- The Ijara contract terminates naturally once the lease period is over. It can also be terminated for various other reasons. The Ijara contract terminates if the asset is destroyed without the fault of either the lessor or the lessee. The lease contract automatically terminates, and the lessee does not need to pay any further rentals if the leased asset loses its functionality and cannot be repaired, due to no fault of the lessee.
Termination of Ijara Contract - In case the loss of functionality is due to misuse or negligence of the lessee, compensation needs to be made to the lessor for the loss of the value of the asset and its rentals. However, if the leased asset is damaged but can be repaired, the Ijara contract will remain valid. The Ijara contract can also be terminated before the end of the term of the lease with the mutual consent of both parties. The two parties may mutually agree to terminate the Ijara contract before it begins to operate.
3. The features of Ijara Contract. - Unlike the sales contract, the bank does not lose ownership of the property when it is transferred to the client during the implementation of the Ijara contract.
- Accordingly, the bank takes ownership risks.
- The Ijara Contract must be for a fixed term.
- Renting can be done in combination with mudaraba and musharaka.
- In this case, the customer who is a partner of the bank can simultaneously become a tenant of the property within the partnership and buy it from the bank at the end of the lease term.
- In a traditional lease, the cost of depreciation, insurance, and taxes is borne by the lessee.
- A lease agreement differs from a simple lease in these respects, because the lessor bears the specified costs when concluding this agreement.
- But in Islamic banking, there are mechanisms that can charge such costs to the lessee.
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