Ruling on Tying up Rental

(Ujrah) of Property with the

Interest Rate Indicator

Prof. Dr. Nazeeh Kamaal Hammaad*

* Former Professor of Islamic Jurisprudence and Jurisprudence Fundamentals,

Faculty of Sharee'ah, University of Umm Al-Qura, Makkah Al-Mukarramah and
Current legal expert and counsellor for several Islamic financial institutions.
 Ruling on Tying up Rental of Property with Interest Rate

All praise belongs to the Lord of all the worlds and may Allah's
peace and blessings be upon our Prophet Muhammad, who is sent as a
mercy to all humanity, his family, companions and those who follow his
guidance until the Day of Judgment.
This paper tackles a novel issue that has been the subject of heated
controversy among scholars and jurists after it has been applied by the
majority of contemporary Islamic banks and financial institutions for
almost more than a decade now, and after a number of fataawaas and
resolutions by juristic bodies have considered it legitimate and
permissible.
However, not even a single study has thoroughly tackled it, probed
its relevant rules, investigated the opinions of old Mulsim jurists as to its
validity or verified authentic or reliable views expressed on this subject
with the purpose of establishing the Legislator's ruling on this issue with
honesty and objectivity, in a manner that pleases Almighty Allah,
corrects any fault that may have taken place and sets things right.
In the present study, I have attempted to discuss this issue and study
all its related proofs and provisions with a spirit of impartiality and
honesty for the sake of truth, which, I hope, I have attained with the help
of Allah who guides to the right path.

8 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

Introduction
Definition of Ijaarah
A. Linguistic Definition
The Arabic noun "ijaarah" (hiring, leasing) is derived from the word
"ujrah" (wage) and is originally used to mean a compensation paid for a
certain service as far as it is concerned with the services rendered by
human beings.2 However, it is also used to mean the rental paid for
leasing a certain property.3
The verbs "ajara" and "aajara" mean to provide someone else with a
service or an asset for a specific wage or rental.4 Ar-Raaghib writes, "The
difference between the two is that the former is the act of a single party,
while the latter is the joint act of two parties. However, both words have
the same meaning."5
Al-Fairuzabaadee writes, "aajara is to pay someone a compensation
for a certain service."6 In Al-'Ayn we read, "Aajara means to hire
someone for a wage."7 Az-Zamakhshaaree states, "Someone has leased
his house to me and I have rented it; hence he is the lessor (mu'ajjir but
not mu'aajir, for the latter is wrong)."8 The other derivative, isti'jaar,
means to lease something for in return for money.9
B. Legal Definition
The majority of jurists use the term "ijaarah" to mean leasing a
property (be it moveable or immoveable) for a specific rental as the case
with leasing houses, shops, lots of land, clothes, cars, ships and aircrafts

2 Al-Mugharib, 1/28; Al-Nadhm Al-Musta'dhab, 2/38; Mu'jam Maqaayees Al-Lughah, 1/63;

Al-Muttali', p. 264 and Al-Qaamoos Al-Muheet, p. 436.
3 Haashiyat Al-Jamal alaa Sharh Al-Minhaj, 3/531. See also Mughnee Al-Muhtaaj, 2/332;

Haashiyat Al-Qalyoobee, 3/67 and Haashiyat Al-Bujairamee 'alaa Sharh Al-Khateeb, 3/172.
4 Ad-Durr An-Naqee, 3/533; Tahdheeb Al-Asmaa' wal-Lughaat, 1/4 and Basaa'ir Dhawee At-

Tamyeez, 2/132.
5 Al-Mufradaat, p. 63.
6 Al-Qaamoos Al-Muheet, p. 436.
7 Al-Mugharib, 1/28.
8 Asaas Al-Balaaghah, p. 2
9 Al-Mufradaat by Ar-Raaghib, p. 64 and Basaa'ir Dhawee At-Tamyeez by Al-

Fairuzabaadee, 2/132.

Al-Adl (40) 9
 Ruling on Tying up Rental of Property with Interest Rate

or hiring the services of persons as the case with hiring craftsmen,

labourers, servants and others. The words "kiraa'" and "mukaaraah" are
often used by jurists to denote the above meanings.10
The term is defined in article 405 of the Journal of Legal Provisions
(Majallat Al-Ahkaam Al-Adliyah) as follows: "Ijaarah is selling a known
service for a known consideration." In article 404 of the same journal,
"This includes the amount paid for a usufruct."
Article 516 of the Journal of Sharee'ah Provisions according to
Ahmad's School of Jurisprudence reads: "Ijaarah, ijaar and mukaaraah
have the same meaning: a contract that grants the ownership of a
permissible and known usufruct for a known consideration." Article 578
of Murshid Al-Hayraan reads: "It is permissible to use lease contracts for
the usufructs of properties, be they moveable or immoveable, or services
such as hiring servants, labourers and craftsmen."
3. However, the Maalikites give different meanings for different
terms. They contend that ijaarah and kiraa' have the same meaning but
argue that the term ijaarah is the one used for the usufructs received
from human beings and for anything transported by other than ships
and animals. As for the term kiraa', they use it for the usufructs received
from immoveable items like houses and lands and for things
transported by ships and animals.
Some of the Maalikites also state that the word kiraa' is used for the
usufructs received from human beings and the word ijaarah for the
usufructs received from assets though they sometimes use the two terms
interchangeably.11

10 Badaa'i' As-Sanaa'i', 3/174; Mughnee Al-Muhtaaj, 2/332-333; Sharh Muntahaa Al-

Iraadaat, 2/350; Kashaaf Al-Qinaa', 3/537-538; Al-Qawaa'id An-Nooraaniyah Al-Fiqhiyah,
p. 336; Tabyeen Al-Haqaa'iq, 5/105; Radd Al-Muhtaar, 5/2 and Majmoo' Fataawaa Ibn
Taymiyah, 29/104.
11 Sharh Hudood Ibn 'Arafah by Ar-Rassaa', 2/516, 524, 525 and 526; Az-Zarqaanee 'alaa

Khaleel and Haashiyat Al-Banaanee, 7/2; Ash-Sarh As-Sageer by Al-Dardeer and Haashiyat
As-Saawee, 4/6; Mawaahib Al-Jaleel, 5/389; Juristic Laws, p. 281, Lubaab Al-Lubaab by Ibn
Raashid Al-Qafsee, p. 221; Kifaayat At-Taalib Ar-Rabbaanee and Haashiyat Al-'Adawee,
2/178; Fataawaa Al-Barzalee, 3/541; Ash-Sharh Al-Kabeer and Haashiyat Ad-Dusooqee,
4/2; Sharh Zarrooq and Ibn Naajee At-Tanookhee 'alaa Ar-Risaalah, 2/145, 146 and 148;
Mayyaarah 'alaa At-Tuhfah, 2/82 and 101 and Al-Bahjah wa Hulee Al-Ma'aasim 'alaa At-
Tuhfah, 2/159.

10 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

Section One: Specifying the Rental in Lease

Contracts
Ruling
4. Jurists agree that for the lease contract to be valid, be it leasing of
property or hiring of services of persons, the rental should be known
and specified as applicable to sale contracts because leasing is a sale of a
usufruct and the rental under the lease contract is like the price of the
sold item under the sale contract. Therefore, the same rule applies to
both of them.12
Ibn Shaas writes, "As long as the rental is like the price of a sold
item, the conditions of the latter should apply to the former."13 Ibn
Rushd (the grandfather) also writes, "Leasing is not permissible unless a
known and specified rental is stated."14 Al-Kaasaanee states, "The rental
under lease contracts is similar to the price under sale contracts because
each one of the two contracts involves a consideration for an asset.
Therefore, what is acceptable as a price for sales is acceptable as a rental
for lease."15 In Al-Bayaan by Al-Umraanee we read, "The lease may not
be valid unless it is concluded for a known rental in compliance with the
Prophet's saying, 'Whoever hires an employee should specify his
wage.'16 Since it is a contract meant to generate a consideration, the lease

12 Raddul Muhtaar, 5/3; Asnaa Al-Mataalib, 2/404; Al-Waseet by Al-Ghazaalee, 4/154;

Mughnee Al-Muhtaaj, 2/334; Rawdhat At-Taalibeen, 5/174; Tuhfat Al-Muhtaaj, 6/127; Al-
Bahr Ar-Raa'iq, 7/298; At-Taaj wal Ikleel, 5/389; Al-Kaafee by Ibn Abdul Barr, p. 368; At-
Tafreegh by Al-Jallaab, 2/185; Kashaaf Al-Qinaa', 3/543 and Sharh Muntahaa Al-Iraadaat,
2/352.
13 Iqd Al-Jawaahir Ath-Thameenah, 2/836.
14 Al-Muqadimaat Al-Mumahidaat, 2/166.
15 Badaa'i' As-Sanaa'i', 4/193.
16 Narrated by Abu Hurairah and Abu Sa'eed Al-Khudree (may Allah be pleased with

them). It is reported by Ahmad, Al-Baihaqee, Abu Dawood and Abdur-Razaaq as a

marfu' hadeeth. It is also reported by An-Nasaa'ee in Al-Mujtabaa and ibn Abi Shaybah
in Al-Musanaf. The hadeeth is also reported thus: "Whoever engages an employee
should tell him his wage." Another narration reads, "The Prophet (may Allah's peace
and blessings be upon him) forbade engaging an employee unless his wage is
specified." See Ahmad's Musnad, 3/71, As-Sunan Al-Kubraa by Al-Baihaqee, 6/120; Al-
Maraaseel by Abu Dawood, p. 181, Al-Mujtabaa by An-Nasaa'ee, 7/32, Al-Musannaf by

Al-Adl (40) 11
 Ruling on Tying up Rental of Property with Interest Rate

contract is invalid without mentioning such consideration in it as the

case with sale."17 Ibn Taymiyah also states, "The lease is not permissible
unless the rental is specified."18 In Al-Mughnee by Ibn Qudaamah we
read, "It is a condition that the rental be known and specified as agreed
by all scholars because it is a consideration in a consideration based
contract. Therefore, the rental under lease contracts should be specified
as the case with the price under sale contracts."19 Al-Khateeb Ash-
Shirbinee writes, "The condition of specification applies to rentals as
much as it applies to prices in terms of type, amount and description
unless it is physical, in which case it is enough to inspect it." 20 In Al-
Muhallaa we read, "The lease is invalid unless a rental is specified by
amount and type, whether it is described or physical."21 Ibn Abdul Barr
writes, "Lease and hiring may not be valid for an unknown rental or
wage which may be subject to increase and decrease at different times."22
5. The opinion expressed by the Shaafi'ites that the hiring of someone
for performing pilgrimage for a certain commission, though it is
unknown, does not contradict the agreement of scholars that the wage
or rental should be known for the lease or hiring contract to be valid for
the mere reason that hiring someone for performing pilgrimage is not a
kind of hiring (according to the special meaning of hiring); rather it is a
type of commission the amount of which can be unknown as a number
of the Shaafi'ite jurists have stated.23
In Nihaayat Al-Muhtaaj we read, "The permissibility of performing
pilgrimage for commission is some sort of grace for people to enable
them to attain the reward for an act of worship, though it is not a type of
hiring as contended by the author of Ar-Rawdhah following the example

Ibn Abi Shyabah, 6/303; Musannaf Abdu-Razzaaq, no. 15023; Faidhul Qadeer, 6/327; At-
Talkhees Al-Habeer, 3/60 and Ad-Dirayah fee Takhreej Ahaadeeth Al-Hidaayah, 2/186.
17 Al-Bayaan Sharh Al-Muhadhab, 7/327.
18 Majmoo' Fataawaa Ibn Taymiyah, 29/53.
19 Al-Mughnee, 8/14.
20 Al-Iqnaa; fee Hal Alfaadh Abi Shujaa' and Haashiyat Al-Bujairamee on it, 3/174.
21 Al-Muhalla by Ibn Hazm, 8/203.
22 Al-Kaafee by Ibn Abdul Bar, p. 368.
23 Tuhfat Al-Muhtaaj and Hashiyat Ash-Sharwaanee wal Abbaadee on it, 6/127; Mughnne Al-

Muhtaaj, 2/334; Rawdhat At-Taalibeen, 5/174; Haashiyat Al-Qalyoobee, 3/68; Haashiyat

Al-Bujairamee 'alaa Al-Khateeb, 3/175 and An-Najm Al-Wahhaaj by Al-Dumairee,

12 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

of the author of Ash-Sharh As-Sagheer but contrary to the view expressed

by Al-Walee Al-Iraaqee. In fact, it is a type of mutual consent and help
for which a commission may be paid which may be unknown."24
6. The same opinion expressed by the majority of scholars that the
rental and wage should be known for the lease or hiring contract to be
valid does not contradict the opinion related by Ibn Al-Qaasim from
Maalik that it is acceptable to hire a tailor who customarily does not
differ with his employer even if no wage is specified and who accepts
any wage given to him after completing his job.25 The proof to this fact is
that the context of the relationship between the two parties is based on
pardon rather than bargaining. Moreover, the employer, in this case, is
keen on pleasing the tailor after completing the job and the tailor is also
keen on avoiding any differences with the employer as to the
compensation he might give to him. It should be noted that the
employer customarily deals with the same tailor for a wage that pleases
the latter. Therefore, these dealings are based on public customs which
govern them, and this means that the wage is primarily known to both
parties under these public customs.26 Al-Qaadhee Abu Al-Waleed Ibn
Rushd comments on Maalik's view on the permissibility of this type of
transactions thus: "It is exactly as he said because people consider it
permissible and practise it. It is similar to the wage given to the cupper
who does not usually bargain for a specific wage and the one given to
the owner of a Turkish bath. Hence, any ruling that these dealings are
impermissible will cause hardships to people and can be considered as
an extremist view: 'Allah has not placed difficulty on you in religion.'"
(Al-Hajj, 22:78)27

24 Nihaayat Al-Muhtaaj, 5/266.

25 Al-Bahjah by At-Tasoolee, 2/181; Al-Bayaan wat Tahseel, 8/423 and Hulee Al-Ma'aasim
by At-Tawdee, 2/181.
26 This is made clear by Ibn Qudaamah in Al-Muqni' thus: "If he gives his clothes to a

tailor or a dress maker to prepare it for him and they customarily receive a wage for it,
it is valid to do so even if they do not conclude an employment contract." The same
applies to the wage paid to the owner of the turkish bath or the ship owner." See Al-
Mubdi' fee Sharh Al-Muqni', 5/68; Al-Insaaf by Al-Mardaawee, 14/290 and Sharh
Muntahaa Al-Iraadaat by Al-Bahootee, 2/355.
27 Al-Bayaan wat-Tahseel, 8/423-824.

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 Ruling on Tying up Rental of Property with Interest Rate

7. The basis for specifying the rental in order for the lease contract to
be valid is that Allah has tied up the permissibility of consideration
based contracts, including sale and lease contracts, with the principle of
mutual agreement between the two parties on the obligations and
consequences of these contracts. Allah says, "O you who believe! Do not
eat each other's property among you unjustly, but let there trade by your
mutual consent." (An-Nisaa', 4:29) Allah names any dealing that is
concluded without the consent of both parties as eating one another's
property unjustly.28 Al-Shawkaanee comments, "The basis for making
money lawful to be exchanged as a compensation, be it a property or a
usufruct, is the mutual consent of both parties to the transaction."29
8. It is needless to say that the principle of mutual consent
necessarily requires that the considerations (property and rental) should
be known to both parties and specified in the contract at the time of
concluding the contract so that each one of them will be aware of the
effects of the contract (his rights and obligations) at the time of executing
the contract. A number of jurists, including Al-Kaasaanee, points out
this fact thus: "Since consent is a condition for the sale to be valid; such
consent is tied up with a known consideration."30 Ibn Taymiyah and Ibn
Al-Qayyim also write, "Sale gives consideration to consent and consent
should be based on knowledge."31 Al-Shawkaanee states, "Mutual
agreement, which is the basis for the validity of sale and purchase
transactions, cannot be realized as long as the consideration is
unknown."32 Al-Izz bin Abdus-Salaam writes, "Agreement to what is
unknown is illegal."33 Ibn Hazm also states, "Agreement may not exist
unless the thing to be agreed to is known."34 He adds, "Out of necessity

28 Al-Muhallaa by Ibn Hazm, 8/439.

29 As-Sayl Al-Jarraar, 3/196. The complement of the text is as follows: "… unless a text is
provided in the Sharee'ah that forbids such mutual agreement to a specific transaction
like the case of the dower paid to a whore, the gift given to a sorcerer and the like."
30 Badaa'i' As-Sanaa'i', 5/156.
31 Majmoo' Fataawaa Ibn Taymiyah, 28/103 and At-Turuq Al-Hukmiyah by Ibn Al-Qayyim,

p. 221.
32 As-Sayl Al-Jarraar, 3/94.
33 Al-Qawaa'id Al-Kubrah, 2/299.
34 Al-Muhallaa, 9/73.

14 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

and sensible reasoning, everyone knows that agreement to something

unknown is impossible and that agreement is always built on something
known and specified."35 He also argues, "No consent may be granted
except for something of a known amount. It happens that in case the
price is not specified that the seller may agree to a price that he has in
mind but the purchaser may not agree to that price if it is higher than
the one he has in mind."36
Besides, if the rental is not specified, disputes will definitely arise
between the two contracting parties. Therefore, it is a requirement under
the Islamic Sharee'ah to determine and specify the rental in the lease
contract.37
9. This condition of specifying the rental takes into consideration the
right of Allah. If two parties agree to execute a consideration based on a
contract without specifying either consideration, their agreement will be
considered corrupt as much as if they agree to a deceitful sale, usurious
dealing or gambling. In this case, they neglect the right of Allah who
enjoins that the limits He set be respected. Therefore, Muslim jurists
have laid down a rule for consideration-based contracts thus: "If the
condition of knowledge of the amount of rental is not met by neglecting
to specify it in terms of type, description and amount, the element of
mutual consent will be defective and hence corrupt, and therefore,
anyone who engages in such a contract is a sinner according to the
Islamic Sharee'ah."
10. Based on the above, Muslim jurists have ruled that if the rental
under the lease contract is an amount of money like the US Dollar, the
Saudi Riyal, the Egyptian Pound or any other currency, it is stipulated
that this amount should be specified at the time of executing the
contract, as is the case with the price of the sold item under the sale
contract without any difference. This is a point of unanimous agreement
among jurists. Article 450 of the Journal of Legal Provisions draws
attentions to this fact thus: "For the lease contract to be valid the rental

35 Ibid, 8/395
36 Ibid, 9/23.
37 Raddul Muhtaar, 5/3 and Al-Bahr Ar-Raa'iq, 8/19.

Al-Adl (40) 15
 Ruling on Tying up Rental of Property with Interest Rate

ought to be known." This condition has also been clarified more in

article 464 of the same journal thus: "The rental should be known by
specifying its amount if it is a currency, as is the case with the sale price."
In article 580 of Murshid Al-Hayraan, the following is stated: "For the
lease contract to be valid, the amount of rental should be specified if it is
a currency."

Section Two: Ruling on Tying up the Rental of

Property with the Interest Rate Indicator
Form of Contract:
11. It is to conclude a final and binding lease contract of a property
for ten years divided into three periods or more or less. The first period
is two years for a specified amount of rental. However, the second
period for four years and the third period for two years are for a variable
rental according to the changes that may occur to the interest rate
known as LIBOR (London Inter-bank Offer Rate), KIBOR, SIBOR, LIBED
or any other benchmark by which the amount of rental becomes known
at the beginning of the period, for the whole period, but is not known or
specified at the time of concluding the lease contract.
Ruling:
12. Fatwaa No. 11/2 of Dallah Al-Barakah Symposium held in Jeddah
from 31 January to 1 February 1996 states that this form of contract is
permissible thus, "Knowledge of the rental under the lease contract of
property is realized if a known duration of the contract is agreed and
divided into periods under which the rental for the first period is
specified while it is estimated according to comparable rentals (badal al-
mithl) for the forthcoming periods provided that the comparable rental is
tied up with a well-known and well-defined benchmark that leaves no
room for dispute. This is meant to give advantage to the contracting
parties of the changing rental but to keep the obligation of lease for the
whole duration of the lease contract."38
The resolution passed by the Islamic Fiqh Academy in Jeddah under
No. 115 (9/12), 4.b in the 12th session held in Riyadh from 23 to 28

38 Fataawaa of Dallah Al-Barakah Symposia (1981-1997), p. 188.

16 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

September 2000 states that this arrangement is permissible. The

resolution reads as follows: "It is permissible for the contracting parties,
in case of long period leasing of property, to specify the amount of rental
of the first period and then agree in the contract on indexation of the
rent for the forthcoming periods according to a certain indicator,
provided that the amount of rental will become known at the beginning
of every period."39
The legal criterion No. 9, issued by the Islamic Financial Institutions
Accounting and Auditing Board in Bahrain in May 2004. also considers
this arrangement permissible. It reads as follows: "5.2.1 It is permissible
for the rental to be in a fixed or variable amount linked with any
indicator known to both parties. 5.2.3 In case of variable rental, the
rental for the first period is specified by a known amount but for the
following period, it is tied up with a well-defined benchmark. However,
this benchmark should be tied up with a standard indicator subject to
maximum and minimum limits which leave no room for dispute."40
13. It should be noted that both the fatwa, issued by Dallah Al-
Barakah Symposium and the resolution issued by the Islamic Fiqh
Academy do not give any proof or justification supporting the
permissibility of this arrangement while the criterion laid down by the
Auditing Board gives the following arguments:
(a) Specifying the rental for the periods following the first period by
tying up the rental for these periods with the interest rate indicator or a
similar indicator in the future, which will be known at that time, is
tantamount to specifying the rental at an amount known to both parties
at the time of concluding the contract, for this indicator renders the
rental known at that time.
(b) Tying up the rental for future periods of the lease contract with
the interest rate indicator is similar to governing the contract with the
principle of comparable rental.

39 Resolutions and Recommendations of the Islamic Fiqh Academy in Jeddah (Sessions 1-

13), p. 393.
40 Legal Criteria of the Islamic Financial Institutions Accounting and Auditing Board,
(6.1425 AH. – 5.2004 AH.) p. 149.

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 Ruling on Tying up Rental of Property with Interest Rate

(c) Changing the rental for future periods based on the interest rate
indicator or other indicators is tantamount to renewing the contract for a
period whose rental is not yet payable.
The criterion reads as follows: "The basis for the permissibility of
using an indicator to specify the rental of the periods following the first
period of the lease contract is that such indicator fulfils the principle of
knowledge, for it is similar to linking it up with a comparable rental and
thus leaves no room for dispute. This variable rate is also beneficial for
the two contracting parties which at the same time keeps the obligation
of lease for the whole contract period as provided for under the fatwaa
issued by the 11th Dallah Al-Barakah Symposium."
Moreover, the basis for the permissibility of changing the rental for
future periods is that it is a renewal of the contract for a period whose
rental is not yet payable. Therefore, it is not considered a debt, and
hence no rescheduling of the debt prohibited by the Sharee'ah is
exercised."41
14. After an in-depth study of the actual application of these novel
arrangements of leases and comparing them to the juristic rules
applicable to the lease contract or the statements of jurists on similar
leasing issues, and after a profound investigation of Al-Barakah fatwaa,
the resolution issued by the Islamic Fiqh Academy and the legal criterion
laid down by the Auditing Board, I am of the opinion that this novel
form of leasing is invalid and prohibited under juristic rules. The proofs
and justifications given as to its permissibility go against sound
judgment and sensible reasoning. This can be explained in the following
points:
First:
15. The rental of the leased property should be of a known amount
for the whole period of lease at the time of executing the lease contract if
such a contract is stipulated to be binding and final with no options. If
the amount for the whole or some part of the period is unknown or
unspecified, the rental is then considered unknown which makes the
condition stipulated for the validity of the lease contract unfulfilled, as is

41 Ibid, p. 160.

18 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

the case with the sale price, a condition that should be met as has been
unanimously agreed by all scholars.
This fact can be further clarified as follows:
* Ibn Abdul Barr writes, "No leasing or hiring may be considered
permissible if it increases or decreases from time to time."42
* Al-Qaraafee states, "Compensation based contracts are not
permissible if deceit and ignorance is present because this element of
ignorance leaves the controls that govern the investment of money
unpractical."43
* Al-Maawardee states, "If the rental is deferred, it should be of a
known type, description and amount. If it is unknown, the lease is then
invalid."44
* In Al-Mubdi' we read, "The lease is only valid if three conditions are
met…, 2. The rental should be known as the case with the price of sale.
These conditions are the subject of agreement among all scholars."45
* The juristic rule of the Hanafite School of Jurisprudence in this
respect states, "Every element of ignorance that renders the sale invalid
applies to lease."46 Article 450 of the Journal of Legal Provisions also
states, "For the lease contract to be valid the rental ought to be known."
This condition has also been further clarified in article 464 of the same
journal thus: "The rental should be known by specifying its amount if it
is a currency, as is the case with the sale price." In article 580 of Murshid
Al-Hayraan, the following is stated: "For the lease contract to be valid,
the amount of rental should be specified if it is a currency."
Second:
16. The condition that the amount of rental for the whole contract
period should be known at the time of executing the contract for the
lease contract to be valid is not fulfilled by the fact that the rental for the
second, third or fourth period is of unknown amount at the time of
contracting but will become known in the future at the beginning of the

42 Al-Kaafee, p. 368.
43 Ad-Dakheerah, 5/436.
44 Al-Haawee Al-Kabeer, 9/207.
45 Al-Mubdi' fee Sharh Al-Muqni' by Burhaan Ad-Deen Ibn Muflih, 5/66. See also Al-
Kabeer ala Al-Muqni, 14/275.
46 Takmilat Al-Bahr Ar-Raa'iq by Al-Tooree, 8/19 as in Al-Muheet.

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 Ruling on Tying up Rental of Property with Interest Rate

following period or subsequent periods by tying it up with LIBOR or

any other indicator, even if such indicator is well-defined and leaves no
room for dispute, because the rental becoming known in the future does
not eliminate the element of ignorance at the time of executing the
contract, which obviously renders the contract invalid, as has been
unanimously agreed by all scholars. Both contracting parties have no
knowledge of the amount of rental for the forthcoming periods. Neither
the lessor knows how much he will take, nor does the lessee know how
much he will pay. The indicator to which the rental is tied up is
continually changing, and sometimes at very high rates. It may in the
future be double or even half the interest rate in the present.
17. Gross ignorance causes a defect in the original law of leasing
which renders it invalid because the valid lease contract, according to
the preponderant opinion of scholars, is a transfer of the ownership of
contracted usufruct (legally considered to be existing) to the lessee
under the contract, which gives him the right to sub-let it to a third party
for the whole period, as has been unanimously agreed by all jurists. The
said usufruct has become his right, and hence he can use it as soon as the
rental is received by the lessor, as is the case with the transfer of the
price of sale to the seller. The contract is originally the basis for the
ownership of the two considerations, and it is well established that
causes lead to effects and that consideration based contracts are built on
equality between the two contracting parties with regard to the
consideration they receive under the contract.47

47 Imaam Ash-Shaafi'ee said, "Leases are types of sales as each party gives the other a
consideration for. Therefore, the lessee owns the usufruct of the house or the animal to
the period set in the contract. He has more right to it than its owner. The owner,
however, owns the consideration." Mukhtasar Al-Muzanee on Al-Umm, 3/80. In Al-
Mubdi', 5/99, we read, "As the lease is a binding contract which gives the lessor the
right to the rental and the lessee the usufruct." We also read, 5/115, "The lessor owns
the rental under the contract as the seller owns the price under the sale contract." In
Qash-shaaf Al-Qinaa', 4/23, we read, "The lease is a binding contract between the two
parties because it is a consideration-based contract and because it is a type of sale. It
has this specific name like Salam and Sarf because the lessor owns the rental and the
lessee owns the usufruct of the leased property. In Sharh Al-Manhaj by Zakariyah Al-
Ansaaree, 3/535, we read, "The rental for the lease of a property is like the price of
sale. It is owned under the lease contract by the lessor and for which the usufruct is

20 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

That being said, for the considerations under the contract to be

owned in a valid manner by the contracting parties, the said
considerations should be of known type, description and amount. If
either consideration is unknown, the ownership will become invalid as
ignorance renders the ownership of the consideration invalid48
according to the juristic rules that regulate the provisions of
consideration based contracts and hence the contracts becomes invalid
as a consequence.
18. To further clarify the matter, the condition of knowledge for the
lease contract to be valid is based on the fact that Allah has linked
consideration-based contracts, including the lease contract, with the
mutual consent of both contracting parties on the obligations and effects
of the contract at the time of executing it. Allah says, "O you who
believe! Do not eat each other's property among you unjustly, but let
there be trade by your mutual consent." (An-Nisaa', 4: 29) This condition
establishes the right of Almighty Allah. If the two contracting parties
agree to execute any of the current consideration-based contracts with
either or both considerations being unknown, their agreement is as
corrupt, as their agreement on deceit, gambling or usury, because such a
transaction violates the injunctions of Almighty Allah.
19. As I have already explained, the basis for the permissibility of
receiving considerations, be they estates, usufructs or anything else, is
that they are mutually agreed on between the two contracting parties.49
As knowing the consideration by both parties at the time of executing
the contract is the basis on which such mutual consent can be reached, it
follows, by way of necessity, that each one of them should know the
consequences of the contract; each one should know his rights and
obligations and under the contract at the time of executing it. Al-
Kasaanee states, "Consenting to something before knowing it is

owned by the lessee." Ibn Abdul Barr writes, "It is permissible for the lessee of a house
to sub-let it before or after receiving it at the same rental or more or less. The lessee has
owned the usufruct of the house and hence he can dispose with such a usufruct." Al-
Kaafee, p. 370.
48 Fataawaa An-Nawaazil by Abu Al-Laith As-Samarkandee, p. 220.
49 As-Sayl Al-Jarraar by Ash-Shawkaanee, 3/196.

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 Ruling on Tying up Rental of Property with Interest Rate

impossible, and hence it is tantamount to being non-existent."50 Al-Izz

bin Abdus-Salaam writes, "Agreement to what is unknown is invalid."51
Ibn Hazm also states, "Agreement may not exist unless the thing to be
agreed to is known."52 He adds, "Out of necessity and sensible reasoning,
everyone knows that agreement to something unknown is impossible53
and that agreement should always be built on something known and
specified."54 He also argues, "No agreement may be granted except for
something of a known amount."55
20. Therefore, the arguments given by those who consider it
permissible for the contracting parties to consent at the time of executing
the contract to the amount of rental in the future, whether it rises or
drops, based on the changes that may affect that specific indicator,
which means that they have agreed at the time of contracting to the
rental even if it is of unknown amount at that time as long as it will be
known in the future at the beginning of each contract period, cannot be
accepted because it is known to be invalid according to the rules of
Sharee'ah as it involves deceit, risk and gambling. Each party to the lease
contract will hope that the indicator will be in his favour. If the indicator
rises, the lessee will definitely accuse the lessor of deceiving him; and if
the indicator drops, the lessor will accuse the lessee of deceiving him.
Each one will also try to terminate the contract one way or the other.
This novel form of leasing undoubtedly exposes the contracting
parties to ignorance, which renders the contract invalid, as Ibn Al-
Qayyim explains, "The ignorance that renders the contract invalid is the
one that results in gambling or deceit, in which case the parties to the
contract do not know what they are going to be involved in."56
Third:
21 The argument on which the legal criterion laid down by the
Islamic Financial Institutions Accounting and Auditing Board in Bahrain

50 Badaa'i' As-Sanaa'i', 5/259.

51 Al-Qawaa'id Al-Kubraa, 2/299.
52 Al-Muhallaa, 8/343.
53 Ibid, 8/439.
54 Ibid, 8/440.
55 Ibid, 9/79.
56 I'laam Al-Muwaqi'een, 3/354.

22 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

is based for permitting this form of contract cannot be accepted for the
following reasons:
a. Considering tying up the rental (payable for the whole contract
period) for future periods of the lease contract with the interest rate
indicator as equal to the rule of comparable rental is unacceptable
according to juristic rules, for the following facts:
1. The rule of comparable rental in lease contracts is estimated by
expert assessors based on the law of supply and demand and the needs
of people and may not be legally linked up with the interest rate
indicator in any country because such an indicator does not represent it
according to the Sharee'ah rules or even for pure market considerations.
Here is an actual example: In the last quarter of 2007, the interest rate
indicator in the United States, Canada and many other countries around
the world was dropping while rentals of properties were rising.
2. Leasing, as is the case with sale, is characterized by bargaining, as
has been unanimously agreed by all scholars57, who have warned that
the rental payable under the valid lease contract is the one that is
specified and consented to by both parties under the contract, be it more
or less than the comparable rental, but not the exact comparable rental
which is going to be specified in the future.58 The comparable rental is
only applied if the contract has been ruled to be invalid when the
specification of rental becomes invalid as a result of the invalidity of the
contract, in which case the rate, namely the comparable rental, is
referred to.
22. This contention does not contradict the opinion expressed by
Shaikhul Islam Ibn Taymiyah about the permissibility of leasing a
property by applying the comparable rental if both parties consent to it
because he has laid down three conditions for this form of contract to be
valid. These conditions are as follows:

57 Al-Masaalik by Ibn Al-Arabee, 6/113; Al-Muntaqaa by Al-Baajee and Adh-Dhakheerah by

Al-Qaraafee, 5/376 and 415.
58 In Adh-Dhakheerah by Al-Qaraafee, 5/379, we read, "part: Lease as people customarily

do is impermissible due to the lack of knowledge. Had the party renting the property
known the rental, he would have not accepted it."

Al-Adl (40) 23
 Ruling on Tying up Rental of Property with Interest Rate

a. Leasing for a comparable rental should be made at the time of

executing the contract but not in the future;
b. The comparable rental should be known at the time of executing
the contract; and
c. The comparable rental should be fixed and agreed to at the time of
executing the contract.
The above conditions are not observed by the case under discussion.
Therefore, it cannot be considered permissible based on the opinion of
Ibn Taymiyah referred to hereinabove which reads as follows:
"Purchase, leasing and marrying for a known consideration are all
permissible; the comparable price in sale and leasing is closer to justice
because many examples of these properties exist and their
considerations are known by public norms."59
He adds, "Sale for a price, namely the comparable price, leasing for a
comparable rental and marriage for a comparable dower are
permissible."60
He goes on to say, "The property can be sold or leased for the
established rental rather than the rental that has not yet been
established. It is like saying, 'sell me at the price by which people sell
when the price is one and the same, or sell me at the prevailing price
which is also one and the same."61
He further states, "If he sells at the established price at the time of
contracting, this is what Ahmad states as permissible. However, if the
price is unstable and may differ from time to time, it is prohibited to
conclude the contract because the price is not established at the time of
sale. Prices differ by time; the price after concluding the contract might
be higher than it is at the time of concluding the contract."62
3. The criterion of the Auditing Board states that the rental is
considered specified for the future period (s) if it is tied up with the
specified and well-defined indicator that has "minimum and maximum

59 Theory of Contract by Ibn Taymiyah, p. 164.

60 Ibid, p. 172.
61 Theory of Contract by Ibn Taymiyah, p. 220.
62 Ibid.

24 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

limits"63 but it fails to state the sharee'ah rule with regard to establishing a
maximum or minimum limit for the rental for the forthcoming periods
linked to the interest rate indicator. Moreover, it does not clarify the
mechanism that should be used for establishing such limits or the time
when such limits should be established.
The reason for failing to establish minimum and maximum limits for
the indicator is a clear indication of the fact that this argumentation is
baseless and does not give consideration to Sharee'ah rules. No
minimum or maximum limits can be established in advance to
determine the comparable amount of rental even if we take for granted
that this is a type of comparable amount of rental according to any
opinion expressed by any jurist.
b. The element of ignorance of the rental for the forthcoming periods
at the time of executing the contract (which necessarily renders the
contract invalid) does not apply if the rental is linked with any indicator
that may determine its amount in the future as long as the lease contract
is binding for the whole period and contains no options. I have already
discussed this argument in detail.64
c. The fatwaa issued by Dallah Al-Barakah Symposium and the
criterion laid down by the Auditing Board state that the lease contract in
this case is binding for the whole period and involves no options.
Moreover, the criterion of the Auditing Board states that amending the
rental for the periods following the first period is "tantamount to
renewing the contract for a period whose rental has not yet been
payable."
There is no doubt that the second statement contradicts the first one,
and that it is strangely confused because "renewal of the contract" for the
following periods entails that the lease contract does not cover the whole
period; rather it covers the first period only for which the rental has been
determined, that the contract expires with the expiration of the said first
period, and that with the beginning of each forthcoming period, the
contract is renewed in accordance with the new interest rate indicator
which will be known then. However, the lease contract binding for the

63 Sharee'ah Based Criteria of the Accounting and Auditing Board, p. 160.

64 See paragraphs 16, 17, 19 and 20 of this paper.

Al-Adl (40) 25
 Ruling on Tying up Rental of Property with Interest Rate

whole period does not need any renewal during the period and is
originally unacceptable to do so.
d. The interest rate indicator (or any other indicator, for that matter)
being known, well-defined and leaves no room for dispute is not under
Sharee'ah rules a justification to use it to determine a future rental
because ignoring the rental for the forthcoming periods at the time of
executing the lease contract that is binding for the whole period makes
the contract involve a type of flagrant ignorance that entails deceit,
gambling and risk, that will ultimately cause harm to the party who
sustains a change in the interest rate indicator against his favour, and
this will in turn lead to disputes and the termination of the contract by
the said party since he will not consent to the consequences of the
contract, if he is able to do so.
However, being unable to terminate the contract or to dispute its
validity as a result of the legal provisions regulating such a transaction
does not mean that he consents to its effects and consequences.
Moreover, ignorance and deceit involved in this transaction cannot be
pardoned according to Sharee'ah rules even if no dispute arises as a
result of being bound by the contract. It is clear that all contracts
permissible under modern laws and regulations, although they include
flagrant ignorance, deceit or gambling, like options, futures and the like,
do not give rise to disputes or differences because the terms and
conditions of the contracts and conventions that control their
implementation and because of the strict laws that regulate and govern
them. Nevertheless, none of these contracts can be considered
permissible or legitimate by any scholarly opinion for the mere reason
that they do not give rise to any disputes or differences.
Note:
23. In conclusion, I would like to note that the amount of rental of
property is not permissible to be linked with the interest rate indicator
for the forthcoming periods; by the same token, it is not permissible to
link it with any other indicator, like the living cost indicator, GDP
indicator, gold, oil, silver, platinum or wheat prices or any other basket
of commodities for the same proofs and arguments I have already given
with regard to linking the rental with the interest rate indicator.
24. I have limited discussions in this paper to the ruling on linking
the rental with the interest rate indicator for two reasons: 1. It is worse,

26 Al-Adl (40)
 Professor Nazeeh Kamaal Hammaad

more deceitful and more adverse than any other indicator because it is
based on usury and involves several usurious elements that should be
avoided both in whole and in part with all their effects, tools and
derivatives. 2. The actual practice today by all modern banks and
financial institutions is that they adopt linking rentals with the London
Inter-bank Offer Rate (LIBOR).
25. As for the fatwaa issued by Al-Barakah Symposium and the legal
criterion laid down by the Auditing Board of the Islamic Financial
Institutions that consider this transaction permissible, they are general
and include linking the rental with any indicator, be it an interest rate
indicator or otherwise, and be it the LIBOR or any other interest rate
indictor like the SIBOR (applied in Saudi Arabia), the KIBOR (applied in
Kuwait), etc. if the said indicator is well-defined and linked with a
specific benchmark that leaves no room for dispute.

Conclusions
1. The present paper tackles a novel case which most Islamic banks and
financial institutions have applied. The form of this case is that a final and
binding lease contract of a specific constructed property like a building, a
warehouse or the like is concluded for a long period (e.g. ten years) divided
into three periods or more or less. The rental for the first period (e.g. two
years) is specified in the lease contract while the rental for the second and
third periods (each for four years) is variable based on the interest rate
indicator of the banks of London known as the LIBOR or any other interest
rate indicators according to which the rent is specified at the beginning of
each succeeding period, the rental for which the rental has not been
specified at the time of concluding the lease contract.
2. The fatwaa issued by the 11th Al-Barakah Symposium and other fatwaa
issued by the Islamic Fiqh Academy in Jeddah consider this type of contract
as permissible. This has also been the contention of the legal criterion No. 9
of the Islamic Financial Institutions Accounting and Auditing Board in
Bahrain.
3. Upon profound review and study of this case and after considering
the fataawaas and statements that consider it permissible and the evidence
and arguments supporting them, I have found out that this transaction is
impermissible according to the Islamic Sharee'ah for the following reasons:

Al-Adl (40) 27
 Ruling on Tying up Rental of Property with Interest Rate

a. According to the unanimous opinion of jurists, for the lease contract

to be valid, the rental for the whole period of lease should be known at the
time of concluding the contract if the said contract is binding and does not
allow for options. Therefore, if the amount of rental for part or all of the
period of contract of lease is not specified, the contract becomes invalid.
Allah has stipulated that contracts based on financial considerations should
be with mutual agreement between the two parties on the terms and
conditions of contracts. Allah says, "O you who believe! Do not eat each
other's property among you unjustly, but let there be trade by your mutual
consent." (An-Nisaa', 4:29) Allah considers any trade that is not based on
mutual agreement as consuming others' property unjustly, hence its
impermissibility.
b. The principle of mutual agreement is based on the fact that both
parties know the amount of compensation that each one is going to receive
at the time of concluding the contract. Hence, each one of them knows the
result of the contract, namely his rights and duties under the contract at the
time of execution. Agreement is always dependent on knowledge, and no
agreement may be conceived without knowing what should be agreed to,
which is ultimately impossible under this novel transaction.
c. This condition satisfies the right of Allah. A contract concluded by
two parties involving a financial compensation unknown to either party is
as invalid as agreeing to deception, usury or gambling because such a
contract violates the rules and limits set by Allah.
d. If both parties agree to the amount of rental in the future at the time
of contracting by linking such an amount of rental with the interest rate
indicator or any other indicator, this does not remove the element of
ignorance of the rental in the contract or the mutual agreement required by
the Sharee'ah for the contract to be valid. Each party will always hope for
being the winner or will experience total disappointment if the indicator
moves down and places him at a disadvantage. It will not be certain if he is
going to agree to the rent or not or if he is going to continue the contract or
not, let alone the other problems that will appear as the result of such
linking.
e. The Islamic Sharee'ah requires that the transactions of the Islamic
financial institutions should be free from all types of usury, its tools,
derivatives and causes. It goes without saying that linking the amount of
rental with the interest rate indicator is based on the usury system which is
rejected by the Islamic Sharee'ah as a whole. Allah Almighty knows best.

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