Ruling on Charging 'Pagri' When Renting Out Shops

This article is based on the "Fatawa of the Saudi Fatwa Committee" and explanations from Islamic scholars.

Question:​

What is the ruling on charging pagri (a lump sum payment or key money) when renting out shops or spaces?

Answer:​

The ruling on this matter depends on the specific circumstances and timing of the transaction:

1. During the Rental Period:​

• Permissible Actions:
  
  • If a person rents a shop for a specified period, they are permitted to:
    • Use the shop for their own benefit.
    • Sublet the shop to another party, provided the subtenant's usage is similar or less intensive than the original tenant’s usage.
• Prohibited Actions:
  
  • If the tenant's rental period has not expired, they may not demand additional compensation (referred to as pagri or "eviction payment") for vacating the premises unless it is agreed upon with the owner or stipulated in the contract.
  • Forcing the owner or a new tenant to pay pagri as a condition for vacating the property is impermissible, as it constitutes coercion and an unjustified claim to something that is not their right.

2. After the Rental Period Ends:​

• Obligation to Vacate:
  
  • Once the rental period ends, the tenant must vacate the shop unless the owner grants permission to extend the stay.
  • The tenant has no right to remain in the shop or demand any compensation (pagri) for leaving the premises.
• Prohibited Actions:
  
  • Withholding the shop after the rental period to demand an eviction payment or transfer fee (pagri) is prohibited.
  • Such demands are considered exploitation and a violation of Islamic principles of fairness and justice.

General Guidelines:​

• A tenant may benefit from the shop during the rental period but has no ownership or control over the shop beyond the agreed-upon rental terms.
• If there is an agreement between the owner and tenant for a pagri payment as part of the rental terms, it must be clearly documented to avoid disputes.

Islamic Principles in Renting and Leasing:​

1. Honoring Contracts:
   
   • Allah (SWT) commands:
     "O you who have believed, fulfill [all] contracts."
     [Surah Al-Ma'idah: 1]
2. Prohibition of Injustice:
   
   • The Prophet Muhammad (ﷺ) said:
     "There should be neither harm nor reciprocating harm."
     [Sunan Ibn Majah, Hadith No. 2341]
3. Cooperation in Goodness:
   
   • Both the tenant and the landlord must act fairly and in good faith, avoiding any actions that exploit or harm the other party.

Conclusion:​

• Permissible: Charging pagri during the rental period as part of a mutually agreed and documented arrangement.
• Prohibited:
  • Demanding pagri as a condition for vacating the premises after the rental period ends.
  • Forcing the landlord or another party to pay compensation for vacating the property.