Is this business contract valid?

In the name of Allah, Most Gracious, Most Merciful 
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh:

According to your explanation, the employer will buy the house for a particular amount. You will then pay the employer a higher price for the house on installments. The employer also reserves his right for repayment of the house. This transaction could be made into a valid Murābaha contract. [1]

Murābaha means to buy something and sell it as a profit and refer to the cost. The purchaser would know how much profit the seller is making.

In the enquired situation, the employer pays for the house, so he is the owner. Thereafter, he should enter into a purchase and sale agreement with you. This part seems to be missing in dealing with him. There is no separate purchase and sale agreement between yourself and the employer after he pays for the house. You will have to purchase the house from him after he purchases the house in order for you to be the owner of the house.

There are few challenges in this agreement. Generally, the house is bought by the employer. But it is on your name. This is probably to save double transfer costs. In order to overcome this, your employer may appoint  you as his agent to buy the house. Once you buy the house for him, it is put on your name. You may now offer to buy the house from him at a profit. If he agrees, then the Murābaha is complete and you will be the owner of the house. The employer may keep the title deed of the house as a collateral against the amount oweable by you.

Hereunder is a Shariah compliant model of financing one's house:

Murābaha:

When one enters into a Murābaha contract on the basis of deferred payment, certain conditions have to be considered in order for the contract to be Sharīah compliant.

1.     The financier has to purchase the house and own the house.

2.     When he sells the house, it is not a loan given on interest. It is a sale of the house for a deferred price.

3.     The price of the house is agreed between the buyer and the seller at the time of the sale.

4.     Once the price is fixed, it cannot be decreased [in case of earlier payment] nor increase [in case of default]. Shari'ah does not permit stipulating any charges for deferring payments because this is riba [interest].

5.     In order to secure the payment of the price, the seller may ask the buyer to furnish a security whether in the form of a lien or a charge on any of his existing assets. The seller may withhold the title deed of the house with agreement from the purchaser.

I hope we answered all of your questions. For any further clarity on the issue, you may reply to admin@dariliftaa.net Ref: Akyār Uddin.

Akhyar Uddin 

Student, Darul Iftaa 

Buffalo, New York, USA 

Checked and Approved by

Mufti Ebrahim Desai.

مختصر القدوري (ص: 86) ^[1]

المرابحة: نقل ما ملكه بالعقد الأول بالثمن الأول

ibid

ويجوز للمشتري أن يزيد البائع في الثمن ويجوز للبائع أن يزيد في المبيع ويجوز أن يحط من الثمن ويتعلق الإستحقاق بجميع ذلك

ومن باع بثمن حال ثم أجله أجلا معلوما مؤجلا وكل دين حال إذا أجله صاحبه صار مؤجلا إلا القرض فإن تأجيله لا يصح

مذكرات في فقه المعاملات (ص: 153)

يحوز البيع بطريق المرابحة أو الوضيعة أو التولية إذا كان رأس المال معلوماً حين العقد، وكان مقدار الربح في المرابحة، ومقدار الخسارة في الوضيعة محدداً.

الجوهرة النيرة (2/ 296)

( ومن باع بثمن حال ، ثم أجله أجلا معلوما صار مؤجلا ) لأن الثمن حقه فله أن يؤخره تيسيرا على من هو عليه ألا ترى أنه يملك إبراءه مطلقا فكذا موقتا وهذا كثمن البياعات وبدل المستهلكات ؛ لأن هذه الديون يجوز أن تثبت مؤجلة ابتداء فجاز أن يطرأ عليها الأجل بخلاف القرض ، وإن أجلها إلى أجل مجهول إن كانت الجهالة متفاحشة كهبوب الرياح ونزول المطر وقدوم فلان من سفره ، وإلى الميسرة فالتأجيل باطل والثمن حال ، وإن كانت متقاربة كالحصاد والدياس والنيروز ، والمهرجان وقدوم الحاج صح التأجيل بمنزلة الكفالة ومن مات وعليه سلم ، أو دين سواه إلى أجل حل ما عليه

An introduction to Islāmic finance page100-115