Is it permissible to purchase a Co-op?
My question is regarding the purchase of a cooperative apartment (co-op) in the U.S. When you buy a co-op unit you do not buy the apartment itself instead you buy shares of the company that owns the co-op, the number of shares you buy is usually proportional to the size of the unit, these shares are transferred into the buyer’s name the apartment is never registered to the buyer and remains property of the corporation of which the buyer becomes a shareholder. Most co-ops are mortgaged and those that are paid off have the option to mortgage the property to take a loan to cover expenses such as renovations or repairs. The tenant/buyer is responsible for a monthly maintenance payment which covers heating, water, upkeep of the common areas, staff salary etc. property taxes AND the building’s mortgage payment (including interest). Keeping in mind that a portion of the buyer’s maintenance payment goes toward interest on a loan taken out by the corporation of which the buyer is now a shareholder is it valid to enter into such a transaction even if the buyer was to pay cash in full for the apartment(shares)? Thank You for taking the time to review this question.
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
According to the explanation presented by you, a person purchases shares in a company and becomes a shareholder. The company is the juristic owner of the shares purchased.
There are differences of opinions among the contemporary scholars on the Shari’ah legitimacy of purchasing shares primarily due to the concept of juristic ownership of a company and limited liability.
According to those scholars who permit purchasing of shares with conditions, the shareholders are Wakeel (representatives) of the company. In principle, it is not permissible for one to be a wakeel of a prohibited act. In the enquired situation, if the directors of the company have taken out an interest bearing loan and the shareholders’ payments are going towards the interest loan payment, then that is regarded to be a tacit approval by the shareholder of the interest loan. Accordingly it is not permissible to be a shareholder of such a company.
The above is a general rule without having sight to the actual contract.
And Allah Ta’āla Knows Best
Abdullah ibn Mohammed Aijaz
Student Darul Iftaa
Checked and Approved by,
Mufti Ebrahim Desai.