Understanding Islamic Finance - Doha Academy of Tertiary Studies

Ijarah – Leasing 285of rental. 27 However, if a lessee sub-leases the property to a number of sub-lessees or invitesothers to participate in his business by making them share the rentals received from hissub-lessees without transferring the part of ownership, or for making them participate inrentals he charges a specified amount from them, this is not acceptable in Sharī´ah, becausehe does not transfer the part of ownership and enters into contracts to simply share the rentalsreceived by his sub-lessees. In this way, he simply assigns his right to receive rent againstsome payment. This right cannot be traded in because it amounts to selling a receivable ata discount, which amounts to Riba.11.3.4 Security/Guarantee in IjarahAs Ijarah creates a debt in the form of payable rental, the lessor can demand security and/ora guarantee from the lessee. Taking security is also permissible for the reason that the leasedasset is handed over to the lessee as a trustee and he is required to protect the asset in hisfiduciary capacity. He can be held liable for any damage to the asset if it is proved thatdamage has occurred due to any negligence on his part. In cases of such loss or defaults inpayment of rental by the lessee, the lessor can recover the actual loss, excluding the cost offunds or opportunity cost in modern terminology, from the security. Any amount taken asincome over and above the due rent would be Riba. 2811.3.5 Liabilities of the PartiesThere is no liability on a lessee or employee except when it is established that he hastransgressed or wilfully wasted or damaged the property. 29 In such cases he is liable tocompensate the lessor for harm to the leased asset caused by misuse or negligence, or toreplace the property.All liabilities emerging from the ownership shall be borne by the lessor, but the liabilitiesrelating to the use of the property shall be borne by the lessee. For example, in the case oflease of a house, the taxes relating to the property shall be the responsibility of the owner ofthe house, while the water tax, electricity bills and all expenses referable to use of the houseshall be borne by the lessee. 30 Contemporary Sharī´ah experts and Islamic banks’ Sharī´ahboards link the responsibility of the owner (lessor) to bear expenses on the asset on whichthe continued performance and usufruct of the asset is customarily understood with the freeagreement of the parties, i.e. in the case of agreement to the contrary, expenses could beborne by the lessee. 31The leased property shall remain in the risk of the lessor throughout the lease period in thesense that any harm or loss caused by factors beyond the control of the lessee shall be borneby the lessor. However, as discussed earlier, the lessee is liable to compensate the lessor forharm to the leased asset caused by any misuse or negligence on his part. A property jointlyowned by two or more people can be leased out, in which case they shall be responsible forits risk and the rental shall be distributed between them according to the proportion of theirrespective shares in the property.27 AAOIFI, 2004–5a, Standard on Ijarah, clause 3/3, p. 140.28 AAOIFI, 2004–5a, Standard on Ijarah, clauses 5/2/5, 6/1–6/3, 7/1/4, pp. 142–144, 153.29 Ibn-Hazm, 1988, 8, p. 201; Zuhayli, 2003, pp. 421–424.30 AAOIFI, 2004–5a, Standard on Ijarah, clause 5/1/7.31 Institute of Islamic Banking and Insurance (IIBI), 2000, p. 23.