In the Name of Allāh,
the Entirely Merciful, the Especially Merciful
Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.
Resolution No. 31 (6/4)
Key Money (Badal Khuluw)
The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 4th session in Jeddah, Kingdom of Saudi Arabia, on 18–23 Jumādā al-Akhira 1408h (6–11 February 1988),
Having examined the research papers submitted to the Academy concerning
Key Money (Badal Khuluw),
The key money agreement can be obtained in four different methods:
- The agreement between the owner of the real estate and the lessee at the inception of the contract.
- The agreement between the owner of the real estate and the lessee during the lease period or at the end of it.
- The agreement between the original lessee of the real estate and the new lessee during the lease period or at the end of it.
- The agreement between the new lessee and both the owner and the first lessee, concluded before or after the expiration of the lease
- If the owner and the lessee agree that the latter, in addition to the peri- odic rental, shall pay a lump sum (referred to in some countries as key money), there is no objection in Shariah to such an operation, provided that it is part of the rental for the lease period agreed upon. In the event the contract is terminated, the paid lumpsum shall be treated according to the rules applicable to rent.
- If, during the lease period, the owner and the lessee agree that the owner shall pay a given amount to the lessee, against the acceptance by the latter to move from the premises for the remaining period of the lease This form of key money is permitted by Shariah because it compensates the lessee for waiving his occupancy rights.
However, if the lease expires and the contract is not renewed, either ex- plicitly or implicitly, by virtue of an automatic renewal clause, key money is not allowed, for the simple reason that the owner is entitled more than anyone else recover his property once the lease contract expires.
- If, during the lease period, the first lessee and the new lessee agree that the former shall evacuate the premises for the remaining period of his lease contract, against payment of an amount above the periodic rental, key money is permitted by Shariah, provided the terms of the contract concluded between the owner and the first lessee are strictly observed and the laws in force are fully compliant with Shariah.
With respect to long-term leases, unlike short term rental contracts, which are concluded under some laws, the lessee is not permissible to rent the premise to another lessee, nor accept key money, unless author- ized by the owner.
However, if the agreement between the first and the new lessee after the ex- piration of the lease period, key money is not allowed, because the first lessee’s right to use the premises has expired.
Indeed, Allāh is All-Knowing.