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ISC213 · Lecture 8
Lease Ending with Ownership
بِسْمِ اللَّهِ الرَّحْمَٰنِ الرَّحِيمِ

Lease Ending with Ownership

Banks offer to “rent” you a car or a house and hand it over once you have paid. This lecture starts with ordinary leasing (ijarah) and who owes what, compares the ownership-lease with an installment sale and a standard lease, explains why the common form is not allowed — and gives the four conditions that make it permissible.

10study blocks
3reasons it fails
4conditions to fix it
14quiz questions
SLIDE BLOCK 1

01 Leasing (ijarah) (الإجارة)

A contract for the transfer of a known benefit or usability of an asset for a specified period, in exchange for an agreed payment.

Legal concept: a mutual financial agreement where the legal owner (the lessor) grants the user (the lessee) the right to use an asset — real estate, vehicles, equipment — for a specific period in exchange for rent.

What is sold
The benefit of the asset, not the asset itself.
For how long
A specified period.
For what
An agreed payment — the rent.
Mnemonic
Lessor = the Owner (both have an “o”). Lessee = the user, the tenant.
SLIDE BLOCK 2

02 Evidence for leasing

Hadith qudsi — Sahih al-Bukhari
“Allah, the Exalted, says: ‘I will be against three types of people on the Day of Resurrection: one who makes a covenant in My Name and then breaks it; one who sells a free man as a slave and devours his price; and one who hires a workman and, having taken full work from him, does not pay him his wages.’”Sahih al-Bukhari

The third person in the hadith shows that hiring — a lease of someone’s work — is a recognized contract, and that withholding the agreed payment is a grave sin.

SLIDE BLOCK 3

03 Rights and obligations in a lease

Owner (lessor) Tenant (lessee)
1 Deliver the asset in usable condition Pay the agreed rent on schedule
2 Bear ownership risks and structural repairs that keep it usable Maintain the asset properly
3 Reclaim the asset when the contract ends Return the asset at the end of the term
Remember this for block 7
Structural repairs and ownership risk belong to the owner. The tenant only does ordinary maintenance. Contracts that push major repairs onto the tenant break this — and that is one reason the ownership-lease is ruled out.
SLIDE BLOCK 4

04 Lease ending with ownership — how it works (الإجارة المنتهية بالتمليك)

The bank leases an asset — a car, a house — to a client for a set period, at a rent that often exceeds standard market rent. The contract includes the bank’s promise to transfer ownership to the client at the end of the term, once every installment is paid, through a separate agreement.

SLIDE BLOCK 5

05 Compared with an installment sale

Installment sale Lease ending with ownership
Difference One contract: ownership passes immediately, payment is deferred Two independent contracts: a lease, plus a separate promise or contract for ownership
Similarity 1 Goal: owning the asset Goal: owning the asset
Similarity 2 Paid in structured payments over time Paid in structured payments over time
Mnemonic
Same goal, same payments, different timing of ownership: installment sale = you own it on day one; ownership-lease = you own it on the last day.
SLIDE BLOCK 6

06 Compared with a standard lease

Lease ending with ownership Standard lease
Primary goal Eventual ownership after full payment Temporary use only, never ownership
Legal outcome Tenant at first, full owner by a second contract after the installments Tenant for the whole term
Number of contracts Two (initial lease + final transfer) One (the lease)
SLIDE BLOCK 7

07 Ruling — why the common form is not allowed

Lease ending with ownership, as commonly practised, is not allowed. The core problem is a contradiction between its name and its reality:

  1. Inflated “rent”. The payments are above market rent because the real intention is a sale — they include the buyer’s equity — yet all of it is called rent. If the contract ends early or the client can’t finish paying, they lose what they paid and the asset.
  2. The contract can’t be classified. Is it a sale or a lease? Each has its own rules. By law, structural repairs and ownership risk belong to the owner; making the tenant carry them turns it into an invalid hybrid.
  3. Uncertainty and unfair loss. If the client defaults mid-term, keeping every earlier payment as “rent” is exploitation — they paid purchase-level amounts without receiving ownership.
Mnemonic — “Overpay, Unclear, Unfair”
Overpay (rent above market) · Unclear (sale or lease?) · Unfair (default = lose everything). All three come from calling a sale a lease.
SLIDE BLOCK 8

08 When it can be permissible

A sale based on leasing can be permissible if these four conditions are met:

  1. The lease period is specified, and the lease conditions apply throughout it.
  2. Each installment is fixed, with no increase if payment is delayed.
  3. Ownership passes at the end — as a gift, or by sale at a nominal price — according to the earlier promise between owner and tenant.
  4. No down payment at the start, so the tenant doesn’t lose it if they can’t complete the payments.
Mnemonic — “Period, Price, Pass, No down payment”
Fixed period, fixed price per installment, ownership passes by gift or a nominal sale, and no down payment. Each condition answers one of the problems in block 7.
Common mistake
Writing “lease ending with ownership is haram” and stopping there. The lecture gives the reasons and the conditions under which a leasing-based sale becomes permissible — exam answers expect both.
SLIDE BLOCK 9

09 Flashcard glossary

Click a card to flip it.

SLIDE BLOCK 10 · FINAL CHECK

10 Pop quiz

14 questions covering the whole lecture.