/3/3/1 Rights to trade names, trading addresses, trademarks, copyrights, inventions and patents are the rights of their respective owners. These possess recognised monetary value in contemporary business and commercial custom. Since these rights are recognised and protected by the Shari’ah , it is not permissible to violate them. 3/3/3/2 Since rights to intangible assets are recognised as financial rights, it is permissible to dispose of or transfer them for consideration provided that such transactions are free of Gharar (ambiguity), deception and fraud. 3/3/3/3 Commercial license: A commercial license is a right given by the relevant authority to certain businesses to engage in specified activities. It is permissible for the license holder to dispose of it for or without consideration unless specifically prohibited by law. 1045
3. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred 3/4 Financial rights can be acquired by contract, stipulated conditions, inheritance or court order. Financial rights may be established by long-standing continuous use without objection or first use subject to fulfillment of all the Shari’ah conditions required for the acquisition of such rights. 4. Rights Resulting from Ownership 4/1 Ownership of an asset or usufruct gives the owner the right of complete disposition, either by a complete transfer or the transfer of usufruct only, for or without consideration, except what is prohibited by the Shari’ah. 4/2 Ownership of usufruct entitles the owner to use it (whether directly or indirectly through another person) subject to compliance with the terms stipulated by the owner of the asset and bearing liability for the asset in case of misuse, negligence or breach of condition. 4/3 Ownership of a license to use gives the licensee the right to personal use only which cannot be transferred to a third party. 5. Easements 5/1 Private easements are established rights attached to one real estate property over another, such as irrigation rights, watercourse rights, drainage rights and rights of passage. 5/2 Public easements are the rights of the general public to benefit from public utilities provided by the state and similar entities. 5/2/1 The right of an individual to a public easement is restricted to personal use only. 6. Financial Rights Arising from Neighbourhood 6/1 The rights of neighbourhood based on the ownership of different floors of a building prohibit each owner to act in a manner that will definitely or most likely cause harm to others. 6/2 Since the owners of different floors of a building co-ownership in the underlying land, the following apply: 1046
4. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred 6/2/1 If a lower storey collapses due to any fault of its owner, he is liable to reconstruct it so that the owners of the upper-storeys are not harmed. 6/2/2 If the owner of the lower storey is not responsible for the collapse, the courts have decisive authority to settle the matter in the best interests of both parties and to avert harm from them. 6/2/3 The owners have the right to enjoy use of common facilities and services. 7. Right of Shuf ’ah (Preemption) 7/1 Definition of Shuf ’a (preemption): Shuf ’a is the right given to a neighbour or co-owner of real estate property to acquire a sold property from its buyer with or without their consent for the price at which it was sold. 7/1/1 The right of Shuf ’ah exists only in relation to immovable property or movable property attached to it. 7/1/2 The right of Shuf ’ah enjoyed by a neighbour is applicable only when the two properties share common easement rights. 7/2 Rules of Shuf ’ah 7/2/1 The Shafi’ (preemptor) takes the place of the buyer and, subject to circumstances being equal, enjoys the right to purchase the property on the same terms as contracted with the buyer, such as deferred payment. The Shafi’ (preemptor) assumes all also the liabilities of the buyer such as the usual conveyancing costs. 7/2/2 If in a jointly owned property, there are more than one Shufa’a`(preemptors), each has the right of Shuf ’ah proportionate to his share in the property. 7/2/3 Rights of Shuf ’a are not extinguished upon the death of the Shafi’ (preemptor) but are inherited by his heirs. 1047
5. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred 7/2/4 Rights of Shuf ’ah must be claimed immediately upon becoming aware of the sale in accordance with custom or law, failing which they lapse. 7/2/5 The Shafi’ (preemptor) is entitled to invalidate all the dispositions of the preempted property that were made prior to the exercise of the right of Shuf ’ah , even if it has changed hands. 7/2/6 There is no right of Shuf ’ah where ownership is transferred without a sale or a transaction having the effect of a sale. Therefore, there is no right of Shuf ’ah where transfer is effected by inheritance, bequest or gift without consideration. 8. Right of Occupancy Occupancy is a right based on the right of the tenant to retain his tenancy in property or commercial unit. Occupancy has a number of forms: 8/1 The Shari’ah does not prohibit the owner and the tenant agreeing that the tenant will pay a lump sum of money over and above the periodic rental amount, on condition that it is considered part of the agreed rent for the entire lease period. If the lease is terminated early, the rules applicable to rental payments apply to this amount. 8/2 It is permitted by the Shari’ah for the owner and the tenant to agree during the lease period that the owner will pay an amount to the tenant in exchange of the tenant waiving his contractual right to the ownership of the usufruct for the remaining period on the basis that such payment compensates the tenant for waiver of his right to the usufruct that he purchased from the owner. However, if the lease period expires and the contract is not renewed, either expressly or by operation of a provision for automatic renewal, then it is not permitted to take payment for vacating the premises, and the owner has the right to take back his property after expiry of the term. 8/3 The Shari’ah permits an agreement between the incumbent tenant and a new tenant during the lease period to assign the lease for an amount exceeding the regular rental amount for release of occupancy subject to the requirements of the terms and conditions of the original lease 1048
6. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred contract and applicable laws that are compliant with the rules of the Shari’ah. In long-term lease contracts, contrary to contractual terms that are based on what is permitted by the laws of some jurisdictions, the Shari’ah does not permit the tenant to sub-lease or assign the property to another tenant in return for payment except with the agreement of the owner. If the incumbent tenant agrees to hand over occupancy to a new tenant after the end of the lease period, the Shari’ah does not permit him to take any payment because the right of the incumbent tenant in the usufruct has expired. 9. Right of Tahjir 9/1 Tahjir means taking possession of a piece of land and marking it with certain recognised markers with the permission of the government. 9/2 Tahjir results in exclusivity and priority over others, but it does not on its own confer ownership. 9/3 A person who has carried out Tahjir on a piece of land is permitted to waive his entitlement in favour of another person for consideration, but he is not allowed to sell the land as he does not yet own it. 9/4 The right of Tahjir expires if the land is not utilised for three years, or as provided by applicable regulations. 10. Transfer of Rights for Consideration 10/1 It is not permissible to take consideration for transfer of put or call option rights, whether by means of sale or otherwise. 10/2 It is not permissible to take consideration for transfer or waiver of rights granted only to prevent harm, such as the right of Shuf ’ah (preemption). 10/3 It is permissible to take consideration for transfer or waiver of easement rights, by means of sale or otherwise. 10/4 It is permissible to sell rights to use and rights arising from first use. 1049
7. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred 11. How Rights Are Exercised and Transferred 11/1 All financial rights are in principle disposable, and the owner of a financial right has the absolute right to exercise and transfer his right in accordance with the rules and principles of the Shari’ah and in particular, the following: 11/1/1 Rights should not be exercised in a manner abuse to others. 11/1/2 The public interest is given priority when it conflicts with the exercise of a private property right. 11/2 Subject to the provisions of this Standard, the constructive methods of disposal of rights include all types of contracts of exchange, donations, waivers, partnerships, and assignments of rights. [see Standard No. (7) on Hawalah] 12. Protection of Rights 12/1 Rights are to be protected from any violation. 12/2 In addition to the provisions of Shari’ah Standard No. (5) on Guarantees, the methods of protecting financial rights include: a) Rights do not extinguished by passage of time but there can be a limitation period after which a claim cannot be made in court. b) Right of lien: A creditor has the right to retain the debtor’s property already in his possession until he receives payment of the due debt from the debtor. This may take several forms: I. The right of the seller to retain the sold item until he receives the due price. II. The right of a manufacturer or worker to retain the product of their work until they receive the payment due. III. The right of the lessor to retain the lessee’s property inside the leased asset until he receives the rent due, because the lessor has possession of the leased asset which contains the lessee’s property. IV. The right of a courier to retain the dispatched property until he receives his fees. 1050
8. Shari ’ah Standard No (42): Financial Rights and How They Are Exercised and Transferred V. The right of a bailee to retain the bailed property until he receives his fee. VI. The right of an agent to retain the property of the principal until he receives his agency fee. c) If the buyer of an item becomes insolvent and the seller finds that specific item in the insolvency assets, the seller has a priority proprietary right to it if the applicable regulations of a jurisdiction allow it. Refer to Shari’ah Standard No. (43) on Insolvency. 13. Some Rules Governing Contemporary Applications of the Transfer and Exercise of Financial Rights 13/1 It is permitted for corporate bylaws to give existing shareholders priority over third parties to subscribe for shares upon a decision to increase the company’s share capital. Each shareholder is entitled to subscribe in proportion to his respective share prior to the share issuance. 13/2 It is permissible to assign a right of priority referred to in item 13/1 to a third party without consideration, subject to the provisions of the law and the rules of company supervisory bodies. 14. Date of Issuance of the Standard This Standard was issued on 4 Dhul-Qa’dah 1430 A.H., corresponding to 23 October 2009 A.D. 1051