SS 9 · Lease

SS 9: Ijarah and Ijarah Muntahia Bittamleek

What this standard is about

The standard covers operating leases and ijarah muntahia bittamleek — a lease that ends with the transfer of ownership to the lessee. It applies whether the bank is the lessor or the lessee. It covers the promise to lease, acquiring the asset, lease forms, rental rules, guarantees, changes to the contract, and how ownership transfers at the end. It does not cover ijarah sukuk (Standard 17) or employment contracts (Standard 34).

Why it exists

Leasing lets customers use assets they cannot buy outright. The lease-to-own version is a core Islamic home and vehicle finance product. The standard keeps ownership risks with the owner and keeps the lease contract separate from the ownership transfer.

The key rules, simply put

The owner (lessor) bears the risks of ownership and major maintenance. The lessee handles day-to-day upkeep.
If the lessor delivers the asset late, no rent is due for the delay period. The rent is reduced unless the lease is extended by an equal period.
Earnest money (arboun) counts as advance rent. If the lessee cancels, the lessor may keep it, but should forgo anything above the actual damage suffered.
The same asset can be leased to different lessees for different periods (successive leases). It cannot be leased to two lessees for the same period.
In ijarah muntahia bittamleek, the ownership transfer at the end must come through a separate promise or contract. It cannot be an automatic term of the lease itself.
Sale-and-lease-back needs a real gap of time between the sale and the lease-back. This blocks disguised interest deals (inah).
This lease-to-own form is different from conventional hire-purchase, where ownership passes automatically.

An everyday example

A bank buys an apartment and leases it to a family for 15 years. The family pays monthly rent. At the end, under a separate promise, the bank transfers ownership to the family. If the roof needs major repair in year three, the bank pays for it as the owner.

Words to know

Ijarah — leasing; selling the use of an asset.
Usufruct — the right to use an asset and benefit from it.
Lessor — the owner who leases out the asset.
Lessee — the one who leases the asset.
Inah — a buy-back trick used to disguise an interest-bearing loan.

Source

AAOIFI Shariah Standard No. 9 — https://islamicmarkets.com/index.php/publications/ijarah-and-ijarah-muntahia-bittamleek-scope-of-standard