Firstly: In its Islamic form, a rental contract is a binding exchange contract; the rent is in exchange for the benefit, and it is binding on both parties for the duration of the lease. Neither party can dissolve it without the consent of the other.
In “Tuḥfat al-Muḥtāj” it is stated: “A rental contract, be it current or deterred, does not dissolve, even if by the unilateral annulment of one of the contracting parties, based on an excuse that does not result in a defect in the object of the contract.”
The due excuse for dissolving the contract is debated among jurists (fuqahā᾽), with the majority being more restrictive, and the Ḥanafī scholars being more lenient regarding excuses.
Therefore, the rental contract remains binding except for a valid excuse.
Secondly: Jurists (fuqahā᾽) differ regarding the binding nature of a rental contract. While the majority view the contract as binding from the time of signing and for the entire period, resulting in the landlord owning the rent and the tenant owning the benefit, it does not dissolve except by the end of the period, the completion of the purpose for which the property was rented in certain cases, or by a valid reason for annulment.
The view of the Ḥanafī scholars, as well as Ibn Taymiyyah – which we consider correct – is that the binding nature of the contract is established and renewed with each moment the benefit occurs. Benefits are not owned all at once, but gradually. Thus, the emergence of an excuse is akin to the presence of a defect that permits annulment as it would before the contract.
Understanding the difference between the majority view and the Ḥanafī view is crucial for comprehending the nature of the rental contract and its implications.
While the rent is a binding debt on the tenant for the full period even if not yet accrued [according to the majority of scholars], it is only a binding debt for the period of benefit according to the Ḥanafī scholars. The effect of this point of disagreement becomes evident upon annulment of the contract. The remaining amount [of the paid rent] is not required to be returned according to the majority view unless the annulment is due to a valid excuse, while the Ḥanafī scholars require it to be returned for any unavoidable excuse causing harm to the tenant.
Thirdly: Rental contracts in the West often include various conditions regarding binding and annulment; for instance, the contract may be binding on the landlord but offer the tenant a conditional option. For example, there may be a minimum stay requirement after which the tenant can choose to continue or annul the contract. They also permit annulment with a specified penalty, such as three months’ rent or otherwise.
The default principle for all this in our view is the saying of the Prophet (peace be upon him): “Muslims are bound by their conditions” and the statement of ῾Umar: “Rights are determined by conditions.”
Therefore, the opinion on the matter is that a late fee for delayed payment is permissible for the following reasons:
- It is stipulated in the original contract and is not an emerging condition. It is as if the rental agreement includes the amount plus the penalty, and if paid on time, what we consider the penalty amount is waived. This concept is evidenced in sales and purchases, such as discounts for the first ten buyers or for purchases within sixty minutes; otherwise, the full price applies, and the difference is not considered a penalty.
- Even if we do not consider the late fee part of the original contract – though it is – it compensates for the loss of benefit rather than the debt itself. Al-Bukhārī narrates in his Ṣaḥīḥ: “Ibn ῾Awn reported from Ibn Sīrīn: ‘A man said to his hired worker: ‘Let your animal come in, and if I do not travel with you on such-and-such a day, you will receive one hundred dirhams.’ When he did not come out [to travel with him], Shurayḥ said: ‘Whoever imposes a condition on himself willingly is bound by it.”” This ruling was due to the loss of benefit.
- Penalties in sales and obligations fall under the category of unrestricted interest (maṣlaḥah), which scholars and authorities can exercise discretion in to regulate markets. Otherwise, rights would be lost, goods and benefits would be wasted, and markets would stagnate.
Finally, it is surprising to equate the penalty with usury. If it were said to be an unjust enrichment, that would be more reasonable. However, to classify it as usury is an overly broad interpretation. Usury is either an increment, which does not apply here, or a deferment, which also does not apply here. Usury involves an increase in debt due to time, without compensation, which is not the case here.
The penalty is not a concession for giving extra time nor intended for incurring extra payment but a guarantee for timely payment and prevention of the loss of benefit.
Usury in the form of a deferment occurs when, upon the time of repayment, the tenant tells the landlord, “Delay me, and I will increase the amount,” or the landlord says, “Either you pay, or you increase the amount.” This is what we call the usury of deferment, the Quranic usuary or the pre-Islamic usury. We know no other form of such usury.
Fatwa issued by Dr. Khālid Naṣr
