I was wondering if someone could please explain this to me. If someone were to pay monthly as a sale instead of rent, is there a reason given for this being impermissible (not questioning Allah’s wisdom at all, just trying to understand if this is different from a halal mortgage in which someone is still paying monthly to own the property).
Bismillahi Ta’ala
Walaikum Assalam Warahmatullah
Your question is asking about “Rent to Own” or “Lease to Purchase” model. Please keep in mind that the model has shar’i issues when we consider rent-to-own in a conventional sense (i.e. you pay rent, as a renter with all the qualities of an ijarah, and once the duration stipulated to cover the value of the house is completed you own the house).
Islamically this has a fatal flaw of interdependent two transaction in one. You engage in an Ijarah (Rental) which does not transfer ownership. And you end up with owning the house for which the sale never occured.
Here is a brief example of a Lease to own for 240 months:
1. The primary aspect in this model is that it is a “rental” contract and not a “sale“.
2. This means ALL the laws of rental/lease (Ijaarah) will apply.
3. The biggest drawback of the model is that since it is not a sale, while the rental is being paid, the ownership (milkiyyah) of the house stays by the owner/seller and not the tenant.
4. This also means that even after 240 months of rental, the ownership has not transferred from Owner to Tenant.
5. This is why in “Rent to Own” the last payment is purchase of the house. i.e. 240th rental will structured as a sale of the house
6. Now, understand the risks attached. After 239 months the owner/seller can simply say, I do not wish to sell and he will be within his Shar’ee rights.
7. Similarly, the owner enters into this agreement to sell off the house, it is also possible that x number of monthly payments, the tenant defaults and says that he can no longer continue. Since he is paying for the occupation/usuafruct of the house he does not loose much with it.
8. Making some additional contract to make the sale binding is not permissible in shariah as that would necessitate two transaction in one.
Keep these few points in mind when you look at any Islamic Home Financing company giving a rent-to-own scheme. A pure rent-to-own will have these problems to deal with.
Now lets look at your question and flip the rentals into a sale of the house deferred over 240 months.
This is not rent-to-own. Rather one could have the model where the monthly rental is genuinely a purchase from the house.
a. If the contract is structured to purchase a share of the house on monthly basis, then you will establish a Diminishing Musharika Model. [ Other commercial home financiers will add along with it an independent Ijarah contract for the financier’s share of the house too which will also decrease over time to reflect their decreasing share of the house as you purchase from them on monthly basis]
b. If the contract is structured such that each month payment is considered as a payment on a sale which will conclude over 240 months. Then this is Murabaha Model with deferred payments.
Each of these have their specific rules to abide by in Islamic Financing.
The answer only gives a synopsis of the different ways here. You will need to review the model your financier provides and then get it reviewed to assess its shariah compliancy.
Wallahu A’lam
And Allah Ta’āla Knows Best
Mufti Faisal al-Mahmudi