I gave 50 percent of the land in exchange for development, however we want to split, is this method correct?

Question:

An investor had initially purchased a nearly 12 acre parcel of land a few years back with the intention that it may be developed into a residential subdivision.

Once the land was purchased, 50% of the land was transferred into the ownership of a corporation (LLC). And there became two members in the corporation, the investor and another individual (the developer). The investor and developer each have 50% share in the corporation. This agreement with the developer was made based on the developer’s services in the business venture, not because he paid any money for ownership.

Therefore, investor has 75% ownership of the total land and developer has 25% ownership rights to the total land. On this land also sits a telecommunication antennae which has leased property on this land. The antennae company is paying $13000 per annum and there remains a 10 year lease left in this agreement. A verbal agreement was also made that investor and developer share 50% of income from this antennae lease.

At this time, cooperation between investor and developer has gone awry, and investor wishes to pull out of this venture.

A business agreement has been made where investor will sell his entire share of ownership of the land, which is 75% (except one part of it, which is a lot of approximately 12000 square foot which investor will keep and does not want to sell) to the developer. This share of the land, minus one lot will be sold to the developer for certain agreed upon dollar, which also happens to be the initial investment amount. For example, if investor put in $1 million to initially buy the land a few years back, now he is selling his share of the land (minus one lot) to developer for $1 million.

Also, the investor will sell to the developer his share of ownership rights to the income generating antennae with the 10 year lease remaining on the contract for a mutually agreed upon amount of $30,000.

Therefore, the final total amount of what developer will pay for the land and antennae rights is $1 million plus $30,000.

Per mutual agreement, this exact amount will be paid to investor over one year’s time in scheduled payments. And only the agreed selling price will be paid, not one penny more or one penny less over one year.

My question, dear Mufti Sahib, is this business agreement and the land sale transaction outlined above permissible according to Shariah?

Jazakumullah khairan.

 

Answer:

 

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

 

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

The initial partnership formed was not Sharī’ah compliant.  The transfer of ownership did not occur thus you are still the sole owner of this land.  Therefore you may sell the land excluding the 12,000 square feet at a mutually agreed price between yourself and the developer.

 

In addition, it is not permissible to sell rights.  You may add $30,000 to the sale price of the land to cover the income you would have received from selling the rights independently.  Hence, there will only be one price in the entire contract.

 

 

And Allah Ta’āla Knows Best

Mawlana Faraz ibn Adam,
Student Darul Iftaa

Leicester, United Kingdom

Checked and Approved by,
Mufti Ebrahim Desai.
www.daruliftaa.net

 

 


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