Ethica Institute of Islamic Finance™

In relation to the leased asset, what is the lessor responsible for?

With regards to the leased asset, the lessor is responsible for:

• The risk associated with the leased asset, during the entire period of lease, belongs to the lessor. It is the lessor’s responsibility to replace the leased asset in case of any damage to it barring negligence on the part of the lessee.

• The major maintenance and insurance of the asset during the period of lease and the resulting expense is the lessor’s responsibility entirely.

• At the time of the establishment of lease rentals, the lessor may cover his insurance cost, however, once the rentals have been fixed, any increase in the insurance premiums cannot be adjusted in the rental amounts to be paid by the lessee. The lessor will have to bear the additional insurance expense himself or adjust it to the rentals of the next ijarah term.

• The lessor may assume responsibility for insurance by making the client his agent to deal with the insurance company.

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