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A Form of Land Investment

Answered as per Shafi'i Fiqh by Darul Iftaa Jordan
A landowner and an investor have reached an agreement whereby the owner shall offer a plot of land to the investor on basis of a power of attorney that extends until the end of the intended project. In return, the investor shall pay the sum of one million and two hundred and fifty JDs, via cheque cashable after two years from its date, as the price of that land. However, that price shall remain fixed regardless of any rise in land prices. The purpose behind the two-year period is giving the investor the opportunity to build residential flats and sell them. The latter shall also cover all the needed expenses. Moreover, any party that fails to fulfill the terms of this agreement shall pay, to the other party, the value of all the damages resulting from that, in addition to (9%) as an interest, effective from the date of the agreement. What is the ruling of Sharia on this?

Praise be to Allah, the Lord of the Worlds.

After reviewing the provisions of the aforementioned agreement, it was found out that it is more of a conditional sale, but, according to scholars, it is prohibited. While stating the conditions for valid sale, Ibn Hajar said, "Sale shouldn`t be bound by a certain time, be it a lifetime or a thousand years….Also, it shouldn`t be bound by a condition."{Tohfat al-Mohtajj, 4/225}.

In addition, amongst the modern conditions of sale is registration at government departments, whether via transfer of property, or irrevocable special power of attorney. However, this was lacking in the above agreement.

In addition, this agreement included a form of usury as it is conditioned that the party, which fails to fulfill the terms of the agreement, shall pay (9%) as an interest to the other party.

In conclusion, both parties must either amend the terms of this agreement by turning it into a valid sale contract, along with removing the conditions that render it invalid, or turn it into a partnership that meets all the conditions stipulated in Sharia. And Allah knows best.

This answer was collected from the official government Iftaa Department of Jordan.

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