Analysis of the Jurisprudential Foundations and Legal Frameworks Governing Lease-to-Own Contracts in Iran

Abstract

Lease-to-own contracts, as one of the modern financial instruments within Iran’s Islamic banking system, occupy a significant position in the financing of housing and capital equipment. This study was conducted with the aim of analyzing the jurisprudential foundations and examining the legal frameworks governing such contracts within the Iranian legal system. The research adopts a descriptive-analytical approach and was carried out through library-based research and the examination of legal documents. The findings indicate that lease-to-own arrangements are founded upon a lease contract accompanied by a contractual stipulation, and their validity within the Iranian legal system is based on Article 10 of the Iranian Civil Code and the Law for Usury-Free Banking Operations enacted in 1983. From a jurisprudential perspective, several challenges arise, including the combination of two contracts within a single agreement, the legal nature of the ownership-transfer condition, and its compatibility with the principle that “contracts are governed by the intentions of the parties” (al-‘uqūd tābi‘ah lil-quṣūd). Furthermore, the Executive By-Law adopted by the Money and Credit Council in 1983, together with the regulations of the Central Bank, establishes the operational framework for these contracts. The results of the study demonstrate that despite existing jurisprudential ambiguities, both judicial practice and the Iranian banking system have accepted lease-to-own contracts as legitimate and valid legal structures. Nevertheless, legislative reforms appear necessary to eliminate the remaining ambiguities.