Ethica Institute of Islamic Finance™

Is it permissible for a landowner to hand over his land to someone who promises to construct on the land—undertaking all expenses and related costs—and hand over the completed project?

Such an arrangement is permissible under an Istisna contract, based on the following procedure/conditions:

• The land owner would hand over his land to the other party (the ‘contracting party’) who will build over the land any structure mutually agreed upon.

• Both parties to the contract (i.e. the land owner and the contracting party) agree on a lump sum price that is to be paid, without separately specifying the cost and the profit. Part of the price may be paid beforehand as advance with the remainder being paid upon completion of work—in bulk or in installments.

• In general it should be noted that Istisna allows for a lot of flexibility on price, so that if mutually agreed upon by the parties involved, virtually any payment schedule can be arranged, as long as the price is known and established beforehand.

• The contracting party will bear all expenses relating to building and construction, including all expenditure on project execution.

• The contracting party will be solely responsible for arranging and managing all agreements with contractors, and for the supervision of the work carried out by these contractors.

• The contracting party will be responsible for handing over the completed project to the land owner.

• Handover of the complete project would constitute providing delivering the project in the absolute final completed form embodying all the major and minor specifications as agreed upon between the land owner and the contracting party.

As an example, let us assume the contract between the land owner and the contracting party specified the construction of a fully-finished building of apartments.

Hence, upon delivery, the building and all of its apartments must be fully complete in every way, as must be all other aspects of the building, such as for example the parking facilities, all utility provisions (electricity/gas/water/telephone/internet/TV/cable connections, etc), and in general all features of the building that were agreed upon in the Istisna contract.

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