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Fatwa #40273 November 2001United States of America

Is the following co-ownership financing contract acceptable per Shariah?

Question

I am buying a $100,000 house, and am $25,000 short. A 'friend' comes up with the $25,000. The house is purchased and registered in MY name. I sign another contract with my friend saying, he is 25% non-resident owner of the house, and I can buy him out. We both obtain the fair rental value of the house ($1000 per month). I buy him out at the end of 1 year by paying him $25000 + (12X250) = $28,000. i.e., his share plus 1 year's rent. Is my paying of $28,000 for his $25,000, which is totally based on the rental value, considered Interest? {If the house is registered in both the names, it gets quite complicated in terms of changing it later, and insurance and tax liabilities}

Answer

The purchased house will be in partnership between you and your friend, and
the rental income will be distributed according to the proportion of the
shares.

The subsequent and independent contract to purchase the house is correct.
The partner may sell his quarter share more than the purchase value of
R25,000 if he wish to. Once he sells his house, he is not entitled to a
rental income.

and Allah Ta'ala Knows Best

Mufti Ebrahim Desai
FATWA DEPT.
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