BMW Fixed Term Rental Contract: Shariah Compliant?
Question:
Please let me know if the above rental agreement by BMW is good to go from a shariah perspective
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We have reviewed the BMW fixed term rental agreement including the motorplan terms and conditions.
A rental agreement is referred to as “Ijarah” in Shariah and hence all the rules and laws of Ijarah will be applicable. There are different forms of Ijarah including Ijarah al-A’maal, Mushtarakah and Ijarah al’Manafie. There are several parties in an Ijarah including the Mujeer/Lessor, Musta’jir/lessee and the Ujrah/rental fee. There are a number of considerations in reviewing a Shariah Compliant financial solution including a thorough review of the underlying financial mechanism/construct, the terms and conditions and the supervision and monitoring of the agreement to ensure continual shariah compliance.
We understand that the BMW fixed term rental agreement offers a fixed term rental with insurance and a motor plan.
The BMW fixed term rental agreement under clause 3.4, Delivery and risk states that “All risk in and to the vehicle will pass to you and remain with you when you take delivery of the vehicle, including the risk or damage or destruction.”
According to Shariah, the Manafi’e/usufruct of the asset is transferred or exchanged in an Ijarah and the actual asset is not transferred. Hence the risk (Dhaman) does not transfer from the Mujeer/lessor to the Musta’jir/lessee. Therefore this clause is not shariah compliant and will constitute a voidable condition (Sharth Fasid) which invalidates the transaction. Furthermore the liability for any risk of damage and destruction is only passed to the lessee in the event of gross and absolute negligence (Ta’ddi Fahish).
The BMW fixed term rental agreement further states in clause 4.2, Payment of rental amounts, that “you may not withhold, defer or deduct any amount from your payments in terms of this agreement or pay an amount which is less than the agreed rental amount, including because the vehicle has been in an accident or is lost or stolen or is no longer in your possession.”
According to the Shariah laws of Ijarah, you are only responsible if the Musta’jar/leased asset is available to the lessee/Musta’jir. In other words, the lessee should have the unobstructed and unfettered right of usage and deriving benefit from the leased asset and in accordance with the established business norm and practice. Nevertheless in the instance of an Ijarah, if the leased vehicle is damaged or destroyed then the Musta’jir will not be liable for the pro-rate rental/Ujrah fee accordingly since the leased asset is not available for the usage. Therefore this clause is not shariah compliant.
The insurance inclusive of the rental agreement will be allowed due to general need and necessity. However, any major damage to the vehicle and major maintenance will be for the account of the lessor not the lessee since the vehicle will be in the dhaman/risk of the lessor and hence all responsibility lies with the lessor.
You are welcome to contact us at the Darul Iftaa for further guidance on structuring a shariah compliant agreement. You can read more on Ijarah by downloading our book “Your Brief Guide to Islamic Finance” from www.shariahbusiness.com.
and Allah Ta'ala Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa
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