Category: Business Matters
Fatwa#: 40371
Asked Country: Australia

Answered Date: Sep 04,2018

Title: Vehicle leasing

Question

This Fiqh question relates to a specific type of vehicle lease that is provided by my employer.

Can you please advise if entering into the below described lease agreement is permissible?

Details below:

The vehicle lease is based on fortnightly salary sacrifice pre-tax (and post tax) payments which helps reduce the net cost of the lease by reducing the employee's taxable income.

The lease is akin to an operating lease and is not like a novated lease agreement. There is no agreement to purchase the vehicle. At all times the vehicle remains the property of the employer.

The fixed fortnightly lease payment set at the beginning of the contract covers the following package inclusions:

    All lease costs for the lease period
    All fuel costs (irrespective of kilometers or actual fuel usage, the lease payment does not change)
    Maintenance costs, e.g. servicing as per the manufacturer’s handbook, oil and tyre replacement
    Repair costs
    Vehicle government registration costs
    Vehicle insurance
    24 x7 Roadside assistance
    Fringe Benefits Tax (FBT)
    Any applicable GST
    Environmental Carbon Offset

The lease contract period for new cars is 24 or 36 months, although an employee can take over a car lease that has already been started by another employee. In this case the lease period can be as little as a few weeks (depending on how long there is until the end of the initial lease contract).

The payments for the vehicle are automatically deducted from the pay of the employee and as such there’s no ‘late payment’ clauses in the contract.

Damage to the vehicle is the employee's responsibility although the insurance on the vehicle significantly reduces the cost to repair in most cases.

At the end of the lease period the employee has to return the vehicle to the employer.

The only ways to exit the lease are the following:

1. The contract period of the lease ends.

2. The employee quits/resigns from the company or is made redundant by the employer.

3. Another employee agrees to take on the remainder of the lease and as such the lease is transferred to the other employee.

Now there is one clause in the contract which is noteworthy, it says:

“While the annual total cost of a company provided salary sacrifice motor vehicle is otherwise fixed for the term of the vehicle lease, the employer reserves the right to vary the annual total lease cost during the life of the lease if there is an unexpected or large rise in the cost of government charges or fuel. Any increase in the lease cost will be limited to that required to enable the employer to achieve “break-even” cost across its fleet. The employer may at any time at its complete discretion withdraw any cost increase levied in whole or in part. You will be informed of any changes prior to implementation.”

This clause allows the employer to unilaterally increase the lease cost, but only if it is a result of unexpected rise in government charges or fuel, and only to the extent to achieve break even cost across their entire fleet (the employer has many thousands of vehicles). They also can choose not to increase the payment.

I have asked other employees who have taken up this type of lease over a number of years and they have never witnessed an increase in their lease payment. I don’t believe this clause has been utilised in practice by the employer.

Please advise if such an agreement is permissible or not. Jazakallah Khair

Answer

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

As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

 

According to Shari’ah laws of leasing (ijaarah), the rental amount must be fixed. The lessor cannot increase the rent unilaterally[1].

Refer to the following:

“the employer reserves the right to vary the annual total lease cost during the life of the lease if there is an unexpected or large rise in the cost of government charges or fuel.”

This part of the clause is not in compliance with laws of Shari’ah and therefore renders the contract invalid.

 

And Allaah Ta’aala Knows Best.

Muajul I. Chowdhury

 

Student, Darul Iftaa

Astoria, New York, USA

 

Checked and Approved by,
Mufti Ebrahim Desai.

 

 



[1] An Introduction to Islamic Finance (pg. 161) 

النتف في الفتاوى للسغدي (2/ 558)

واعلم ان صحة الاجارة متعلقة بشيئين: اعلام الاجر واعلام العمل

 

الهداية في شرح بداية المبتدي (3/ 230)

"ولا تصح حتى تكون المنافع معلومة، والأجرة معلومة" لما روينا، ولأن الجهالة في المعقود عليه وبدله تفضي إلى المنازعة كجهالة الثمن والمثمن في البيع

 

ملتقى الأبحر (ص: 511)

(كتاب الإجارة) هي بيع منفعة معلومة بعوض معلوم دين أو عين، وما صلح ثمنا صلح أجرة وتفسد

 

مجلة الأحكام العدلية (ص: 86)

 (المادة 450) : يشترط أن تكون الأجرة معلومة.

 

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