• This Practice Note provides a high-level overview of the different structures of an Ijarah.

Ijarah in its most basic form is, essentially, the Sharia-compliant counterpart of lease agreements. It is a contract whereby the owner of an existing, tangible Sharia-compliant asset (which must not consist of consumable goods) transfers the possession and lease rights to another person for a specific period of time against an agreed and specific periodically-payable consideration i.e., rental amounts, whilst the owner continues to retain ownership of the leased asset.

The owner, being holder of the title to the asset, will solely assume liability for loss of the asset, except where such loss results from the lessee's negligence or fault. Ijarah is a common tool of Islamic financing and its “Ijarah muntahiya bil tamleek” variation is particularly popular in the real estate market. In the case of the “Ijarah muntahiya bil tamleek”, the parties exchange binding and separate promises to sell the assets upon expiry of the term of the Ijarah at agreed terms.