Today, we are going to learn what are the basic rules and principles which govern the contract of ijarah. In general, the rules of ijarah is derived and very much analogous from the rules of sale contract. Because, in both cases, something is transferred to another person in return for consideration. The main difference between ijarah and sale is that the ownership of the property is transferred from the buyer to purchaser in sale contact. In ijarat contract, the title of ownership remains with lessor, only the usufruct or the right to use the property is transferred to the lessee. However, there are several essential elements and rules which need to be observed in ijarah contract. In the following, we will explain these basic rules and fundamentals of ijarah in some details.

Contracting parties

The contracting parties involved in ijarah contract are lessor and lessee. The lessor is one who owns the asset and leases his asset for a rent. The lessee is the one who takes the asset on lease agreement to get the usufruct of it. As the contracting parties, both lessor and lessee must have legal capacity to enter into a contract.

Asset

1. The leased asset in ijarah must have valuable use. Therefore, things with no valuable use are not given on lease.

2. The leased asset must be non-consumable thing. Therefore, anything which cannot be used without consuming, cannot become a subject matter of ijarah. Because, it is necessary that the corpus of the property remains in the ownership of the seller and only the usufruct is transferred to the lessee. If the consumable items such as eatable, fuel and money etc. is leased out, their use is not possible unless they are consumed.

3.  As the ownership remains with lessor, all the liabilities and ownership risk shall be borne by lessor. However, the liabilities regarding the use of the property shall be borne by lessee. For instance, A has leased his house to B. the property taxes of the house shall be borne by the lessor, while the electricity bills, water tax and other expenses relating to use of the property shall be borne by the B who is lessee.

Usufructs and Benefits

1. The usufruct must be specified and known by both parties. So, there will be no dispute among the parties with regard to the extent of the usufruct.

2. The usufruct and the benefit from the asset must be lawful in Shariah.

3. The lessee shall use the asset only for the purpose which is specified in the agreement. Any extra use from the lessee will make him responsible and liable. Likewise, the lessee must use the asset in suitable manner and comply with common practices.

Lease period

1. The period of lease must be determined clearly in the ijarah agreement. So, there would be no conflict and dispute among the parties.

2. According to majority of scholars, there is no restriction or limit with regard to lease period. It’s permitted for any period, short or long as long as it’s determined in the contract.

3. The lease period shall commence effectively when lessee gets the access to the usufruct of the asset. No matter whether the lessee has actually utilized the asset or not.

Determination of Rental

1. The rental amount must be known and determined at the time of contract. If the rental amount is unknown and leads to dispute among the parties, the contract become void.

2. It’s permissible to fix different amounts of rent for different phases during the lease period. However, the amount of the rent for each phase is specified at the time of ijarah contract.

3. The rental can be fixed or benchmarked with some indexes. But in this case, the ceiling and floor rentals must be determined for the validity of ijarah.

4. It’s permissible for lessor to ask for collateral or third-party guarantee from lessee to secure the rental payment.

5. The rental may be in cash or in kind (goods) or benefits. Likewise, the payment may be in installments or in lump sum according to the agreement of the contracting parties.

These are some basic rules and principles which govern the contract of ijarah. In next article, we are going to know how ijarah is used as mode of financing in modern Islamic financial institutions.