Is an Interest-Free Security Deposit Lease Without Monthly Rent Permissible in Hanafi Fiqh?

Walekumussalam warahmatullahi wabaraktuh,

If the situation is exactly as described in the question, then according to Hanafi fiqh, this lease arrangement is not permissible (impermissible in Shariah).

The reason is that if the tenant pays a large amount to the landlord as a deposit, advance, or security, the landlord has full possession and use of that money, the tenant lives in the house throughout the lease period without paying any monthly rent, and at the end of the lease the landlord returns the same amount, then from the perspective of Islamic law, this amount is regarded as a loan (qard). This is because any fungible amount of money that the recipient is allowed to use and later returns its equivalent is considered a loan in Shariah.

In this arrangement, the landlord receives a loan from the tenant, while the tenant receives the benefit of living in the house rent-free in return for that loan. In Islamic law, a loan (qard) is a charitable contract (ʿaqd al-tabarruʿ) and must not be a means of obtaining a stipulated benefit for either party.

Allah Almighty says:

«﴿وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا﴾»

«"Allah has permitted trade and forbidden usury (riba)."»

«(Surah al-Baqarah: 275)»

Allah Almighty also says:

«﴿يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِنْ كُنْتُمْ مُؤْمِنِينَ﴾»

«"O believers! Fear Allah and give up whatever remains of riba, if you are truly believers."»

«(Surah al-Baqarah: 278)»

The jurists have established the following legal maxim:

««كل قرض جر منفعة فهو ربا»»

Meaning:

«"Every loan that brings a stipulated benefit to the lender is a form of riba."»

Although these exact words are not established as an authentic marfūʿ Hadith, the meaning has been accepted by the jurists of the Ummah as a well-established legal principle. Based upon this principle, any stipulated benefit arising from a loan is considered impermissible.

Therefore, Hanafi jurists have clearly stated that it is not permissible for a loan to be made a means of obtaining any conditional benefit, whether that benefit is in cash or in the form of usufruct (manfaʿah).

Accordingly, in the case mentioned in the question, the tenant's rent-free occupation of the house is in reality a benefit received in exchange for the loan given to the landlord. Hence, this arrangement is not permissible according to Shariah.

However, if the amount is kept only as a genuine security deposit, the landlord is not allowed to use or benefit from that money, and the tenant separately pays an agreed monthly rent, then such an arrangement is permissible. In that case, the deposit serves merely as security and not as consideration for the tenancy.

References:

- Surah al-Baqarah: 275, 278.

- Al-Hidayah, Kitab al-Ijarat.

- Bada'i al-Sana'i, Kitab al-Ijarat.

- Radd al-Muhtar 'ala al-Durr al-Mukhtar, Kitab al-Ijarat.

- Al-Mabsut by al-Sarakhsi, Kitab al-Ijarat.

- Al-Ashbah wa al-Naza'ir, Legal Maxim: كل قرض جر منفعة فهو ربا.