Real estate Buy back scheme

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Brother Aamir,

The sale you are referring to is known as an Assured buy back scheme, often called an exit guarantee or an assured appreciation. In this scheme, the developer (builder-seller) gives investors the opportunity to sell the property back to him for an increased price at an agreed later date. This gives the investor a sense of reassurance that his investment will bring him more profit. The assured buy back is a part of the sale contract, and so there is a legal obligation for this guarantee to remain in place. This scheme is often offered on off-plan properties and often properties abroad.[i]

In principle, in an ordinary sale, the commodity must be in existence. If the commodity does not exist, the sale of the item will not be permissible. However, there is an exception to this, which is known as Istisna’ in Shariah.

You refer to the sale of a shop in the plaza which is not built as yet. The sale of a non-existent shop is impermissible. However, the referred transaction falls under Istisna’. This is a kind of sale where a commodity is transacted before it comes into existence.

In your referred case, Party 2 is hiring Party 1 to build a shop for him, and the builder’s plan or the developer’s blueprint is the only indication of what the property will look like on completion. This is different from the general sale where the commodity must be in existence for the transaction to be valid. In this case, it is not necessary that the full payment is paid in advance, it may be deferred to any time according to the agreement of both the parties. Once the building is complete, it will belong to the person that paid for it.[ii]

However, as the Istisna’ deal in reference will include an assured buy back scheme, there are a few things that you should be aware of before finalising the sale:

• Selling back the shop to Party 1(builder-seller) without taking the shop into possession will be impermissible.[iii]
• There should be no condition stipulated in the contract that enforces either the builder to buy back the shop or the customer to sell it back to the builder without having the liberty to sell it to a 3^rd party. [iv]
• If due to any reason after two years, the construction does not start, then selling back the non-existent shop to Party 1 will not be permissible.[v] [vi]
• The two different sales cannot be under a single contract.[vii]
• In addition to all of the above, all means that could lead to a dispute in future should be avoided.

In Shariah, having two different transactions in one single contract is impermissible, because it is a well settled rule in the Islamic legal system that one transaction cannot be made a pre-condition for another. Therefore, the correct way of proceeding with the deal is to have a one-sided promise of repurchase of the shop from the builder after 2 years. This way the sale will not be held to be contingent or conditional with the fulfilment of the promise made. A well-executed promissory note has the full effect of law behind it and is legally binding. This will legally bind Party 1 to buy back the shop from Party 2 and thus, protect his interests.[viii] [ix]

And Allah Ta’āla Knows Best

Naved Akhtar Ibn Shabbir.

Student – Darul Iftaa

Shillong, India. 

Checked and Approved by,

Mufti Ebrahim Desai.