Islamic Renting and Hiring

Renting an asset

This case is for leasing or renting out an asset such as an apartment or a car etc. We will use the terms “renter” and “owner” to describe the parties involved.

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CONDITIONS OF THIS TYPE OF TRANSACTION

• The owner keeps owning the asset, but lets the renter use it on rent.

• The asset must be used without it getting consumed (spent). Things like eatables, money, fuel etc. are not allowed to be rented.

• The owner handles big responsibilities, like taxes for a house. The renter handles smaller consumption amounts, like utility bills.

• Renter can't use the asset for something different from its agreed purpose without permission.

• Risk of loss due to factors beyond renter's control lies with owner. However, if the damage is because of the renter's fault, misuse or negligence, then the renter has to fix it or pay for it. If the damage is not the renter's fault, then the renter does not fix or pay for it.

• If more than one person owns the asset, they can lease it together.

• The rent must be agreed upon at the time of the contract for the whole lease duration. 

• The owner can't suddenly raise the rent without talking and agreeing with the renter.

• Usually rent is a fixed number for the whole year, but if the lease is for a long duration, it is permissible to have a gradually increasing rent for fixed terms within the lease duration. For example, an increase of 5% after the first year.

• The lease time starts when the asset is given, even if it is not used.

• If the asset becomes unusable, the lease ends. If it is the renter's fault, then renter pays for it.

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LATE PAYMENTS
Sometimes, a penalty is added if rent is paid late. If this penalty benefits the owner, it's prohibited. Late payment is a debt, and charging money for late payment is like riba (usury). 

Instead, the renter can promise to give money to a charity if they pay late. This charity money goes to a fund for good causes, not to the owner. This arrangement, though it does not compensate the owner, it may serve as a strong deterrent for the Renter to pay the rent promptly without violating the Shari'ah.

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END OF CONTRACT

• If renter breaks the agreement, owner can end the contract unilaterally. 

• If renter doesn't break the agreement, then both parties must mutually agree to end the contract.

• In some leases, if Owner ends it, renter is expected to pay the rent for whole period left. This goes against Islamic fairness and justice and is not permissible. The way to do it properly is that the asset returns to owner, renter pays due rent till contract termination only (not till the normal end of contract date). Renter shouldn't be forced to pay rent for remaining period if lease ends early.

• If renter has misused or damaged something, he compensates the owner for it.