SS 53 · Options and promises

SS 53: Arboun (Earnest Money)

What this standard is about

Arboun is earnest money. The buyer pays part of the price when the contract is signed and gets an agreed period to think. If he confirms the deal, the deposit counts toward the price. If he walks away or fails to pay the rest in time, the seller keeps the deposit.

This standard defines arboun, states when it is allowed, and separates it from look-alike payments. Money paid alongside a mere promise to sell in the future is not arboun, because no contract exists yet. Refundable security deposits and tender bid guarantees are not arboun either; those are held on trust and must be returned except for actual damage suffered.

Why it exists

Earnest money is an old practice, traced to the time of the caliph Umar ibn al-Khattab and approved by Imam Ahmad. It solves a real problem: a seller holds an item for a buyer and loses other sales, so the deposit compensates him if the buyer backs out. But without rules, deposits can be confused with interest-bearing tricks or unfair forfeits. This standard keeps the practice within clear limits.

The key rules, simply put

Arboun is paid by the buyer to the seller at the time of the contract, on the basis that the buyer may cancel during an agreed period.
If the buyer confirms, the deposit becomes part of the price. If he does not confirm or misses the payment deadline, the seller keeps it.
It may be paid in cash, in goods, or as a usufruct (the right to use something).
It is allowed in exchange contracts that do not require instant payment or delivery, whether the item is specifically identified or only described.
It is not allowed in salam contracts, because the full price must be paid at the signing session, nor in currency exchange (sarf), which must be instant.
The thinking period must be definite, either agreed in the contract or set by custom.
The buyer may negotiate a refund clause for special cases, such as failing to obtain an official license needed for the purchase.
If the item is destroyed before delivery, the contract ends and the deposit is returned to the buyer. If it is destroyed after delivery, the buyer must pay the remaining balance.
The seller may not sell or lease the identified item to someone else during the option period.
The arboun option itself cannot be traded.

An everyday example

A buyer agrees to purchase a plot of land for $100,000 and pays $5,000 as arboun, with 30 days to confirm. He confirms on day 20, so he now owes $95,000. Had he walked away on day 25, the seller would have kept the $5,000 as compensation for holding the land off the market.

Words to know

Arboun — earnest money paid with a contract, giving the buyer a period to confirm or walk away.
Usufruct — the right to use something and enjoy its benefits.
Salam — a contract where the price is paid in advance for goods delivered later.
Sarf — currency exchange, which must be done on the spot.
Hamish jiddiyyah — a refundable security deposit taken with a promise, held on trust; not arboun.

Source

AAOIFI Shariah Standard No. 53 — full text in the 2015 Shariah Standards book — https://aaoifi.com/download/24233/