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Fatwa CenterBuying a house on 'Sale to lease' agreement
Question
A co-operative in Australia is offering financing for house purchases by doing the following:
The idea is called 'sale to lease' (S2L), when the property is found, a contract is drawn between the seller and the buyer to purchase the property under the buyer's name. The co-operative pays the seller the amount agreed upon between the buyer and the seller. "What happens then is that there is the sale of beneficiary interest (rights) to the fonder (co-operative). The repayments to the fonder by the buyer is the payment of lease and not interest." These are the co-operative's own words.
Of course the payments go over a certain period of time where at the end the property is paid off.
Please visit www.mcca.com.au for more information. We hope it is clear enough for you to be able to make a judgment. We hope to hear from you soon.
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.
What we understand from your question is that this organization lends the buyer the cost of the house and then he repays the amount by installments with an interest. So if this is the case, then this is forbidden, because it is Ribaa (interest and usury) which Allaah and His Prophet 
have forbidden. This is something which is absolutely known in religion with evidences and no one can deny it. There are many evidences about this, but will not be discussed here. Some of these evidences are mentioned in Fataawa: 81346 and 82049.
Saying "sale to lease" and "repayment of lease" could be understood that the transaction is rent which ends up with owning the property. This is also forbidden as it is two contracts on one particular thing. This is not permissible in Islaamic jurisprudence. This is previously discussed in Fatwa: 81863.
For this transaction to be correct and permissible, it could be as follows: The buyer should ask the organization to buy the house on the agreement that he will buy it from them with a specific benefit. So when they buy the house and it becomes under their possession and under their guarantee, then they sells it again to the buyer. This kind of transaction is discussed in details in Fatwa: 87956.
Allaah knows best.
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