Is the condition of guarantee provision of 1% base price per month as rent valid and is it permissible to make an agreement with such a condition?

Assalām Alaikum Wa Rahmatullah wa Barkātuhu. I have one question regarding investment in real estate property, construction for which is to start soon, now it is only land ready for excavation. I have booked one office space in the complex to be constructed by an infrastructure company in Noida, India. I have to pay 80% of total price now while balance 20% and other miscellaneous charges to be paid at the time of possession which they have fixed September 2013 as target.

Since completion of construction in such a complex cannot be guaranteed on a fixed date they have kept guarantee provision in which for the next two years after possession date, which will be September 2015 in this case, they will pay 1% of base price per month as rent till September 2015, even if the building is ready or not after September 2013, their committed date. Mufti Sahab, if building is ready, fixed rent as per my knowledge is lawful but if it is not ready do you think this money will be lawful but we don’t know what will exactly happen and I have to sign the agreement now as per the proposal of the company. Please advice is it lawful to make such agreement under such condition?

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

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

In the following response, two issues will be covered which are related to the construction factor of the investment. The first one being the issue of possession and the second being that of the guarantee provision.

1.   As for the issue of possession:

According to our understanding, the infrastructure company has fixed September 2013 as their target for completing the construction, after which possession will take place. This implies that the infrastructure company intends granting the investors possession of their spaces in the complex in September 2013, and not that they have fixed it as a definite date for possession, since, as you have stated, ‘completion of construction in such a complex cannot be guaranteed on a fixed date’.

According to Shari’ah, this contract is termed Istisnā’ (commissioned production). In this type of contract, although you have both, the option of fixing a date for possession and the option of not fixing a date for possession, it is advisable to opt for a fixed date of possession; especially in this case of building construction, so that no dispute arises later if the infrastructure company unduly delays in completing the construction.[1]

With regards to fixing a date, we present the following:

If a condition is laid down that you will hold back the balance payment of 20% and other miscellaneous charges until the construction of your building in the complex is completed, this condition will be valid.[2]

2.   As for the issue of the guarantee provision:

·     If the guarantee provision is an integral condition of the construction agreement then it is not allowed, since this condition is invalid. The meaning of the guarantee provision being an integral clause is that it is stipulated as a condition for entering into this contract for construction with the infrastructure company, such that completing the transaction for construction depends on accepting this clause.[3]

If it is laid down as an integral clause which the contract is dependent on for commitment to the construction undertaking, you should negotiate removing it from the contract and since there is no harm to the infrastructure company by removing it, they might be willing to do so.

·     If the guarantee provision is mentioned in the agreement for construction as a mere commitment of the infrastructure company, without the actual transaction of constructing the complex being dependant on it, then this would not invalidate the contract. In this case, if you do receive the amount of 1% base rent each month, there will be no harm in consuming it. However, according to Shari‘ah, you have no right to claim it if you do not receive it. The 1% should be a voluntary gesture with no legal right of claim.[4]

·     If the guarantee provision is not a clause in the construction agreement and is completely detached from and independent of the agreement, it is allowed. This is because if any invalid condition is totally detached from the agreement, it becomes a mere commitment and no more remains a thing on which the transaction is suspended. Similar to the previous case, in this case too, the 1% of base rent amount you will receive will be permissible; however, in the event of not receiving it, you may not demand it.[5]

However, the above-mentioned rulings are specific to those two aspects of the construction element in this investment (i.e. the aspects of possession and that of being given 1% of base rent per month as per guarantee provision.)

We are not aware of the other particulars of the contract you intend entering into with the infrastructure company. The same is the case with the real estate company in the instance of it being a separate entity in this investment. We do not know the details of its commercial practices. Thus, we are unable to provide a general ruling on the permissibility or impermissibility of investing in this real estate company.

It will only be permissible to invest in any company when none of its dealings contravene the Shari’ah.

And Allah Ta’āla Knows Best

Maulana Mahmood Patel
Azaadville, South Africa

Student Darul Iftaa

Checked and Approved by
Mufti Ebrahim Desai.
www.daruliftaa.net

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