ASSIGNMENT

Read the appendix B and answer the following questions:

1. Elements of Ijarah (Section 1/3) what do you understand by the subject matter of Ijarah contract?
Does it mean the asset? Explain.

2. Explain conditions of benefit (Section 1/3/3/2) with the help of an example.

3. Provide a summary of section 2/3 Shariah Characterisation of Ijarah MBT in your own words.

ANS 1) In the context of an Ijarah contract, the subject matter pertains not only to the physical asset
being leased but also encompasses the benefit derived from utilizing that asset. This distinction is
crucial because it clarifies that the essence of the transaction lies in the usage or enjoyment of the
asset, rather than mere ownership or possession. When an individual enters into an Ijarah
agreement, they are essentially agreeing to lease a specific asset for a defined period. This could be
anything from a house or a car to machinery or equipment. However, the subject matter goes
beyond just the asset itself. It extends to the right granted to the lessee to utilize and derive benefits
from the asset during the lease term. Moreover, the subject matter can also be based on a
description provided by the lessor rather than the explicit identification of a particular asset. For
instance, if the lessor describes a property without specifically naming it, the lessee agrees to lease a
property that fits the given description. This allows for flexibility in the agreement while ensuring
that both parties understand the nature of the asset being leased.

ANS 2) The lessor owns a commercial building and wishes to lease it out to a lessee for business
purposes. They enter into an Ijarah contract with the following conditions of benefit:

a) The subject matter of the contract is the benefit derived from using the commercial space for
business activities, such as retail or office operations. The contract specifies that the lessee has the
right to utilize the property for commercial purposes during the lease period.

b) The benefit, which is the use of the commercial space, is subject to valuation based on market
rates for similar properties and is intended to be fulfilled throughout the lease term. Both parties
agree on the rental amount and duration of the lease, ensuring clarity and mutual understanding.

c) The use of the commercial space should comply with Islamic principles. For example, the lessee
agrees to utilize the property for halal business activities, such as selling permissible goods or
providing lawful services, in accordance with Shariah law.

d) The lessee possesses the necessary resources, expertise, and capability to operate a business in
the leased commercial space in a Shariah-compliant manner. This ensures that the lessee can
realistically fulfill the intended benefit of using the property for business activities.

e) The specific use of the commercial space, whether it's for retail, office, or other business
purposes, is clearly identified in the contract to prevent any ambiguity or misunderstandings. Both
parties agree on the intended use of the property, thereby minimizing the risk of disputes during the
lease term.

ANS 3) The contract of Ijarah Muntahia Bittamleek, or lease ending with ownership, can take various
forms in Shariah law, each with its own juristic characterization. In the form known as Ijarah
Muntahia Bittamleek through gift, the lessor transfers legal title to the lessee as a gift upon fulfilling
the lease terms. There are differing opinions among scholars regarding whether the gift can be
conditional. Another form is Ijarah Muntahia Bittamleek through transfer of legal title (sale) at the
end of the lease for a token consideration. Here, the lessor promises to sell the leased asset to the
lessee at the end of the lease, if desired, for a nominal fee. The consideration may vary and is agreed
upon by both parties. Similarly, Ijarah Muntahia Bittamleek can occur through the transfer of legal
title (sale) at the end of the lease for a specified amount. In this case, the sale price is predetermined
in the lease contract. Another variant is Ijarah Muntahia Bittamleek through the transfer of legal title
(sale) prior to the end of the lease term for a price equivalent to the remaining instalments. Here,
the lessor agrees to sell the leased asset to the lessee at any time during the lease term for an
amount equal to the remaining lease payments. In Ijarah Muntahia Bittamleek through gradual
transfer of legal title (sale) of the leased asset, the lessor gradually transfers legal title to the lessee
over the lease term, with the lessee acquiring full ownership at the end. Rent decreases as the
lessee acquires more ownership. Lastly, in Sale and Leaseback transactions, an asset is sold to
another party and then leased back. While the sale and lease transactions should not be contingent
on each other, parties may reach agreements or promises regarding the lease.