Series of Answers by the Eminent Scholar Ata Bin Khalil Abu al-Rashtah, Ameer of Hizb ut-Tahrir, to the Questions of the Followers of his Facebook Page "Fiqhi"
Question Answer
The Commercial Asset and How to Deal with It
To: Najmeddine Khcharem
Question:
Bismillah ar-Rahman ar-Rahim
Our eminent Sheikh, Assalamu Alaikum Wa Rahmatullah Wa Barakatuh,
I would like to ask about the ruling on a transaction that takes place here in Tunisia, which has become a custom throughout the country and is also legal.
A person rents a shop for trade, and after years, the owner of the premises cannot regain his property except for a financial consideration, which is sometimes estimated at a large amount. Also, the tenant can offer what we call the "Commercial Asset" (Al-Asl al-Tijari) for sale to another tenant, and the owner of the premises cannot prevent that unless he himself gives him compensation for the Commercial Asset. Note that the tenant might suffer a loss if the owner evicts him.
May Allah bless you and hasten for us the establishment of the second Rightly Guided Khilafah on the method of the Prophethood.
Answer:
Wa Alaikum Assalam Wa Rahmatullah Wa Barakatuh,
First: To answer this question, it is necessary to establish the following points first:
Ijarah (Leasing/Hiring) is a contract for a benefit in exchange for compensation. Regarding the leasing of assets like houses for residence or commercial shops and the like, it is a contract for the benefit of residency or the use of the commercial shop... etc., in exchange for compensation paid by the tenant to the lessor. If the Ijarah contract is concluded according to the Shariah rulings, the benefit of the leased asset becomes the property of the tenant for the duration of the lease, and the tenant has the right to dispose of it through Shariah-compliant disposals.
The Ijarah contract is a binding contract (aqd lazim), meaning that neither of the two parties to the contract (the lessor and the tenant) can rescind or cancel the contract except with the consent of the other party. Therefore, it is not permissible for the lessor or the tenant to unilaterally terminate the Ijarah contract before its time expires.
The Ijarah contract is a temporary contract for a specific period. The duration of the lease must be determined by a day, month, year... etc. It is not permissible for the lease to be absolute without specifying a known time period.
If the Ijarah contract ends and is not renewed between the lessor and the tenant, the tenant must return the leased asset to its owner, the lessor. This is because the Ijarah contract did not remove the leased asset from the lessor's ownership; it only removed the benefit of the asset from the lessor's ownership and gave it to the tenant for the duration of the contract. Once the Ijarah contract ends, the tenant must return the leased asset along with its benefit to its owner, i.e., the lessor.
Second: Based on the points mentioned in the previous section, the answer to your question is as follows:
- If the term of the Ijarah contract has not yet ended and the tenant wants to lease the leased asset (which is the commercial shop in the question) to another tenant, he has the right to do so without taking the permission of the original lessor. This is because the benefit of the leased asset belongs to the tenant, so he may fulfill the benefit himself or lease it to others, whether the compensation is equal to the rent he paid to the first lessor, or less, or more. This is because the benefit of the leased asset belongs to the the first tenant, so he may dispose of it through Shariah-compliant disposals as he sees fit. It states in the book The Islamic Personality (Ash-Shakhsiyyah al-Islamiyyah), Volume 2, in the chapter "Leasing of Assets" (Isti’jar al-A’yan):
"If the contract is made for the benefits of assets, such as leasing houses, animals, cars, and the like, then the subject of the contract is the benefit of the asset, and the estimation of the 'equivalent rent' (ajr al-mithl) must look at the thing whose benefit is equal to the benefit of the leased item. Once the asset is leased, the tenant has the right to utilize the benefit of the asset he rented; if he rents a house, he has the right to live in it, or an animal or a car, he has the right to ride it. The tenant has the right to lease out the rented asset—after taking possession of it—for the same amount he rented it for, or more, or less. This is because taking possession of the rented asset stands in place of taking possession of the benefits, as evidenced by the fact that it is permissible to dispose of them, so the contract for them is permissible. It is also because it is a contract permitted for the principal amount, so it is permitted with an increase or a decrease. However, if he rented the asset for a specific benefit, he has the right to utilize that benefit or what is less than it in terms of harm, but he does not have the right to utilize more than that benefit, because he is not allowed to utilize more than his right or other than what he deserves. If he rents an animal to ride it, he is not allowed to load it with cargo because a rider is lighter than cargo. If he rents a car for a certain distance, he is not allowed to ride it for a distance greater than the distance he rented it for. If he rents a house to live in, he is not allowed to turn it into a warehouse for wood, iron, or the like, which causes more harm to the house than living in it.
In summary, if the contract is made for the asset in exchange for compensation, it is a sale (bay’), and if it is made for the benefit of the asset in exchange for compensation, it is a lease (ijarah). Accordingly, the contract may be for the asset alone, such as selling trees with fruit whose ripeness has appeared without selling their fruit; it may be for the asset along with its benefit, such as selling a house; it may be for the fruit alone, such as selling fruit whose ripeness has appeared; and it may be for a non-physical benefit of an asset, such as living in a house. If it is made for a benefit that is not considered a physical asset (’ayn), it is a lease and not a sale. Just as the buyer of an asset owns the asset and disposes of it in all ways, the tenant also owns the benefit he acquired through leasing and has the right to dispose of it in all ways. Just as the buyer of tree fruit, once its ripeness appears, has the right to sell it while it is still on its trees, the tenant of an asset has the right to lease it out because he owns its benefit just as the buyer of fruit owns the fruit he bought. Therefore, it is permissible for the tenant to lease out the rented asset if he has taken possession of it, because taking possession of the asset at the time of leasing stands in place of taking possession of the benefits, as evidenced by the fact that it is permissible to dispose of it, thus making the contract for it permissible like selling fruit on the tree.
When the leasing of the asset is completed and its benefit is possessed, the tenant owns all Shariah-compliant disposals regarding the benefit of the asset he rented because it is his property. He has the right to lease it for whatever rent he sees fit, regardless of the amount. If he rented it for fifty and leased it out for five hundred, it is permissible, because he owns the benefit, so he owns the right to lease it for what he sees fit, not necessarily for what he rented it for. Accordingly, what is called khulu (goodwill/key money) for warehouses, houses, and others—which is the payment of a specific amount of money in addition to the estimated rent for the house or warehouse to the first tenant by the person who rents from him—is permissible and there is nothing wrong with it. This is because the tenant is leasing the house or warehouse in his possession to another for the estimated rent and an additional amount paid to him. This is leasing an asset he rented for more than the rent he paid, which is a permissible matter. This is because it is permissible for him to lease what he rented for more or less than what he rented it for, as it is a contract permitted for the principal, so it is permitted with an increase, just like selling a purchased item after taking possession of it for more than what it was bought for." (End of quote from The Islamic Personality).
Likewise, if the lessor wants to take back the leased asset before the end of the contract, the tenant may demand compensation for the benefit he cannot utilize for the remainder of the Ijarah contract term. He may demand the same as what he paid for rent, or he may increase or decrease it, doing as he sees fit... If the lessor does not agree to pay compensation for the remaining benefit of the contract term, the tenant may hold the asset and utilize its benefit until the end of the contract, and he may lease it to someone other than the lessor, i.e., to another tenant.
However, if the Ijarah contract (for the commercial shop according to the question) ends by the expiration of its term and the lessor wants to take back the leased asset (the commercial shop), the tenant is legally (Shar’an) obligated to return the leased asset to its owner, the lessor, because it is his property. He is not allowed to refuse to return it or to stipulate the payment of compensation (a sum of money) in order to return the asset to its original owner, as explained in the quote above from The Islamic Personality, Volume 2.
Third: We have previously issued a question answer on parts of this issue on 20/01/2014, which stated:
[1- The tenant leasing the rented property to another tenant...
It is permissible for the tenant of a house to lease the house to others during the lease period mentioned in the contract, for a rent higher or lower than the rent he used to rent the shop from its owner. This is because leasing is a contract for a benefit in exchange for compensation, meaning that the tenant owns the right to dispose of the benefit of the rented property, but within what it was rented for during the lease period mentioned in the contract. If he rented it for residency, it is permissible for him to reside in it, and it is permissible for him to enable others to reside in it through any Shariah-compliant disposal like a gift (hibah) or lease... and at the rent he agrees upon with the other tenant. However, it is not permissible for him to lease it for another benefit; he cannot lease it as a commercial office, for example, if he had rented it for residency. Likewise, this must be during the lease period, so he cannot lease it for a period exceeding the original lease period.
This ruling is held by the majority of jurists (Fuqaha) (Hanafi, Maliki, Shafi’i, and the most correct view among the Hanbalis), as long as the asset is not affected by the difference in the user, and many of the jurists of the Salaf permitted it, whether it was for the same rent or for an increase.
But they differed if the leasing was to the owner, i.e., the owner leased his house to a tenant for a period of one year, then after three months, for example, the owner needed the house and wanted to rent it from the tenant for the remaining nine months, and the tenant leaves it... they differed on this issue and have various opinions...] (End)
Fourth: There remains the issue of what is called the "Commercial Asset" (Al-Asl al-Tijari) and how to deal with it:
The Commercial Asset has been defined by some who adopt it as: "A non-physical movable property that includes all movable properties dedicated to the practice of a commercial activity or several commercial activities." They said: "The Commercial Asset necessarily includes customers and commercial reputation, and it also includes all other assets necessary for exploiting the asset, such as the trade name, the logo, the right to rent, commercial furniture, goods, equipment, tools, patents, licenses, manufacturing and trade marks, services, designs, and industrial models, and generally all industrial, literary, or artistic property rights attached to the asset." According to this statement of the reality of the Commercial Asset, it appears to include two types of assets:
a. Physical elements such as furniture, equipment, tools... etc., which are assets with real value. b. Intangible (non-physical) elements such as commercial reputation, patents, industrial property rights... etc., which are elements with moral/intangible value...
By studying the reality of what is called the "Commercial Asset," it turns out to be something different from the benefit of the leased asset, which is the benefit of the real estate used as a commercial shop... The benefit of the real estate is the use of the real estate for commercial activity... What they call the "Commercial Asset" does not fall under that. The Commercial Asset, with its two branches of physical and intangible elements, is something additional to the benefit of the leased asset, i.e., the real estate in this case... This Commercial Asset is acquired later by the action of the tenant when he furnishes the commercial shop in a manner appropriate for the relevant trade, places the necessary equipment and tools in it, and the shop gains a commercial reputation, customers, commercial activity... etc.
In the Commercial Asset, there are physical elements that are permissible in Shariah, such as furniture, tools, equipment, and the like, if they are according to Shariah rulings... There may also be prohibited materials in it, such as statues... Similarly, there are intangible elements in it that are permissible, such as reputation, the commercial logo, the trademark, and the like... And there are intangible elements in it that are not permissible in Islam, such as some intangible rights related to intellectual property, like copyrights, patents, and the like...
If the "Commercial Asset" intended to be sold, transferred, or leased includes prohibited physical or intangible elements, it is not permissible to dispose of it by taking compensation for it; rather, one must first get rid of the prohibited elements in it. However, if it does not include prohibited physical or intangible elements, i.e., it was permissible, then it is valid to exchange it while taking compensation for it according to what is explained later.
If the Ijarah contract has not ended, it is permissible for the tenant to lease the commercial shop and exchange the Commercial Asset for compensation to another tenant, and he does not require the permission of the original lessor for the remaining period of the Ijarah contract of the commercial shop... He also has the right to return the real estate (the commercial shop) to its owner, the lessor, in exchange for compensation for the benefit and for the Commercial Asset—all this if the Commercial Asset falls under the permissible category... and during the lease period.
If the Ijarah contract for the real estate (the commercial shop) has ended, then what is called the Commercial Asset requires consideration. What I prefer (arajjihuhu) is:
The tenant must return the commercial shop to its original owner (the lessor). As for the Commercial Asset, whatever was physical, he has the right to take it or sell it as it is his property, such as furniture and the like... As for the fame of the shop and its commercial reputation, the tenant's benefit from them ends with the end of the lease contract. After that, the tenant does not own them such that he could sell them or take compensation for them as a right belonging to him... This intangible Commercial Asset is not a benefit owned by the tenant after the end of the Ijarah contract such that he has the right to sell it; rather, with the end of the Ijarah contract, the tenant's ownership of this intangible benefit, which he owned during the lease period, ends.
As for some contemporaries who view this intangible benefit like the right of pre-emption (Haqq ash-Shuf'ah) or the right of division of time for a wife with her co-wife, and that some jurists permit taking compensation for this right, the comparison between these rights and the right of commercial reputation is completely different and incorrect for the following reasons:
a. It states in the Kuwaiti Encyclopedia of Jurisprudence regarding the subject of benefits: "(d - Absolute Right...
As for taking compensation for rights, the rule according to some Hanafi jurists is that if the right is devoid of ownership, it is not permissible to take compensation for it, such as the right of pre-emption (Shuf'ah). If he reconciles for it with money, his right to pre-emption is invalidated and he returns it...
As for the non-Hanafis, they did not point to a rule that can be relied upon to know that, but after tracking some issues, it can be said in general: The Shafi'is and Hanbalis consider that a right that does not lead to wealth, or what is not an asset nor a benefit, such as the right of pre-emption, the right of option of stipulation (khiyar ash-shart), and the wife's gift of her day to her co-wife, it is not permissible to take compensation for these. As for what leads to wealth, such as the right of retaliation (qisas) and returning due to a defect, it is permissible to take compensation for it.
This is in general, as Ibn Taymiyyah permitted the wife to take compensation for gifting her day to her co-wife and for all her rights of division. Also, in a narration from Imam Ahmad, it is permissible to take compensation for the right of pre-emption from the buyer, not from others. It is taken from the issues mentioned by the Malikis that they permit taking compensation for every right established for a person, so it is permissible for them to take compensation for pre-emption, for a wife's gift of her day to her co-wife, and other things.)"
b. The jurists who speak of taking compensation for the right of pre-emption or the right of the wife's day to her co-wife, this is as long as the right exists, and not after its cessation... Regarding the right of pre-emption, it is when the owner of the pre-emption is a neighbor, but if he moves away from his neighborhood and goes far away, he has lost the right of pre-emption... Similarly for the wife, she owns this right while she is a wife, and not if she is divorced, for example... Thus here, the tenant's right to benefit from the reputation and fame is during his lease. If the lease period ends, his right to this reputation has ended; it is no longer a right of his that he sells and takes compensation for. Rather, he must vacate the rented property after the end of the period unless it is agreed to extend it...
As for what is mentioned in man-made laws about making this intangible Commercial Asset a right for the tenant during the lease period and after it, to be disposed of by buying and selling, and not vacating the rented property at the end of the lease period unless the price of the intangible Commercial Asset is paid to him—this has no value or weight in the face of the Shariah rulings.
This is what I prefer in this matter, and Allah is All-Knowing and All-Wise.
Your brother, Ata Bin Khalil Abu al-Rashtah
08 Sha'ban 1443 AH Corresponding to 11/03/2022 CE
Link to the answer from the Ameer's (may Allah protect him) Facebook page: https://www.facebook.com/HT.AtaabuAlrashtah/posts/508408407513200
Link to the answer from the Ameer's (may Allah protect him) website: http://archive.hizb-ut-tahrir.info/arabic/index.php/HTAmeer/QAsingle/4227