Is it Sharia-compliant for an installment sale contract between a real estate company and a buyer to stipulate that the company may confiscate all paid installments (100%), and calculate 20% of the total contract value as compensation, in the event of the buyer's breach or withdrawal from the purchase?
The penalty clause in financial contracts is permissible, except in contracts where the original obligation is a debt. The company may stipulate taking more than the down payment as compensation for actual damages incurred. The estimation of compensation must be based on justice and fairness, and in case of dispute, its determination is referred to the Islamic judge (hakim shari'i). As for the confiscation by the company of all installments paid in the event of the buyer's non-payment or desire to cancel the contract, this is excessive (unjustifiable uncertainty/risk) and unlawful consumption of wealth, making it impermissible to enter into a contract containing such a condition.
Summary from Ftawy's records · added here
Reviewed by El Fatwa's sharia committee.
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- Ftawy
- Original fatwa ID
- 16495
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- Text
- Summary from Ftawy's records, reviewed by El Fatwa's sharia committee.
- Read the full ruling
- Read the full answer on Ftawy