Question Summary:
Recently one of the Muslim community members here in Ottawa Canada came was offered the following home purchacing option by a local company. (below). Can the respected Ulema assist us by reviewing the program offered to see if it meets the requirements of a valid Islamic transaction.

Question Detail:

Assalamoalaikum, recently one of the Muslim community members here in Ottawa Canada came was offered the following home purchacing option by a local company. (below). Can the respected Ulema assist us by reviewing the program offered to see if it meets the requirements of a valid Islamic transaction.

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rent2owncanada.ca

Our program allows you to live in your dream home today without having to meet the typical financing qualifications required by the big banks.  Our unique program is designed to assist Canadians who experience difficulty in qualifying for conventional financing, either because of bruised credit or lack of down payment.

Our program is very flexible in the amount of down payment required and/or the monthly payments. Once we approve your application, you are treated as the owner of the property the day you move in.  Our program is design to help you qualify for financing as soon as possible.  Typically we can help you qualify for conventional financing within 1-2 years if you follow our program.  We can extend the program longer if necessary as long as you are not in default with us.  Our credit counselor will help you rebuild, repair or establish your credit rating.  Our Counselor will review your credit report with you and provide you with a personalized plan for you to follow.  This plan, if properly executed by you during the rental term, will improve or establish your credit rating sufficiently to be approved by conventional lenders.

We rent you the home for a period of 1-2 years with the Option To Purchase at the end of the rental period.  Our tenant/buyers love it because it gives them time to save up for a larger down payment, time to clean up past credit problems or time to sell another home. We are obligated to sell the home to you.  However, you are not obligated to buy.  When you purchase the home 100% of your Initial Option Payment Credit and 100% of your Monthly Option Payment Credit is credited towards the purchase price of the home.  These credits will act as your down payment.  If you decide not to purchase the home you will lose your Initial Option Payment Credit and your Monthly Option Payment Credit.  We commit ourselves to helping you at a great financial expense, so it's only natural for you to lose your credits for not keeping your commitment.  We do all we can to make your dream of home ownership a reality so please help us help you.  Do not join our program unless you are truly committed to home ownership.

The purchase price will be established up front before signing and is based on the projected value of the home at the end of your occupancy agreement.  If the property appreciates more, which is very possible, you benefit from that increase.

What Is Rent 2 Own?
Rent 2 Own consists of two separate contracts.  The first contract is an Occupancy Agreement and the second is an Option to Purchase Agreement.  The Occupancy Agreement is similar to a rental contract.  The Option to Purchase Agreement is the contract stating your intentions to buy the property within a specific period of time.  

Our Rent 2 Own Program requires a deposit of 5% which we call “Initial Option Payment Credit” (Non-refundable).  To purchase the property you will need another 5%.  This 5% is divided by the number of months in your Occupancy Agreement and added to the market rent of the property. This is done to make sure you have the full 10% down payment to buy the property.  The higher your deposit, the lower your monthly payments will be.

Suppose you want to buy a property that by our estimation will be worth $256,000 at the end of your Occupancy Agreement in 2 years and you only have $12,800 or 5% to put down as the Initial Option Payment Credit.  You will still need another 5% or $12,800, so we divide the $12,800 by the number of months in your Occupancy Agreement to give us the Monthly Option Payment Credit.  This will be added to your current market rent and is non-refundable.  Basically, we let you pay your down payment one month at a time.

Banks have strict lending policies that restrict many individuals from qualifying for a mortgage. But with Rent 2 Own Canada it’s easy to qualify.  The program is flexible and can be customized to your needs.  If you have a reasonable Initial Option Payment Credit and good income to support the additional Monthly Option Payment Credit, you should qualify.  

In addition, our credit counselor will help you rebuild, repair or establish your credit.  They will review your credit report with you and provide you with a personalized plan for you to follow.  Our tenant/buyers love it because it gives them time to save up for a larger down payment, time to clean up past credit problems or time to sell another home.

Warning
The Option To Purchase obligates the owner to sell the home to you.  However, you are not obligated to buy.  When you purchase the home 100% of your Initial Option Payment Credit and 100% of your Monthly Option Payment Credit is credited towards the purchase price of the home.  These credits will act as your down payment.  If you decide not to purchase the home you will lose your Initial Option Payment Credit and your Monthly Option Payment Credit.  We commit ourselves to helping you at a great financial expense, so it's only natural for you to lose your credits for not keeping your commitment.  We do all we can to make your dream of home ownership a reality so please help us help you.  Do not join our program unless you are truly committed to home ownership.

Home ownership is hands down the single best investment a family can make.  Rent 2 Own Canada strives to create win-win-win situations for our tenants/buyers, investors and our company.  

Answer :

In the Name of Allāh, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We have studied the Rent 2 Own programme referred to in your query.

The basic structure of the deal is clear. There are two contracts, a rental contract and an option to purchase contract.

It would be more clearer to us if the schedule of the rentals be provided to have a more clearer understanding of how the rentals are linked to the purchase price.

We gauge from the explanation of the scheme that although it is stated that there are two contracts, they have been intrinsically linked through the option for purchase.

The client will pay a rental as well as 5% option to purchase. He will require to give another 5% to make a 10% down payment towards the purchase price.

If the client does not purchase the property he forfeits the 5%. If he does purchase then the 5% is included in the rental. The other 5% is also included in the rental and divided in proportion to the monthly instalments.

Hence the 10% is rental as well as part of the purchase price. This structure is incorrect for the following reasons.

1.      The rent contract must be completely separate and independent. It must not be legally linked to the purchase contract.

2.      Similarly the purchase contract must also be completely independent of the rental contract even in terms of the payment schedule.

3.      The 5% deposit of initial option non refundable clause is incorrect. This is paying for an option. An option is not an object of transaction.

4.      The remaining 5% and the initial deposit of 5% will be rental and eventually be part of the purchase price. Hence the client will have a legal claim to offset that against the rentals. This clearly illustrates that there is a mixture of two transactions in one. It is stated in a hadīth:

There is an alternative to this scheme. The company may contact us we will assist them design a Sharī῾ah Compliant alternative with the same spirit of the scheme in reference.

And Allah Ta'āla Knows Best,

Muftī Ebrahim Desai
Daruliftaa
35 Candella Rd, Durban, South Africa