Title

Is Lay- Bye permissible and can the seller charge the client a holding fee?

Question

Is layby permissible? Some people book and pay in advance but later on come and claim their money that they can’t continue because of some financial problems. The seller could have sold that to someone else but for him he kept? Now the seller has to return his money. Can he change his some fee for storing his commodity although he was in the process of buying and was not the real owner? Any other suggestion to overcome this?

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Definition

Layaway or Lay By is defined as “Layaway (lay-by in Australia, New Zealand and South Africa) is a way to purchase an item without paying the entire cost at once. However, rather than taking the item home and then repaying the debt on a regular schedule, as in most installment plans or hire purchases, the layaway customer does not receive the item until it is completely paid for. There is sometimes a fee associated, since the seller must "lay" the item "away" in storage until the payments are completed. If the transaction is not completed, the item is returned to stock and the customer's money is returned minus a fee.”[1]

According to South African Law, CPA section 62 of 2008, the contractual agreement in a lay- by takes place at the time of complete payment.

Juridical Ruling

According to the laws and principles of Islamic Finance and Economics, a lay - by is not a concluded transaction/sale. The seller agrees to sell the item and the purchaser agrees to purchase the item. The item of sale remains the property of the seller until the transaction is effectuated.

The installments/payments made by the purchaser are regarded as an “Amanat”. The seller cannot use such monies until the prospective deal is concluded.

The transaction will only take place once the purchaser completes payment of the item of sale. This is also in compliance with South Africa Law as espoused in the above.

If the item of sale is lost, it will be the sole loss of the seller and if the money is lost, then it will be the sole loss of the purchaser.

Non-Payment and Penalty Fee’s

A common question that arises is “What if the purchaser does not pay the full amount to the seller?”

The monies received by the seller are considered as “Amanat”. Therefore, the seller would have to return the ‘Amanat” to the purchaser. If the purchaser cannot be reached for some reason and there is no way of contacting him, then the money should be dispensed as Sadaqah (charity).

South African law stipulates that the seller has the right to charge a 10% penalty fee if the purchaser does not make complete payments.

This is not Shari’ah Compliant since the seller would have an unfair advantage over the purchaser by charging him a penalty fee.

Promissory Agreement

Many businessmen who offer lay bye facilities are often faced with the challenge of having to keep lay bye commodities and items for long periods without eventual purchase. The seller could have sold the item and made a profit a long time before the lay bye client purchases the item. The seller also incurs the cost of holding such items.

A common question is “Can the seller charge the purchaser a holding/deposit fee?”

The commodity of sale in a lay bye contract is not considered to be the property or ownership of the purchaser. Rather, the commodity belongs to the prospective seller. Therefore, the seller cannot charge a holding/deposit fee.

However, both the seller and purchaser may enter into a non- legally binding promissory agreement with each other as a Shar’ee alternative. The promissory agreement is an individual contract separate from the main lay bye contract stating that the purchaser agrees to purchase a specific commodity on a specific date in the future.

It is important to note that this promissory agreement is non-legally binding. However, the purchaser is morally obliged to fulfill his promise to purchase.

And Allah Ta’āla Knows Best                                       

Ismail Desai,
Student Darul Iftaa
Durban, South Africa

Checked and Approved by,
Mufti Ebrahim Desai.