Purchasing a Home Through a ‘Rent-to-Own’ Arrangement (Diminishing Musharaka)

Answered by Shaykh Faraz A. Khan

Question: What is the shari’ah ruling concerning purchasing a home through a rent to own program. Is it haram or halal?

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health states.

Leading contemporary scholars state that ‘rent-to-own’ arrangements (diminishing musharaka) are permissible, provided that certain conditions are met.

The basic arrangement entails:

(1) Creating joint ownership of the property between the financier and the client.

(2) The financier leasing its share of the property to the client and charging rent for that.

(3) Actual purchase by the client of the units of the financier’s share over time. Each sale must be effected with a separate offer and acceptance at the actual time of purchase.

(4) Adjustment of the rental fee over time, based on the amount of share remaining under the financier’s ownership.

Each of the key elements (1-3) in this arrangement is itself permissible, yet all three cannot be joined together in one combined transaction, such that one element is a condition for the other.

Rather, in this arrangement, there is a separate and independent promise by the client (a) to lease the financier’s share of the property for rental payment, and then (b) to purchase units of the share of the financier over time. This promise is legally binding and enforceable in court, yet not part of the actual contract itself.

For a detailed discussion on this type of arrangement, as well as its requisite conditions, please see Mufti Taqi Usmani’s work, An Introduction to Islamic Finance.

Finally, one must ensure that the financier providing the ‘rent-to-own’ arrangement (diminishing musharaka) does so in a Sharia-compliant manner.

And Allah knows best.
wassalam
Faraz A. Khan

Checked &  Approved by Faraz Rabbani