Question:
I own a property and I rent or lease it out. Can I charge a penalty for late payments. And can I charge a penalty if it is in the lease agreement?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
To charge fees for a delayed or late payment is not permissible as it is tantamount to Riba (interest).
The Quran explicitly warns against the use of interest,
يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِنْ كُنْتُمْ مُؤْمِنِينَ. فَإِنْ لَمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِنَ اللَّهِ وَرَسُولِهِ.
“O those who believe, fear Allah and give up what still remains of the Riba(interest) if you are believers. But if you do not then listen to the declaration of war from Allah and His Messenger”. (AlBaqarah, verse 278,279)
يَا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا الرِّبَا أَضْعَافًا مُضَاعَفَةً وَاتَّقُوا اللَّهَ لَعَلَّكُمْ تُفْلِحُونَ.
“O you who believe! Eat not Ribâ (usury) doubled and multiplied, but fear Allâh that you may be successful.”(Al Imran verse 130).
Rasulullah Sallallahu Alayhi Wasallam) said:
عن جابر قال: لعن رسول الله صلى الله عليه وسلم آكل الربا وموكله وكاتبه وشاهديه(مسلم)
“Rasulullah (Sallallahu alayhi wasallam) cursed the one who consumes, deals, records and bears witness for interest based transactions”. (Muslim1598)
A possible alternative is to inflate the rent by 10% and if the payments are made timeously, they will be offered a 10% discount as a token of appreciation. This cannot be part of the rental contract, and must be from the landlord’s own accord.
And Allah Ta’āla Knows Best
Mufti Arshad Ali
Darul Iftaa, Jaamia Madinatul Uloom (Trinidad)
