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Lease and service contracts are important financial transactions permitted in Islam. Their legitimacy is established by the Qur’ān and ḥadīth,^[1] as well as ijmāᶜ, or scholarly consensus.^[2]  Known in Arabic as ijārah, these contracts grant the right to use an asset or receive a service in return for an agreed payment. Jurists define ijārah as the transfer of ownership of a usufruct—the right to use and benefit from something—in exchange for consideration, subject to prescribed conditions.^[3] Its scope includes rental agreements, employment contracts and other arrangements for paid services.

According to the Shāfiᶜī school, ijārah has four constituent elements: the contracting parties; their offer and acceptance (ījāb and qabūl); the usufruct or service; and the agreed rent or remuneration.

The owner who leases an asset is the muʾajjir, or lessor, and the person renting it is the mustaʾjir, or lessee. In a service contract, the person providing the service is called an ajīr. A worker hired to serve one party exclusively for a specified period is an ajīr khāṣṣ, or exclusive employee. A provider who undertakes work for multiple clients is an ajīr mushtarak, or independent service provider.

The conditions governing the parties to a sale also apply to ijārah. In brief, the parties must possess sound judgement in managing property (rushd) and enter into the contract voluntarily. The agreement must use clear wording that expresses a lease or hiring arrangement.

Ijārah is of two kinds:

• Ijārat al-ᶜayn: a contract for the use of a particular asset or the services of a particular person.
• Ijārat al-dhimmah: a contract to provide the use of an asset described by agreed specifications, without identifying a particular asset.

For example, if A leases a car to B and identifies it by its registration number, the contract is ijārat al-ᶜayn: that particular car must be provided. If A instead undertakes to provide a 2020 Toyota Camry without identifying a particular vehicle, the contract is ijārat al-dhimmah: any car meeting the agreed specifications may be supplied.

Termination of an Ijārah Contract

Ijārah is generally a binding contract: neither party may withdraw without a recognised reason. It may nevertheless end through expiry, loss of the agreed benefit, valid termination, or mutual agreement.[4]

A lease normally ends when its agreed period expires—for example, when a one-year tenancy reaches its final date. It also ends if the specifically leased asset is destroyed and can no longer provide the agreed benefit, as when a rented building collapses. A defect that substantially affects use may instead give the tenant a choice to continue or terminate. Al-Kāsānī gives the example of partial collapse affecting a rented house.[5]

The jurists distinguish a problem with the rented asset from a change in the tenant’s circumstances. According to the majority, a personal difficulty does not ordinarily justify cancellation while the agreed benefit remains available. Thus, a person who hires transport but becomes unable to travel because of illness is not automatically released from the agreement. Ibn Ḥajar al-Haytamī explains this rule in the Shāfiʿī school by noting that the obstacle has not impaired the contracted benefit itself.[6]

The Ḥanafīs allow termination more broadly where continuing the contract would impose additional harm that the affected party did not undertake to bear. Al-Kāsānī mentions a shopkeeper who becomes insolvent and can no longer carry on business, and a tenant who intends to leave on a journey. However, he expressly distinguishes these cases from moving to another shop simply because it is cheaper or more spacious: finding a better bargain does not itself justify cancelling the first lease.[7]

Even where neither party has a right to withdraw alone, they may agree to end the lease through iqālah. For example, a tenant wishing to leave after six months of a one-year tenancy may agree with the landlord to cancel the remaining period. They should clearly settle the effective date, rent already due, and any advance payment relating to the cancelled period[8]

According to the majority, the death of a landlord or tenant does not itself end an ordinary lease. Al-Anṣārī explains that the tenant’s heirs inherit the remaining right of use, while the landlord’s death leaves the tenant entitled to remain until the lease expires. The classical Ḥanafī position differs, generally treating the death of a party who contracted on their own behalf as a ground for ending the lease, subject to recognised exceptions.[9]

Rent and Remuneration

The rent or remuneration payable under an ijārah contract is called ujrah and must be clearly specified. Anything that may serve as the price in a sale may also serve as consideration in ijārah. Payment need not be monetary: the right to use another asset, or the provision of a service, may also serve as consideration. According to the majority of jurists, the usufructs of two assets of the same kind may be exchanged. For example, the right to use one house may be exchanged for the right to use another.^[10] On this view, the rules of ribā governing sales do not prevent such an exchange of usufructs.

The Ḥanafī school, however, does not permit this arrangement, holding that the prohibition of ribā extends to the exchange of usufructs of the same category.^[11] Accordingly, the right to use one house cannot be exchanged for the right to use another under a lease. It may, however, be exchanged for a different benefit, such as teaching services. The other schools recognise both arrangements.

According to the Shāfiᶜī and Ḥanafī schools, remuneration under an ijārah contract must not consist of the output of the work itself.^[12]  This applies whether the payment is a specified portion or a percentage of the total output. For example, a farmworker cannot be hired on the condition that the wages will consist of a specified quantity or percentage of the farm’s harvest. The Ḥanbalī school, however, permits remuneration consisting of an agreed share of the resulting produce or revenue.^[13]  On this view, commission-based arrangements for tax collection, debt collection, sales and brokerage are valid.

In ijārat al-ᶜayn, which concerns a particular asset or the services of a particular person, payment may be made at the outset or deferred to an agreed date. In ijārat al-dhimmah, where the benefit or service is defined by its specifications rather than tied to a particular asset or person, the Shāfiᶜī school requires payment before the parties leave the contracting session.[14] The Mālikī school takes a similar position but allows certain concessions.[15] The Ḥanafī and Ḥanbalī schools permit deferred payment in this form as well.[16]

Where the leased asset and the consideration are individually identified objects, they must be physically inspected. Where they are specified by description, their type, quantity and relevant characteristics must be known. The differences of opinion discussed in relation to sales also apply here.

Where work has been performed under an invalid ijārah contract, remuneration is generally assessed at the prevailing market rate for that work.

The Service or Usufruct

Jurists have set out several conditions governing the service or usufruct that forms the subject of ijārah.^[17] These conditions are generally accepted.

The use of the asset or the person’s service must have a value recognised by Islamic law. The contracted benefit must neither be prohibited nor be so trivial that it is not ordinarily regarded as having value. For example, hiring someone to work in a liquor shop is impermissible.

The subject of the contract must not be something that is exhausted through consumption. Leasing an orchard to consume its fruit is therefore impermissible. However, consuming things merely incidental to the leased asset does not present the same problem. A well may be leased for drinking water: although the water is consumed, the leased asset is the well itself.

The agreed service or benefit must be something that can actually be provided. For example, someone who does not know the Qur’ān cannot be hired to teach it personally. This is because, under ijārat al-ᶜayn, the contract requires the specified person to perform the work. However, that person may undertake to arrange Qur’ān lessons through a qualified teacher under ijārah fī al-dhimmah. In this case, the obligation is to provide the agreed teaching, rather than to teach personally. The distinction is whether the contract requires the services of a particular person or simply requires an agreed service to be provided.

Both parties must clearly understand the service or benefit being provided. If the contract concerns a particular asset or a particular person’s services, that asset or person must be identified. In ijārah fī al-dhimmah, the service or benefit to be provided must be clearly described. The contract must also specify either how long it will last or what work must be completed—for example, renting a house for one year or hiring someone to sew a garment according to agreed specifications.^[18]

A car may be rented for a specified number of days or months, with any mileage limit clearly agreed. Alternatively, it may be hired for a particular journey to an agreed destination. When hiring a tailor, the parties should specify the garment, its measurements, and the work required. A property lease must state its duration. Similarly, workers may be hired either to complete a defined building task or to work for an agreed period.

According to the Shāfiᶜī school, a contract should not make both a fixed period and completion of a defined task binding measures of the same service. Imām Abū Ḥanīfah and the Ḥanbalī school take the same position.^[19] For example, hiring someone both to work for a full day and to sew a particular garment may create uncertainty: what happens if the garment is finished before the day ends, or remains unfinished at the end of the day? Imām Abū Yūsuf and Imām Muḥammad, however, permit specifying the task and its completion period together.^[20]

Liability under Ijārah

The lessee holds the leased asset as an amānah, or property entrusted to their care, and is not liable for loss or damage unless they misuse it or fail to take proper care of it.[21] For example, if a rented car is damaged by an unexpected flood despite being properly used and safeguarded, the lessee is not responsible for the damage. However, damage caused by negligence or unauthorised use is their responsibility. A clause requiring the lessee to bear every loss, even without negligence or misuse, is generally invalid. Jurists differ on whether such a clause also invalidates the lease or only the clause remains invalid while lease is valid; Ibn Qudāmah records both views within the Ḥanbalī school.[22]

The same principle applies to an ajīr khāṣṣ, a worker hired to serve one employer for an agreed period: the worker is not liable for damage unless it results from negligence or misconduct. Jurists differ, however, over the liability of an ajīr mushtarak, an independent service provider who accepts work from different customers, such as a tailor or laundry operator. According to the preferred Shāfiᶜī view, such a provider is likewise not liable without negligence or misconduct. The Ḥanafī and Ḥanbalī schools generally hold the provider liable for damage directly caused by their work—for example, a tailor damaging a customer’s fabric while cutting it—even without negligence, subject to exceptions for certain services. This differs from property being lost or damaged while merely in the provider’s custody.^[23]

Ijārah in Islamic Banking

Islamic banks and financial institutions use ijārah to help customers obtain the use of assets without paying the full purchase price at once. An important form is al-ijārah al-muntahiyah bi-al-tamlīk, a lease designed to lead to ownership of the asset.

This arrangement has similarities with conventional hire-purchase, which developed in Britain during the nineteenth century. Under hire-purchase, the customer takes possession of an asset and makes regular payments over an agreed period. Ownership passes when the customer fulfils the agreement’s conditions and exercises the purchase option, which may involve a small final payment.

Another comparable arrangement is a lease with an option to purchase. For example, a customer may lease a car for three years and then choose whether to return it or buy it at the price specified in the agreement.

Rent-to-own arrangements also allow a customer to rent an asset with a route to eventual ownership. The timing of the purchase, its price, and whether any rental payments count towards that price depend on the terms agreed. An option to purchase during the rental period must therefore be expressly provided for rather than assumed.

Although Islamic lease-to-own arrangements resemble these forms in their practical purpose, their permissibility depends on how the lease and the transfer of ownership are structured. They may take several forms, some permissible under Islamic jurisprudence and others impermissible, as discussed below.

Possible Structures and Their Juristic Rulings

1. Automatic Transfer of Ownership

Under this arrangement, an asset is leased for a specified period at an agreed monthly or annual rent. The contract provides that ownership will pass automatically to the lessee when the lease expires, without any payment beyond the stipulated rent.

This structure is considered invalid because a lease grants the right to use an asset; it does not itself transfer ownership. Making ownership pass automatically through the lease introduces a condition that conflicts with the nature of the contract. This objection follows the rules on contractual conditions applied by the major schools, including the Shāfiᶜī school.^[24]

If, instead, the owner makes a unilateral undertaking (iltizām) to give the asset to the lessee free of charge once the lease ends and all rent has been paid, the Mālikī school recognises the arrangement as valid.^[25] However, a gift (hibah) made conditional in this way is not valid according to the Shāfiᶜī, Ḥanafī, and Ḥanbalī schools[26].

Combining the above rulings, the Kuwaiti Fiqh Encyclopaedia states:

“Since a gift (hibah) is a contract that transfers ownership, and such a transfer requires certainty and immediate effect, the Ḥanafī and Shāfiᶜī jurists, together with the Ḥanbalīs according to their relied-upon position, do not permit a gift to be made conditional on a future event or deferred to a future date. A gift transfers ownership in the present, whereas suspending or deferring its effect conflicts with this.”[27]

 2. A Sale Incorporated into the Lease

An asset is leased for a specified period at an agreed monthly or annual rent, with a sale to the lessee built into the same agreement. Ownership is to pass to the lessee at the end of the lease upon payment of a specified purchase price, which may be nominal or substantial. The lessee therefore pays this price in addition to the rent.

This arrangement is also invalid in Islamic jurisprudence. The agreement combines two contracts with different legal effects over the same asset: a lease grants a temporary right of use, while a sale transfers ownership without a time limit. Here, the sale is made conditional on payment of the rent throughout the lease period or is stipulated to take effect at a future date. A sale suspended on such a condition or deferred in this manner is invalid.^[28]

3.A Lease Accompanied by a Promise to Sell

An asset is leased for a specified period at an agreed monthly or annual rent, accompanied by a promise to sell it to the lessee at the end of the term. The purchase price may be specified at the outset or agreed upon later.

The promise to sell does not itself constitute a sale contract. It is given separately and does not form a condition of the lease. Although this arrangement is valid, scholars dispute whether the promise is legally enforceable.

According to the Shāfiᶜī school, a promise cannot be enforced legally.^[29] The person making it cannot be compelled to fulfil it, although honouring the promise is preferable. The Ḥanafī school holds that a promise linked to a condition must be fulfilled. The Mālikī school requires fulfilment when a promise is linked to a particular cause, and the recipient acts in reliance on it. This latter ruling, however, applies only to tabarruᶜāt, or gratuitous transactions, such as gifts.^[30] It therefore provides a basis for the validity of the fourth arrangement discussed below.

4. A Lease Accompanied by a Promise to Gift the Asset

An asset is leased for a specified period at an agreed monthly or annual rent, accompanied by a promise to give it to the lessee free of charge at the end of the term, once all rent has been paid.

The promise does not itself transfer ownership; the gift is completed through a separate transaction at the end of the lease.[31] This arrangement is valid. However, the rulings on the enforceability of promises discussed under the third arrangement apply here as well.

5. A Lease with Options at the End of the Term

An asset is leased for a specified period at an agreed monthly or annual rent. At the end of the term, the lessee may choose to renew the lease, purchase the asset for a specified price, or return it to the owner.

If the lessee chooses renewal or purchase, the parties conclude a new lease or a separate sale contract at that stage. Whether the lessor can be compelled to honour the promise to renew or sell depends on the juristic position adopted, as discussed above.[32]

Unlike murābaḥah and instalment sales, these lease arrangements leave ownership with the financial institution throughout the rental period. As owner, the institution bears ownership-related risks and the cost of non-operational maintenance. The lessee remains responsible for damage caused by negligence or misuse.The institution may recover the asset if a breach of the contractual conditions entitles it to terminate the lease. These arrangements are commonly used to finance vehicles, homes and major equipment.

The International Islamic Fiqh Academy’s Resolution

The International Islamic Fiqh Academy considered these arrangements in Resolution No. 110, adopted in September 2000. Its central requirement is that the lease must remain a genuine lease, with the transfer of ownership treated as a distinct transaction.[33]

For example, a bank may lease a car to a customer for five years and promise to sell it to the customer afterwards. During those five years, the customer pays rent for using the car, while ownership remains with the bank. Under this arrangement, ownership passes through a separate sale; payment of the final rent instalment does not itself make the customer the owner.

Responsibilities during the lease. The institution bears ownership-related risks and the cost of non-operational maintenance. The lessee remains responsible for damage caused by negligence or misuse. Any insurance must be Islamic cooperative insurance, with its cost borne by the owner. Rent is not payable for a period in which the contracted benefit is unavailable.

Prohibited arrangements. The Academy prohibits a lease that automatically turns into a sale, and a lease accompanied by a sale conditional on payment of all rent or stipulated to take effect at a future date.

Permitted arrangements. These include a lease accompanied by a promise to sell or gift the asset after full payment of rent. Purchase options may also be exercised through a separate sale. The Academy also permits a separate gift contract conditional on payment of all rent

References:

^[1] Qur’ān: al-Ṭalāq 65:6; al-Qaṣaṣ 28:26. Al-Bukhārī, ḥadīth no. 2227, reported by Abū Hurayrah (may Allah be pleased with him); ḥadīth no. 2263, reported by ᶜĀ’ishah (may Allah be pleased with her).

^[2] Mughnī al-Muḥtāj, 3:439; al-Kāsānī, Badā’iᶜ al-Ṣanā’iᶜ, 4:174; Ibn Qudāmah, al-Mughnī, 5:250.

^[3] Tuḥfat al-Muḥtāj, 6:121; Ḥāshiyat Ibn ᶜĀbidīn, 6:4.

[4] Al-Ḥaṭṭāb, Mawāhib al-Jalīl, 5:389; Zakariyyā al-Anṣārī, Asnā al-Maṭālib, 2:431

[5] Al-Kāsānī, Badāʾiʿ al-Ṣanāʾiʿ, 4:196–197; al-Mawsūʿah al-Fiqhiyyah al-Kuwaytiyyah, 1:271, paras. 59–60 and para. 63

[6] ] Ibn Ḥajar al-Haytamī, Tuḥfat al-Muḥtāj, 6:186. The transport example adapts the classical discussion of hiring an animal for travel

[7] Al-Kāsānī, Badāʾiʿ al-Ṣanāʾiʿ, 4:197–198

[8] Al-Mawsūʿah al-Fiqhiyyah al-Kuwaytiyyah, 1:271, para. 62. The six-month example illustrates mutual cancellation; the settlement wording is practical guidance

[9] Al-Anṣārī, Asnā al-Maṭālib, 2:431; al-Mawsūʿah al-Fiqhiyyah al-Kuwaytiyyah, 1:273, para. 72, citing Badāʾiʿ al-Ṣanāʾiʿ, 4:200–201

^[10] Rawḍat al-Ṭālibīn, 5:176; Mawāhib al-Jalīl, 5:406; Sharḥ Muntahā al-Irādāt, 2:243.

^[11] Al-Baḥr al-Rā’iq, 8:28; al-Fatāwā al-Hindiyyah, 4:412.

^[12] Nihāyat al-Muḥtāj, 5:268; al-Baḥr al-Rā’iq, 8:26

^[13] Sharḥ Muntahā al-Irādāt, 2:228; Kashshāf al-Qināᶜ, 9:10

[14] Tuḥfat al-Muḥtāj, 6:125.

[15] Mawāhib al-Jalīl, 5:394

[16] Fatḥ al-Qadīr, 9:66; al-Inṣāf, 6:81

^[17] Rawḍat al-Ṭālibīn, 5:177; Tuḥfat al-Muḥtāj, 6:130; Ḥāshiyat Ibn ᶜĀbidīn, 6:4.

^[18] Rawḍat al-Ṭālibīn, 5:177; Tuḥfat al-Muḥtāj, 6:130.

^[19] Nihāyat al-Muḥtāj, 5:281; al-ᶜInāyah Sharḥ al-Hidāyah, 9:110; al-Inṣāf, 6:45.

^[20] Al-ᶜInāyah Sharḥ al-Hidāyah, 9:111; al-Mabsūṭ, 16:44.

[21] Ibn Ḥajar al-Haytamī, Tuḥfat al-Muḥtāj, 6:177; al-Ḥaṭṭāb, Mawāhib al-Jalīl, 5:428

[22] Ibn Qudāmah, al-Mughnī, 5:311–312, section 4290, “Shart al-muʾjir ʿalā al-mustaʾjir ḍamān al-ʿayn”; al-Ḥaṭṭāb, Mawāhib al-Jalīl, 5:428

^[23] For further discussion of liability in ijārah, see Rawḍat al-Ṭālibīn, 5:228; Tuḥfat al-Muḥtāj, 6:177; al-ᶜInāyah Sharḥ al-Hidāyah, 9:129; al-Mabsūṭ, 16:15; al-Fatāwā al-Hindiyyah, 4:508; Majmaᶜ al-Ḍamānāt, p. 13; Mawāhib al-Jalīl, 5:428; Minaḥ al-Jalīl, 7:507; Sharḥ Muntahā al-Irādāt, 2:269; Ibn Qudāmah, al-Mughnī, 5:306.

^[24] Zakariyyā al-Anṣārī, Asnā al-Maṭālib, 2:32.

^[25] Al-Ḥaṭṭāb, Taḥrīr al-Kalām fī Masā’il al-Iltizām, p. 190.

[26] Asnā al-Maṭālib, 2:479., Al-Kāsānī, Badāʾiᶜ al-Ṣanāʾiᶜ, 6:116–117; al-Mardāwī, al-Inṣāf, 7:133

[27] Al-Mawsūᶜah al-Fiqhiyyah al-Kuwaytiyyah, 42:137, entry “Hibah,” paragraph 30, under “Taᶜlīq al-hibah wa-iḍāfatuhā” (تعليق الهبة وإضافتها).

^[28] Imām al-Nawawī, Sharḥ al-Muhadhdhab, 9:340.

^[29] Imām al-Juwaynī, Nihāyat al-Maṭlab fī Dirāyat al-Madhhab, 5:453.

^[30] Al-Ḥaṭṭāb, Taḥrīr al-Kalām fī Masā’il al-Iltizām, p. 68.

[31] International Islamic Fiqh Academy, Resolution No. 110 (12/4), “Lease Ending in Ownership and Leasing Certificates”, 28 September 2000, particularly the general conditions of permissibility and the permitted arrangement involving a promise to gift.

[32] See the juristic discussion under the third arrangement above. For the contemporary position recognising judicial enforcement of a unilateral promise under specified conditions, see International Islamic Fiqh Academy, Resolutions Nos. 40–41 (5/2 and 5/3), “Fulfilment of Promises and Murābaḥah to the Purchase Orderer”, 15 December 1988, second clause.

[33] International Islamic Fiqh Academy, Resolution No. 110, 28 September 2000; Majallat Majmaᶜ al-Fiqh al-Islāmī, no. 12, vol. 1, p. 313. Summarised from the Arabic original, with an illustrative example.