This contract is void and unlawful

16-11-2008 | IslamWeb

Question:

Let me give you an example. Suppose I have a house that I paid for in cash. I am 100% owner and the house is worth $500000.00. I need some money to pay my son's tuition in college for example. I will approach a company and they will give me $100000.00 and they will sign an agreement with me to be a partner in my house. The partnership terms are as follows. After 5 years if i sell the property I have to share with them the profit or loss. So for example if the house appreciates in value they will take $100000.00 plus a share in the appreciation. If the house depreciates in value then they will take an amount less then $100000.00. They will lose some money. If I sell the house after 1 year they will charge me a penalty of 25% of $100000.00 in addition to sharing any profit or any loss. If I sell after 2 years the penalty will be 20% and so on until the 5th year then their would be no penalty just sharing in the profit and loss. Let me know if you need further details or clarification. Is this transaction halal? Particularly the penalty part? Nazir Husain MBA - University of Illinois at Urbana-Champaign 2003

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Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.

 

The contract which you mentioned in the question is void and it is not a valid co-partnership, rather it is contradicts the conditions of the Islamic contract of partnership and there is risk and deceit in it, and it is eating people’s money without right.

Therefore, it is not permissible to enter such a contract.

Allaah Knows best.