Contracts of Sale and Lease PDF

Contracts of Sale and Lease Prepared by Dr. Ahmed Eldakak Assistant Professor at Alexandria University Faculty of Law, Egypt Visiting Professor at Sultan Qaboos University Faculty of Law, Oman ...

Contracts of Sale and Lease Prepared by Dr. Ahmed Eldakak Assistant Professor at Alexandria University Faculty of Law, Egypt Visiting Professor at Sultan Qaboos University Faculty of Law, Oman  Introduction People may think that a contract must be written. This is incorrect because a contract is just an agreement whether it is written or not. People may think that we must sell or buy expensive things to have contracts. This is incorrect because whether a buyer is buying a house or a pen, he is making a contract. There are many definitions for the contract. Some are: ⁻ An agreement between two or more parties with the intention of creating, modifying or revoking a legal relationship. ⁻ An agreement by which one or more person bind himself/themselves in favor of another person(s) to give, to do, or not to do something. ⁻ A legally binding agreement. ⁻ A coincidence of an offer with an acceptance in order to create legal effects. ⁻ An affiliation (intertwining) of an offer with an acceptance and their agreement in a way that proves its effect on the subject of contract. (article 66 from the Omani Civil Code). 2  ?Why contract law is important Contract law makes promises binding. Therefore, A can rely on B’s promise because A knows that the law protects him and will force B to perform his promise. Suppose that Nader wants to have a vacation in France in June. In February, he goes to a traveling agency to help him plan his trip. The agency asked him to pay OMR 1000 to book flights and hotel room, although he will travel four months later. Nader will likely agree to pay that amount of money to the traveling agency – not because he trust the agency but because he believes in the protection that contract law offers him. In absence of contract law, it is unlikely that Nader would agree to pay that amount of money in return for the agency’s promise to make the travel arrangements on time. Contract law is also a tool for economic development because it encourages making infrastructure projects. For example, suppose that the governments of Bahrain and Qatar promises a construction company to pay 10 million dollars if it builds a bridge between the two countries. The construction company will likely like to enter into that contract because it can be profitable for it. However, the construction company will not enter into that contract in absence of contract law. The company will fear that the governments may change their mind before the bridge is completed and refuse to pay the agreed price. 3  How does contract law enforce ?promises Law offers two types of penalties for the party who breaches his obligation under a contract: First – specific performance: this means that the state forces the party to perform his obligation under the contract. For example, in an employment contract, if the employer refused to pay his employee the salary, the state will forfeit the salary from the employer’s patrimony (funds) and delivers it to the employee. Second – performance by equivalence: this means that the party who does not perform his obligation under the contract pays a compensation. For example, in an employment contract, if the employee did not do the work agreed upon in the contract and the employer suffered a financial loss, the employee shall pay compensation. 4 ?What are the sources of Contract law The source of contract law differs according to the legal system of the country. In countries that adopt the common law system such as the United States and England, the main source of contract law is the case law. Judges apply rules that are previously created by courts. It should be noted though that legislation may play a secondary role as a source of contract law in these countries. In countries that belong to the Civil Law System such as Oman and Egypt, the main source of contract law is the legislation. In Oman, the legislation regulating contract law is the Civil Code enacted by law no. 29 of 2013. 5  Is writing a requirement to conclude a ?contract Article 69 of Oman Civil Code states that “the contract shall be concluded once an offer and an acceptance are intertwined taking into consideration any additional requirements that the law may prescribe.” This means that as a general rule, writing is not a requirement to conclude a contract. To conclude a contract, the only requirement is that one person makes an offer and another person makes an acceptance. However, the above mentioned article shows that the law may prescribe additional requirements to conclude certain types of contracts. These additional requirements could be writing. For instance, article 470 of Oman Civil Code states that “The contract of the company must be in a written form.” Consequently, as an exception, the contract of the company must be in a written form, otherwise it could be invalidated. 6  The Three Pillars of the Contract A contract must have three pillars to exist. These are: 1. Mutual assent 2. Subject-matter 3. Cause We will review the first pillar according to the general rules before studying the contracts of sale and lease. 7  The Mutual Assent The two parties must have the intention to enter into a contract. (69)Each party must declare his will to enter into a contract. Therefore, one party must make an offer and the other party must make a mirror-image acceptance. (70)There are four methods to declare a person’s will to offer or to accept. These are: (1) words, (2) writing, (3) customary signs, and (4) behaviors that leaves no doubt about the real intention of the person. Moreover, silence is used to declare acceptance in exceptional cases as shown below. 8  The offer It is the declaration of the will of the offeror that includes a final proposal indicating the substantial conditions upon which the offeror agrees to enter into a contract. If the proposal does not indicate the substantial conditions, it is not considered an offer. It is called an invitation to treat, which means an invitation to negotiate. The negotiation may or may not lead to the conclusion of a contract. The offeror can direct his offer to just one person, to a certain group or to the public. For example, exhibiting of goods with prices at stores are considered an offer directed to the public. The exhibiting of goods or services with their prices shall be considered an offer. Publication, advertisement, statement of dealing prices and any other statement directed to the public shall NOT be considered an offer, but an invitation to treat unless there is a clear evidence that it was intended to be an offer. (73) 9  The offer (Cont’d.) The offer does not last forever. It is terminated upon the occurrence of certain events. However, a distinction must be made between an offer that is accompanied by a delay and an offer that is not accompanied by a delay. An offer that is not accompanied by a delay period is terminated if: (1) the offeror revokes/withdraw it (2) the offeree rejects the offer (3) the council of the contract is ended. An offer accompanied by a delay is terminated if: (77) (1) the delay ends (2) the offeree rejects the offer. Importantly, the offeror may not revoke his offer in that case. 10  Acceptance It is a declaration of the will of the offeree that indicates his approval of the offeror’s offer. The acceptance must be a mirror image of the offer. If it includes any variation to the terms of the offer, it is not considered an acceptance. It is considered a rejection and a counter offer. (78) As a general rule, if an offeree does not answer an offer and remains silent, he is assumed to have rejected the offer. However, silence is considered an acceptance in exceptional cases such as when there is a continuing dealing between the two parties or when the offer results in a benefit to the offeree. (74/2) No words shall be attributed to a silent person. However, the silence of the offeree may be considered an acceptance if it is accompanied with an indication of acceptance. (74/1) 11  The validity of mutual assent When an agreement between the offeror and the offeree is reached as explained above, a contract is considered concluded. However, it may be voidable because that agreement may be invalid. For an agreement to be valid: (1) the contracting parties must have the necessary legal capacity to enter into a contract, and (2) the declaration of wills (offer & acceptance) are free from the vices (defects) of consent: mistake, duress, fraud and exploitation. 12  The Contract of Sale Definition – characteristics – distinction – particularity of mutual assent – particularity of subject matter – Special forms of sale contract -obligations of the seller – obligations of the buyer 13  Definition and characteristics of the contract of sale Definition: the contract of sale is an agreement to transfer the ownership of a property or a monetary right in return for money. (355)(‫)اﻟﺒﯿﻊ ﻋﻘﺪ ﺗﻤﻠﯿﻚ ﻣﺎل أو ﺣﻖ ﻣﺎﻟﻲ ﻣﻘﺎﺑﻞ ﺛﻤﻦ ﻧﻘﺪي‬ Notes on the definition: - Sale must include a transfer of ownership. - The object of sale could be a property(‫ )ﻣﺎل‬or a monetary right(‫)ﺣﻖ ﻣﺎﻟﻲ‬. - The consideration must be money. Characteristics: 1. Consensual contract(‫)ﻋﻘﺪ رﺿﺎﺋﻲ‬: it is concluded upon the meeting of the minds. Writing is not required. 2. Bilateral contract(‫)ﻋﻘﺪ ﻣﻠﺰم ﻟﻠﺠﺎﻧﺒﯿﻦ‬: both parties are bound to fulfil an obligation towards each other. 3. Commutative contract(‫)ﻋﻘﺪ ﻣﻌﺎوﺿﺔ‬: each party receives an equivalent for performing his obligation. 14  Distinguishing sale from other contracts A contract of sale must be distinguished from other contracts, which are normally quite different from the contract of sale, but, which in some circumstances may resemble it. These contracts are: 1. A contract of barter 2. A contract of gift 3. A contract of lease 15  Sale versus Barter (1) sale is an agreement to transfer the ownership of a property or a monetary right in return for money. Barter(‫ )ﻣﻘﺎﯾﻀﺔ‬can be defined as the exchange of a property or a monetary right for a consideration other than money. Similarity: transfer of ownership. The criterion of distinction is the nature of the buyer’s consideration: - In sale: the consideration must be money - In barter: the consideration can be anything other than money. 16  Sale in contrast to Barter (Cont’d.) (1) Distinction between sale and barter could be difficult in some cases when the buyer’s consideration includes both money and an exchange of goods. Ex: suppose that Mohamed bought Ahmed’s new car in return for his own old car and OMR 2000. The judge must deduce the intention of the parties of the contract. The judge can use tests like determining whether the substantial part of the buyer’s consideration is the money or the exchange: - If it is the money, then it is a sale contract. - If it is the exchange, then it is a barter contract. 17  Sale V. Gift (2) Sale is an agreement to transfer the ownership of a property or a monetary right in return for money. Gift is the transfer of ownership of a right to another person during the lifetime of the owner without consideration. Similarity: transfer of ownership The criterion of distinction is the existence of consideration: - In sale: there must be a consideration in the form of money. - In Gift: there is no consideration whatsoever. 18  Sale V. Gift (Cont’d.) (2) Distinction between sale and gift could be difficult in some cases. Ex: suppose that a donor donates something to another person under the condition that the donee perform a certain obligation, which qualifies as a consideration. The judge must deduce the intention of the parties of the contract. The judge can use tests like determining whether the consideration is substantial or trifle: - If the consideration is substantial, then it is sale or barter depending on its nature. - If the consideration is trifle, then it is a gift. 19  Sale v. Lease (3) Sale is an agreement to transfer the ownership of a property or a monetary right in return for money. Lease is an agreement according to which the lessor enables the lessee to usufruct the leased thing for a specific period of time in return for a consideration. Similarity: there must be a consideration in both contracts. Criteria of distinction: 1. The subject matter of the contract: - In sale: transfer of ownership - In lease: the usufruct 2. The nature of consideration: - In sale: money - In lease: money or anything else 20  Sale v. Lease (Cont’d.) (3) Distinction between sale and lease could be difficult in some cases such as in hire-purchase contracts. Hire-purchase meaning: the buyer pays for a good in installments and use it, but the seller keeps the ownership of the good until the last installment is paid. (378/1 of OCL) It resembles lease because the seller keeps the ownership of the property and transfer of ownership may not happen. It resembles sale because if the buyer fulfil his obligation to pay the installments on time, the ownership of the property shall be transferred. Most comparative legislation consider it sale because it is usually concluded with the intention of the transfer the ownership of the property. (378/2 of OCL) 21  The Pillars of the contract of sale Like any contract, there are three pillars for the contract of sale. These are: 1. Mutual assent 2. Subject-matter 3. Cause Absence of any of the above pillars will render the contract null and void. We will study the first two pillars only because there are no special rules regarding the third pillar in the contract of sale. 22  The First Pillar: The mutual assent We will study this pillar on three steps: 1. The mutual assent must exist. 2. The mutual assent must be valid. 3. There must be a sufficient knowledge of the sold property. 23  The mutual assent must exist (1) The parties must agree on the primary terms of the sale through exchanging identical offer and acceptance. Writing is not a requirement. Both the seller and buyer can declare their will in the form of words, writing, customary sign, or a behavior that leaves no doubt about the intention. silence cannot be considered an acceptance. However, it could be considered acceptance in some exceptional cases such as the case of continuing dealing between the seller and the buyer. ++++ 24  The mutual assent must be valid (2) the parties must have sufficient legal capacity to enter into a contract of sale. The necessary capacity is achieved when the person reaches the age of majority, which is 18 years old. the declaration of will must be free from vices of consent, which are mistake, duress, fraud and exploitation. Particularly, to avoid the mistake in contract, the buyer must have sufficient knowledge of the sold property. 25  The sufficient knowledge of the sold (3) property If the sold property is absent at the time of the contract, its condition and the distinctive qualities must be declared. ( 356) Ex: if the sold property is a house, the buyer must know the area of the house, the number of floors, the number of rooms in each floor, and so on. If the sold property is present at the time of the contract, then a reference to it shall be sufficient to prove that the buyer have sufficient knowledge of the thing sold. ( 356) 26  The sufficient knowledge of the sold (3) property (Cont’d.) The judge may deduce the buyer’s sufficient knowledge in some cases like: - If the contract is written and there is a detailed description of the sold property in it, it would be reasonable to assume that the buyer has sufficient knowledge of the sold property. (357) - If the buyer inspects the sold property, then it is reasonable to assume that the buyer has sufficient knowledge. The method of inspection of the sold property depends on its nature. Inspection could be done by vision, taste, hearing, smell or touching. - If the buyer inspects the sold property, he may not apply for the nullification of the contract due to the existence of clear defect 27 because he is assumed to have sufficient knowledge of it.  The sufficient knowledge of the sold (3) property (Cont’d.) If the buyer proves that he does not have sufficient knowledge of the sold property, the contract shall be voidable. If the contract provides that the buyer has sufficient knowledge of the sold property, he cannot make this argument unless he proves that he was subject to a fraud by the seller. (357) Sometimes sufficient knowledge will not be realized without testing or tasting the sold property: 1. Sale subject to testing 2. Sale subject to tasting 28  Sale Subject to testing and tasting Importance of sale subject to testing and tasting: it enables the buyer to have sufficient knowledge of the sold property before concluding the contract. Examples of using sale subject to testing: sale of used cars and electronics. Examples of using sale subject to tasting: sale of food and drinks. 29  Provisions of Sale Subject to Testing The parties of the contract should determine the testing period clearly. (360/ 1) If the testing period is not determined in the contract, it shall be deemed to be the customary period. (360/1) The seller is bound to enable the buyer to perform the test. (360/ 2) The buyer may approve or reject the sale during the testing period even though he has not performed the test. (361/ 1) If the buyer wants to reject the sale, he must notify the seller within the period of testing. (361/ 1) 30 Provisions of Sale Subject to Testing (Cont’d.) If the period of testing is expired, the buyer was able to test the sold property, and the buyer does not declare whether he approves or rejects the sale, he is assumed to approve the sale even if he did not really perform the test as long as the thing is in the buyer’s possession. (361/2) If the sold property is demolished while in possession of the buyer during the testing period, he must pay the stipulated price to the seller. (362) If the sold property is demolished while in possession of the seller before delivering it to the buyer and for a reason not related to the buyer, it shall be the responsibility of the seller. (362) The sale subject to testing is binding from the date of sale not the date of approval. (363) 31 Provisions of Sale Subject to Testing (Cont’d.) If the buyer has the necessary legal capacity at the time of the contract then suffered a lack of legal capacity during the period of testing, the approval or rejection must be made by his custodian, guardian or curator. (364) If the buyer dies during the testing period before exercising his option to approve or reject the sale, we must distinguish between two cases: (365) ⁻ If the buyer has a creditor whose debt overcome the sold property, the option to approve or reject is transferred to the creditor. ⁻ If the buyer has no creditor, the option to approve or reject the sale is transferred to heirs. In that case, a problem can happen if some heirs wants to approve the sale, while others wants to reject it. In that case, the sale is rejected. The buyer shall not use the property sold during the testing period except to the extent customarily required for testing. Otherwise, the sale shall be binding. (366) 32  Sale subject to tasting It is the sale in which the buyer taste a sample of a good before giving his consent to the sale in order to enable him to decide whether the good is customarily ( appropriate, suitable) for him or whether certain properties are available such the percentage of salt in cheese. According to the civil code, the provisions of the sale subject to testing apply to the sale subject to tasting.(367) 33  The Second Pillar: The Subject-Matter The subject matter of a contract is the sum of the obligations resulting from the contract. Therefore, the subject matter of the contract of sale is two things: ₋ The good (the sold property): this is the object of the seller’s obligation ₋ The price (the money): this is the object of the buyer’s obligation. 34  The good (A) The good must satisfy the conditions of the subject matter of the obligation in the general rules. Therefore, the following conditions must be satisfied: 1. it must be an existing good or a future good that can exist. 2. it must be an identified good or a good that can be identified. 3. It must be legitimate. 4. It must be owned by the seller. 35  The first condition: An existing good or a future good The subject matter of the contract of sale can be: 1. An existing good: such as an existing house 2. A future good: such as a house under construction However, dealing in the estate of a living person is void. Therefore, a son cannot sell a property he will receive after his father’s death by inheritance. 36  The Second Condition: An identified good or a good that can be identified We must differentiate between two types of goods: 1. Non-fungible goods: ‫ﻗﯿﻤﻲ‬ - These are not interchangeable things - Example: a piece of land - It will be identified by determining its location and area 2. Fungible goods: ‫ﻣﺜﻠﻲ‬ ₋ These are interchangeable things ₋ Example: rice ₋ It will be identified by grade and weight (and quality). 37  The Second Condition (Cont’d.) The Sale by Sample or Modal Importance of sale by sample: sometimes it is not possible to make a perfect description for the quality of a good (Ex: a toy made of plastic). In such case, the subject matter of the contract shall be unidentified, and the contract shall be void. A solution for this problem could be the existence of a sample, which can be inspected by the buyer. The meaning of sale by sample: Before concluding the contract, the seller provides the buyer with a sample of the good. If the buyer likes the quality of the sample and accepts to make a contract, the sold goods must be identical to the sample. (358/1) 38  The Second Condition The Sale by Sample or Modal (Cont’d.) The buyer must have a reasonable opportunity to compare the sold goods with the sample. If the goods are delivered to the buyer before he approves its identicalness, he is NOT assumed to have accepted them for a reasonable period so that he can test its identicalness. 39  The Second Condition The Sale by Sample or Modal (Cont’d.) If the sold goods are not identical to the sample, the buyer has the option to approve or disapprove the goods: (358/2) ⁻ If the buyer approves the non-identical goods: the seller is assumed to have fulfilled his obligation. ⁻ If the buyer disapproves the non-identical goods: the seller is assumed to have breached his obligation. The buyer can: 1. Obtain identical goods to the sample in the same amount from another merchant after obtaining a permission from the court, or without a court’s permission in case of necessity. 2. Request the cancellation of the sale on the basis of the failure of the seller to meet his obligation. 3. Ask for compensation. 40  The Second Condition The Sale by Sample or Modal (Cont’d.) If there is a disagreement between the two parties as to whether the sold goods are identical to the sample, a decision has to be made by an expert. (359) If it becomes impossible to determine whether the sold goods are identical to the sample because the sample is perished, we shall differentiate between two cases: (359) ▪ The sample is perished while in possession of the seller, the buyer’s determination prevails unless the seller can prove otherwise. ▪ The sample is perished while in possession of the buyer, the seller’s determination prevails unless the buyer can prove otherwise. This type of sale is applicable to fungible things only. 41  The Second Condition Lump Sale Definition: it is a sale in which a definite group of fungibles is priced and sold as a single unit without being weighed, counted or measured.(375) Examples: - a seller is selling all goods in his store for OMR 1000. - a seller is selling all the amount of sugar in his store where more goods are available for sale for OMR 100. - A seller is selling all sugar in his store for OMR 1 per kilogram. Only fungibles can be the subject matter of lump sale.  The Second Condition Lump Sale (Cont’d.) Such sale is valid because although the subject matter is not identified at the time of the contract, it can be identified at a later time. It can be identified because the location of the goods is usually determined in the contract.  The Third Condition The good must be legitimate The good shall be legitimate if it is inside the scope of dealing. According to the general rules, all goods are inside the scope of dealing except: ₋ Things outside the scope of dealing by its nature: These are things that no one can claim that it is his property Ex: sunrays, sea water, air … ₋ Things outside the scope of dealing by rule of law or Shari’ah: These are things that their ownership can be claimed but it is prohibited by a rule of law or by Islamic Shari’ah. Ex: drugs, wine, poker machine …  The Fourth Condition The good must be owned by the seller It is rational that one cannot sell something that he does not own because he will not be able to perform his obligation to transfer the ownership. Difference between sale of future things and sale by a non owner: ₋ Sale of future things: it is a sale of a thing that does not exist. The seller is not the seller at the moment of contracting but no one else is. ₋ Sale by a non owner: it is a sale of a specified thing per se owned by a person other than the seller.  The Fourth Condition Sale by a non owner If a person sells a property owned by another person, the sale is suspended and does not bind the real owner because he is a third party in respect of the contract. However, the sale becomes valid and effective in two cases: 1. If the real owner ratifies it. 2. If the ownership of the sold property is transferred to the seller.  Sale by a non owner (1) Ratification by the real owner The ratification by the real owner could be explicit or implicit: (129 ) ₋ Example of explicit ratification: a clear statement of consent. ₋ Example of implicit ratification: performing a behavior that leaves no doubt about his consent. The ratification can also be deduced from silence if it denotes consent by custom. (129) The effect of the ratification is that the contract is considered valid and effective from the date of its conclusion. (131) If the real owner refuses to ratify the sale, the contract becomes void. (131)  Sale by a non owner (2) The ownership is transferred to the seller If the ownership of the sold property is transferred from the real owner to the seller, the contract becomes valid and effective. The reason: the contract was suspended because the seller was not the owner but if the ownership is transferred to him, he becomes the real owner, so the contract should be considered valid. The second Pillar: The Subject Matter (B) The Price As previously mentioned, the subject matter of the sale contract is two things: (1) the sold property, and (2) the price. We already studied the sold property, so now we explain the price, and its characteristics and conditions. The price is a money consideration which the buyer is obliged to pay in return for the seller’s obligation to transfer the ownership of the sold property. As a general rule, price is determined according to the agreement between the seller and the buyer. This can be an explicit agreement or an implied agreement. If the two parties do not agree on the price, but there is a continuing dealing between them, the price shall be that they usually used during their past deals. The second Pillar: The Subject Matter (B) The Price (Cont’d.) However, sometimes one party or both parties may not have the power to agree on the price: - If the property is sold in auction, the seller does not play any role in determining the price. - If the government impose a compulsory price for certain goods, both the seller and the buyer cannot determine the price. As a general rule, price is due at the time of contracting. (372) However, it could be postponed or paid in installments according to: - An agreement between the parties of the contract. - Custom (372)  The second Pillar: The Subject Matter (B) The Price (Cont’d.) If the price is postponed or in installments, the term ‫ اﻷﺟﻞ‬shall commence on the date in which the sold property is delivered unless agreed otherwise. (373) Ex: on March 1st, A bought a car from B and agreed that the price shall be paid one month later. B delivered the car to A on March 15th. In this case, the price shall be due on April 15th. If the buyer pays a part of the price, he cannot ask the seller to deliver a corresponding part of the sold property, if that could result in the decrease of the value of the sold property. (374) The price in the contract of sale must meet three conditions: 1. It must be currency money. (355) 2. It must be determined or determinable. 3. It must be serious.  The price must be currency money (1) The price must be a currency money. If A sells his car to B in return for another car, the other car is not considered a price, and the contract is not considered sale. It is a barter. If A sells his car to B in return for gold, this is not considered sale. It is a barter as well. The parties may agree that the buyer pays the price immediately or at a later time. The parties may agree that the buyer pays the full price at once or in installments. The price can be paid by cheque. The price can be paid in the form of annuity for the lifetime of the seller. (2) The price must be determined or determinable If the price is not determined in the contract, the contract shall still be valid if it is determinable. If the price is not determined or determinable, the contract shall be void (because we have great ignorance here). The price is NOT determinable if the parties agree that: - The price is a fair price. - The price is one that is appropriate to the value of the sold property. - The seller or the buyer shall determine the price at a later time. The price is determinable if the parties agree on the grounds of determining the price. There are two applications for the concept of determinable price: 1. Market Price 2. Cost-plus sale, at-cost sale & discount sale  Determinable Price: (1) Market Price If the parties to the sale agree that the price shall be the market price, the price shall not be determined, but it is determinable. ₋ It is not determined because it is unknown at the time of contracting. ₋ It is determinable because the parties agreed upon the grounds of determining it. If the market price changes overtime, the criterion shall be the market price at the time of sale. If there is no market at the place where the two parties make the contract, the criterion of the market price shall be the market that custom determines to estimate prices.  Determinable Price: (2) Cost-plus sale, at-cost sale & discount sale In these forms of sale, the price is determined based on the cost that the seller paid to obtain the property. The cost that the seller paid must be known to the buyer as well as the seller. (370) Cost-Plus Sale (‫ )ﺑﯿﻊ اﻟﻤﺮاﺑﺤﺔ‬: The parties to the sale contract determine the price as the actual price that the seller pays to obtain the property plus a certain sum of money or percentage as profit. At-Cost Sale (‫ )ﺑﯿﻊ اﻟﺘﻮﻟﯿﺔ‬: The parties to the sale contract determine the price as the same price that the seller pays to obtain the property.  Discount Sale (‫ )ﺑﯿﻊ اﻟﻮﺿﯿﻌﺔ‬: The parties to the sale contract determine the price as the actual price that the seller pays to obtain the property minus a certain sum of money or percentage as a loss to the seller.  Determinable Price: (2) Cost-plus sale, at-cost sale & discount sale (Cont’d.) These types of sale are called “honesty sales” because the seller is ethically and professionally required to disclose the actual cost he paid. These types of sale are valid because although the price is not determined at the time of contracting, it is determinable. If the buyer found that the seller overestimated the cost he paid to obtain the property, the price that the buyer shall pay will be determined on the basis of the real cost, not the overestimated cost claimed by the seller. (370/2)  Determinable Price: (2) Cost-plus sale, at-cost sale & discount sale (Cont’d.) The buyer can rescind the sale contract in two cases: 1. If, at the time of concluding the contract, the buyer did not know the cost that the seller paid to obtain the property, he can rescind the contract when he knows it. (370/3) 2. If the seller concealed substantial information about the sold property or the cost he paid. However, in the two cases mentioned above, the buyer cannot rescind the contract if the sold property is demolished, consumed or transferred to the ownership of a third party. (370/3)  The price must be serious (3) This means that the price must be meant to compensate the seller for the transfer of ownership. However, this does not mean that the price must have an equal value to the sold property. The price shall NOT be serious if it is absolutely simulated or trifle. However, it shall be serious if it is undervalued. Therefore, we shall study: 1. Simulated price. 2. Trifle price. 3. Undervalued price.  Simulated price ‫اﻟﺜﻤﻦ اﻟﺼﻮرى‬ Simulation could be absolute or relative. Absolute simulation: ₋ means that although the contract states that the buyer shall pay a certain price, he does not pay anything. ₋ This is usually done to (1) conceal gift contracts, or (2) put the property beyond the reach of creditors. ₋ If the parties do so to conceal a gift contract, the contract shall be considered a gift contract, not a sale one. ₋ If the parties do so to put the property beyond the reach of creditors, the sale is not effective.  Simulated price ‫اﻟﺜﻤﻦ اﻟﺼﻮرى‬ Relative simulation: ₋ It means that there are two prices: a fake declared price and a real concealed price. Although the written contract states that the buyer has to pay the declared price, the real intention of the parties is that the buyer pays the real concealed price. ₋ It does not invalidate the sale. However, the real price is the enforceable one.  Trifle price ‫اﻟﺜﻤﻦ اﻟﺘﺎﻓﮫ‬ It is a price that is too low to consider as a fair consideration for the transfer of the ownership of the sold property. Example: selling a car that is worth around 10,000 OMR for 10 OMR. In this case, the contract is not considered a sale contract. It can be considered as a gift contract because the consideration is trivial. Most likely the owner had the intention to donate.  Undervalued price ‫اﻟﺜﻤﻦ اﻟﺒﺨﺲ‬ It is a serious price that the seller accepts as a consideration for the transfer of ownership but it constitutes a serious loss to the seller. The difference between trifle price and undervalued price: Both are too low prices but trifle price is not intended to be a consideration by the contracting parties, while the undervalued price is an accepted consideration. It usually depends on the intention of the parties to the contract. The existence of undervalued price means that there is an extreme inequity in the contract.  Difference between extreme inequity and slight inequity: ₋ According to the civil code (106/2): Extreme inequity occurs when the price is too low that no expert may suggest as a fair price for the sold property Ex: If a house that is worth 10,000 OMR is sold for 5,000 OMR, there is an extreme inequity because no reasonable expert may assess such house for that price. Slight inequity occurs when the price is lower than the fair price but some experts may suggest that it is a reasonable price. Ex: If a house that is worth 10,000 OMR is sold for 9,500 OMR, there is a slight inequity because a reasonable expert may assess such house for that price. ₋ According to Islamic jurisprudence: Extreme inequity occurs when the price is lower than 4/5 of the fair price.  Undervalued price (Cont’d) It is well-known that law does not invalidate a contract due to the existence of extreme inequity only (107/1). However, the contract can be rescinded on the grounds of extreme inequity if it is caused by a fraud committed by the other party to the contract (107/1).. Therefore, as a general rule, if the price is undervalued, the contract of sale shall still be valid. However, the contract of sale may be rescinded if the sold property is: (107/1). 1. Owned by an interdicted. ‫ﻣﺤﺠﻮر‬ 2. A trust property. ‫وﻗﻒ‬ 3. A public property. The Effects of the Sale Contract The effects of the sale contract are sets of obligations that both the seller and the buyer have to perform. The obligations of the seller: 1. Transfer the ownership of the sold property. 2. Deliver the sold property. 3. Warrant freedom from Encumbrances. ‫ﺿﻤﺎن‬ ‫ﻋﺪم اﻟﺘﻌﺮض‬ 4. Warrant the sold property against hidden defects. The obligations of the buyer: 1. Pay the price and receiving the ownership of the sold property. 2. Bear the expenses of the contract.  Seller’s Obligations: (1) Transfer the ownership of the sold property The timing of the transfer of ownership depends on whether the sold property is a movable or an immovable: If the sold property was a movable (‫)ﻣﻨﻘﻮل‬: ₋ The timing of the transfer of ownership depends on whether the sold property is identified per se or identified by kind: If the sold property is identified per se (‫ ﺑﺎﻟﺬات‬-‫)ﻗﯿﻤﻲ‬, the ownership shall be transferred to the buyer once the contract is concluded even if the sold property was not delivered to the buyer. (375) The same rule applies to lump sale because it is identified per se by the location that includes the sold property. (375) If it is identified by kind (‫ ﺑﺎﻟﻨﻮع‬-‫)ﻣﺜﻠﻲ‬, the ownership shall be transferred to the buyer only after the sold property is sorted out (‫)ﻣﻔﺮز‬. (376) ₋ The parties to the contract or special statutes may determine a different timing for the transfer of ownership.  If the sold property was an immovable (real estate ‫)ﻋﻘﺎر‬: ₋ The ownership of immovable is transferred by registration. ₋ This means that after concluding the contract, it must be registered in the official real estate record in the ministry of housing. ₋ If the contract is not registered, it is still a valid contract because its three pillars exist. However, one of the effects of the contract, which is the transfer of ownership, is postponed until the registration is done. ₋ If the seller refuses to help the buyer to register the contract, the buyer can sue him using one of the following lawsuits: 1. Authenticity of signature lawsuit (‫)دﻋﻮى ﺻﺤﺔ اﻟﺘﻮﻗﯿﻊ‬. 2. Validity and enforceability of the contract of sale lawsuit (‫)دﻋﻮى ﺻﺤﺔ اﻟﺘﻌﺎﻗﺪ أو دﻋﻮى ﺻﺤﺔ وﻧﻔﺎذ اﻟﻌﻘﺪ‬. 1. Authenticity of signature lawsuit The authenticity of signature lawsuit is a formal suit which aims to prove that the signature on the contract is the signature of the seller, and does not affect the origin of the right or transfer the ownership of the sold property. In other words, it does not affect the subject matter of the contract, its validity, enforceability or invalidity in anyway. If the seller’s signature on the sale contract is verified by court, this means nothing but the signature belongs to the seller. When the buyer sue the seller, the court summons the seller to verify whether the signature in the contract belongs to him:  1. Authenticity of signature lawsuit 1. If the seller shows up and admits that it is his signature, the signature is verified. 2. If the seller shows up but denies that it is his signature, the court will use an expert to verify the signature. 3. If the seller does not show up in the court, although he was correctly notified, the court will confirm it is his signature. Once the court verifies the signature of the seller, the buyer can demand the seller to fulfill his duty to transfer the ownership by registration.  2. Validity and enforceability of the contract of sale lawsuit This lawsuit is an alternative way to transfer the ownership without registering the contract in the official real estate record. In this law suit, the buyer asks the court to confirm the validity of the contract of sale and order the seller to perform this obligation to deliver the sold property to the buyer. The court decides whether the contract is valid by verifying the existence and the validity of the pillars of the contract. if the court holds that the contract is valid, the buyer can register the court decision in the official real estate record, so that the ownership is transferred to him. This lawsuit can be brought to the court by the buyer or his heirs against the seller or his heirs.  The seller is obliged to do whatever deems necessary to transfer the ownership of the sold property to the buyer. (377)Therefore: ₋ If the sold property was a movable identified by kind, the seller has to sort out the sold property within a reasonable period. ₋ If the sold property was an immovable, the seller has to help the buyer to register the contract. Otherwise, the buyer can sue him as previously explained. If the price is delayed or in installments, it may be agreed on that the transfer of ownership is delayed until the full price is paid even if the sold property was delivered. However, in this case, once the full price is paid, the sold property is owned by the buyer from the moment of concluding the contract. (378)  Seller’s Obligations: (2) Deliver the sold property to the buyer The first obligation of the seller is to transfer the ownership of the sold property to the buyer. From this moment, the sold property is not owned by him anymore. That is why the second obligation provides that the seller has to deliver the sold property to the new owner (the buyer in the contract of sale). If the sold property was in the possession of the buyer at the time of concluding the contract, the possession is considered as a delivery for the sold property, unless otherwise agreed upon. (Art. 386) The seller is obliged to deliver the sold property at the same condition at the moment of concluding the contract of sale. (Art. 380)  What to deliver? (Art. 381) ₋ The seller is obliged to deliver not only the sold property but also any accessories that are necessary to use it or customarily delivered with it, even if delivery of these accessories are not stated in the contract. ₋ Ex: if selling a cellphone, the seller is expected to deliver its battery as well. The place of delivery: (Art. 388) ₋ The parties to the contract should agree on the place of delivering the sold property. ₋ In absence of such agreement, we shall resort to custom. ₋ In absence of an agreement or custom, the seller must deliver the sold property wherever it is located at the time of the contract.  The method of delivery: (Art. 385-387) Delivery can be actual or assumed: (1) Actual delivery: ₋ The seller enables the buyer to take possession of the sold property. ₋ It is not necessary that the buyer take over the sold property. It is enough that he was able to. ₋ Delivery must be done in a way consistent with the nature of the sold property. Examples: If the sold property is a house, the seller delivers it by evacuating it and handing the buyer its key. If the sold property is a laptop, the seller delivers it by hand to hand. If the sold property is an eBook, the seller delivers it by email or by making it available for download to the buyer. (2) Assumed delivery: ₋The seller does not deliver the sold property but the buyer is assumed to have received it. ₋Example: If the sold property was already in the possession of the buyer in any capacity before concluding the contract, the buyer is assumed to have received the property. For example: the buyer was renting the house before buying it.  The risk of damage of the sold property: (Art. 389–391) We must distinguish between several cases: 1. The sold property is damaged before concluding the contract. (the contract is void) 2. The sold property is damaged after concluding the contract but before delivering it to the buyer by a reason that is not related to anyone of the parties or anyone else (superior force ‫)ﻗﻮة ﻗﺎھﺮة‬. (the sale shall be terminated and the buyer takes back the price he paid). 389 3. Some of the sold property is damaged after concluding the contract but before delivering it to the buyer by a reason that is not related to anyone of the parties or anyone else (superior force ‫)ﻗﻮة ﻗﺎھﺮة‬. (the buyer has the choice, if he wishes, to terminate the sale contract or to take the remaining amount of the sold property for its share of the price). 389 4. The sold property or some of it is damaged by an act of the buyer after concluding the contract but before delivering it to the buyer (the buyer shall be deemed holding the sold property and he shall pay the price). 390  The risk of damage of the sold property: (Art. 389–391) (cont’d) 5. The sold property is damaged by an act of any other person after concluding the contract but before delivering it to the buyer. (the buyer has the choice, if he wishes, to terminate the sale contract or to approve it and has the right to return against the destroyer with a guarantee such as the sold property or its value). 391\1 6. Some of the sold property is damaged by an act of any other person after concluding the contract but before delivering it to the buyer. (the buyer has the choice, if he wishes, to terminate the sale contract or take the remaining amount of the sold property for its share of the price). 391\2 7. The sold property or some of it is damaged after concluding the contract and delivering it to the buyer. (it is buyer responsibility).  Seller’s Obligations: (3) Warrant freedom from encumbrances Since the buyer becomes the owner of the sold property, he must enjoy a quiet possession of it. If his possession is disturbed due to a reason related to the seller, he can sue the seller. The seller guarantees that the sold property is free from any binding rights for him or third parties unless it is acknowledged by the buyer at the time of the contract. (392) This warranty applies also if a third party obtains a binding right on the sold property after the contract is concluded because of an act by the seller. (392) Ex: if a seller sells his house to X. The warranty applies if he resells the house to Y after concluding the contract with X.  The effect of exempting the seller from the warranty: ₋If the contract of sale states that the seller is exempted from warranting encumbrances, the contract of sale becomes corrupt. (395) ₋To become valid, the corrupted contract must be corrected. ₋It can be corrected by a new agreement by the parties to the contract to remove the corrupt term. ₋If the contract is not corrected, the two parties and their heirs can rescind it.  Seller’s Obligations: (4) Warrant the sold property against hidden defects The seller warrants the sold property against hidden defects even if such condition was not stated in the contract. (Art. 149) If the buyer dies, the warranty is transferred to his heirs. (Art. 153) A hidden defect warranted by the seller must meet three conditions: 1. It must be old. 2. It must be serious 3. It must be hidden. Each of these conditions shall be explained below. (1) The defect must be old The defect is considered old if: 1. It was existent in the sold property before concluding the contract of sale. 2. It occurred after concluding the contract but before delivering the sold property to the buyer. 3. It occurred after concluding the contract and the delivery of the sold property to the buyer due to another old cause in the sold property that existed while it was in the possession of the seller. Ex: if someone buys an animal infected with a disease but its symptoms appeared only after receiving it. (2) The defect must be serious: Not every defect is warranted by the seller. The seller does not warrant defects that are customarily allowed. Defects that are customarily allowed are usually trifle. Ex: rice straw in a package of rice. The defect shall be serious in two cases: - If it decreases the value of the sold property. - If it renders the sold property unfit for the purpose it was intended for. Whether a defect is serious or not, it is a matter of fact that the trial judge determine without supervision from the high court. (3) The defect must be hidden: The hidden defect is one that a reasonable buyer can not detect while inspecting the sold property at the time of concluding the contract. In other words, it is a defect that only an expert can detect it. The rationale of the hidden defects warranty is not that the buyer is not aware of the defects. It is that these defects can not be detected by the reasonable buyer at the time of sale.  When determining whether a reasonable person could have detected the defect while inspecting the sold property, we must take into consideration the external surrounding circumstances, but not the personal circumstances. ₋ Inspecting the sold property in a dark place must be taken into consideration. ₋ If the buyer suffer slow vision while inspecting the sold property, this is something that should not be taken into consideration. As an exception, the seller shall warrant defects even if they are apparent if: 1. The seller confirmed to the buyer that the sold property is free from defects. 2. If the buyer proves that the seller concealed the defect on purpose.  The seller shall not be responsible for hidden defects in these three cases: 1. If the sale is by auction by the judicial authority or the administrative authorities. 2. If the buyer knows the hidden defects at the time of sale by any means. Applications: ₋The buyer may able to detect the hidden defect while inspecting the sold property before the sale. ₋The seller may have declared the hidden defects at the time of sale. 3. If the buyer accepts the hidden defects after sale. There could be an evidence that the buyer accepts the hidden defect after knowing it. Examples: ₋Receiving the sold property although he became aware of the hidden defect after concluding the contract. ₋Frequently using the sold property after knowing the hidden defect. ₋Selling the sold property after knowing the hidden defect to a third party.  The effect of finding the hidden defect: ₋ If the buyer finds a hidden defect in the sold property, he can: Rescind the contract and reimburse the sale price. Ratify the contract without asking to decrease the price. ₋ Exceptionally, the buyer cannot request rescinding the contract. He can only ask for decreasing the price. These exceptions are: 1. If the defected sold property is damaged while in possession of the buyer. 2. If the buyer consumes the defected sold property. 3. If a new defect occurs to the defected sold property unless the seller accepts the new defect. However, if the new defect is repaired, the buyer regains his power to rescind the contract. 4. If the defected sold property is connected to another property of the buyer and it is impossible to separate them. Ex: floor tiles.  The buyer must sue the seller on the basis of the warranty against hidden defects within one year of receiving the sold property. However, this period is extended if: 1. The contract provides that the period of the warranty is longer than one year. 2. The seller commits a fraud by attempting to conceal the defect.  Buyer’s Obligations: (1) Paying the price and receiving ownership of the sold property. (2) Bearing the expenses of the contract. Unless there is an agreement or a custom that states otherwise, the buyer bears the expenses of paying the price, registering the contract and any other expenses arising from the contract except: The expenses of delivering the sold property because it is the responsibility of the seller. The Contract of Lease  Definition of the Contract of lease lease is a contract according to which the lessor undertakes to enable the lessee to utilize the leased property in return for a consideration. (516) Notes on the definition: 1) Lease does not include a transfer of ownership. 2) Thesubject matter of the lease is the utilization of the leased property. 3) Unlike the sale contract, the consideration in lease couldbe money or anything else.  Characteristics of the contract of lease 1. Consensual contract: it is concluded upon the meeting of the minds. Unlike formal contracts, writing is not a requirement. 2. Bilateral contract: both parties are bound to fulfil an obligation towards each other, unlike unilateral contracts where only one party is bound to fulfil an obligation toward the other party. 3. Commutative contract: each party receives an equivalent for performing his obligation. The lessor receives a consideration, while the lessee receives the utilization of the leased property. 4. Executory contract: lease is concluded when offer and acceptance are exchanged. However, the performance of lease occurs over a period of time that can last for years. Unlike executed contracts, time is an essential element in the contract of lease.  The Pillars of the Contract of Lease Like any contract, lease has three pillars, which are: (1) mutual assent. (2) subject matter. (3) cause. Absence of any of these pillars will render the contract null and void. In our study, we shall concentrate on the first two pillars only as there is no special rules regarding the third pillar.  Mutual Assent in the Contract of Lease Both the lessor and the lessee must declare their wills to enter into a lease contract. One party must make an offer, while the other party makes an acceptance that is identical to the offer. The declaration of will could be: Explicit: by word, writing, or a customary sign. Implicit: by taking an action that leaves no doubt about the intention of the party. By silence in very exceptional cases as known according to the general rules in the civil law.  Undoubtedly, the declarations of will must be free from vices of consent. Both the lessor and the lessee must have the necessary legal capacity to enter into a contract. Additionally,for the lessor, he must have the power to dispose the leased property. (518\1) Consequently, a lease contract concluded by an officious lessor shall be suspended. Such lease shall become valid only if the real owner ratifies it. (518\2)  The Subject Matter in the Contract of Lease The subject matter of a contract is the sum of objects of the obligations resulting from the contract. Therefore, the subject matter in the contract of lease are: 1. Utilizing the leased property for a specific period of time (the object of the lessor’s obligation) 2. The rent (the object of the lessee’s obligation) Consequently, we shall study three topics: 1. The utilization 2. The lease term 3. The rent  (1) The utilization (the leased property) It is worth noting that utilization is derived from the leased property. Therefore, three conditions must be met: 1. The utilization (or the leased property) must be existent or can exist in the future: Applications: A lessor may offer his existent house for rent. A lessor may offer his future house which is currently under construction for rent as long as rent starts after the construction is complete. 2. The utilization (or the leased property) must be determined or determinable: Applications: When the lease contract determines a car by made, model and number, the leased property shall be considered determined. However, if the contract determines the rented car by made and model only without the car’s number, the contract is still valid because although the subject matter is not determined, it is determinable at a later date. 3. The utilization (or the leased property) must be legitimate: Things that are outside the scope of dealing cannot be the subject matter of a lease contract. A lessor may not offer a poker machine or drugs for rent.  (2) The rent The rent is an essential element in the contract of lease. If the lessee is not obligated to pay any fees to the lessor, this means that the contract is not a lease contract. It shall be considered a lending contract. (‫)ﻋﻘﺪ اﻹﻋﺎرة‬ A lending contract is one according to which one person delivers another a non-consumable thing to use it for a specific period of time for free, and then returning it. In general, a lending contract is a nonbinding contract, and each of its parties can terminate it at anytime even if they agree on a term in the contract.  Rent must be serious. It cannot be absolutely simulated or trifle. However, it could be undervalued. (refer to the explanation of these terms in the contract of sale) Rent can be money or anything else. Therefore, it could be currency money, a property, a debt, or utilization of a thing. ( 522/1) To comply with the general rules in civil law, rent must be determined or determinable in the contract. Therefore: (521) If the rent is money, the contract must determine its amount. If the rent is anything else, the contract must determine its description and amount. For example: the rent can be determined as “1 Samsung TV 40’’ LCD Screen.”  If the rent is not determined in the contract, the contract can be rescinded and the lessee must pay the rent for the past period before rescission based on the rent of an equivalent item. (522/2) The parties to the contract may agree that the rent shall be paid immediately, at a later date (postponed) or in installments according to a schedule. (524) In absence of an agreement, the rent is due once the lessee utilizes the leased property or is able to. (523)  The lessee is not obligated to pay any rent unless he receives the leased property. Therefore, if the lease term starts and the lessor does not deliver the leased property, the lessee is not obligated to pay rent for this period. (526) However, the same rule does not apply if the leased property is not delivered for a reason related to the lessee. For instance, the lessor was unable to deliver the leased property because the lessee was traveling. In this case, the lessee must pay the rent even if he did not utilize the leased property.  (3) Term of the Lease The lease term refers to when lease starts and when it ends. The parties to the contract should determine the date on which the lease is effective and the date on which the lease is terminated. As a general rule, there are no restrictions as to the term of the lease. Therefore, the term could be several minutes or several years. As an exceptional case, if the leased property is a trust (‫)وﻗﻒ‬ or owned by an orphan, the term should not exceed three years unless a court permission is obtained. If the parties to the contract agreed on a term that exceeds three years, the contract is considered valid for three years only. (530)  In absence of an agreement that determines when the lease starts, it is assumed that the lease starts on the date of contracting. (527) In absence of an agreement that determines when the lease is terminated, the contract is still valid although the subject matter of the contract shall not be determined or determinable, because the parties have already performed their obligations since the contract of lease is executory and there is no way to return the parties to the same position before concluding the contract, so there is no benefit to consider this contract void, however, the contract can be rescinded. As an exceptional case, if the parties to the contract did not determine the term but determined a certain rent to be paid every time interval, the term of the lease shall be considered the same time interval (meaning that the contract is terminated at the end of this time interval). Also, if both parties did not request the termination of the contract at the end of the time interval, the contract is considered renewed for a similar time interval. (529)  The Effects of the Contract of Lease The obligations of the lessor: Deliver the leased property to the lessee. (531) Maintain the leased property. ( 535) Warrant the freedom from encumbrances. (534: 539) Warrant the freedom of the leased property from defects. (540:543) The obligations of the lessee: Pay the rent. Preserve the leased property. Utilize the leased property according to the contract, its purpose or custom. Return the leased property at the end of the lease term.  The Lessor’s Obligations: (1) Deliver the leased property to the lessee The essence of the lease contract is the obligation of the lessor to deliver the leased property to the lessee. The lessor is obliged to deliver not only the leased property but also its necessary accessories. (531/1) For example: If someone rents a car from its owner, the owner is expected to the deliver the car and also its key. Also, the lessor is obliged to deliver the leased property in a condition that allows the lessee to utilize it. (531/2) For example: If someone rents a car from its owner, the owner is expected to the deliver a functional car.  Assuming that the parties agree that the rent is expedited, the lessor can refrain from delivering the leased property until the lessee pays the price even if the lease term has commenced. (532) In general, the provisions of the seller’s obligation to deliver the sold property applies to the lessor’s obligation to deliver the leased property, unless otherwise agreed upon. (534)  The Lessor’s Obligations: (2) Maintain the leased property The lessor is obliged to repair any deficiency that may occur in the leased property and affects the lessee’s power to utilize it. (535/1) If the lessor does not repair the deficiency, the lessee can: 1. rescind the contract, or 2. obtain a permission from the court to repair the deficiency by himself and recover the expenses from the lessor. (535/1) If the deficiency is urgent, and the lessee is unable to contact the lessor or he contacts the lessor who does not show cooperation, the lessee may repair the urgent deficiency by himself without obtaining a permission from the court, and then deduct the expenses from the rent. (535/2)  make improvements If the lessee obtains a permission from the lessor to make improvements in the leased property, we should differentiate between two cases: ( 536) 1. If these improvements shall increase the value of the leased property, the lessee is entitled to recover the expenses from the lessor, unless otherwise is agreed upon. 2. If these improvements shall benefit the lessee only, he is not entitled to recover the expenses from the lessor, unless otherwise agreed upon. The lessor may prevent the lessee from: (537) 1. doing anything that may cause a damage or a change in the leased property. 2. Installing any machines or devices that may cause a damage or a decrease in the price of the leased property. In the event that the lessee does not stop these doings, the lessor may ask the court to rescind the contract and require the lessee to pay compensation for any damage that occurs.  The Lessor’s Obligations: (3) Warrant Freedom from Encumbrances The lessor has a duty not to interfere with the lessee’s quiet enjoyment and possession of the leased property during the lease term. Consequently, the lessor may not make any changes in the leased property that prevents the lessee from utilizing it. (538) If the lessor fails to fulfil his obligation, the lessee can request two things: (539) 1. the rescission of the contract, and 2. a compensation for what he has paid as a rent for the remaining period in the lease term. If the lease contract included a term stating that the lessor does not warrant encumbrances, this term is considered null and void, and the contract shall remain valid. (543)  The Lessor’s Obligations: (4) Warrant Freedom from defects The lessor warrants all defects that exist in the leased property that prevent the lessee from utilizing it or just decrease the utilization, unless the lessee was aware of these defects at the time of contracting. (540- 543) The lessee becomes aware of these defects if: The lessor notified him about these defects. The lessee inspected the leased property and the defect was apparent. Example: if someone rents a house to live in, then finds that there is no tap water in the house, this is considered as a defect that the lessor warrants. However, the lessor shall not warrant this defect if he has already notified the lessee about it at the time of contracting.  If the lessee is unable to utilize the leased property because of a defect, he can:(541) Rescind the contract, and Recover what he has paid. If the lease contract included a term stating that the lessor does not warrant defects, this term is considered null and void, and the contract shall remain valid. (543) The lessee’s obligations  The Lessee’s Obligations: (1) Pay the rent The main obligation of the lessee is to pay the rent agreed upon in the contract on time. Since the lessee is the debtor in the obligation to pay the rent, he is also responsible for any expenses resulting from performing his obligation to pay the rent. For Example: if the lessor and the lessee agree in the contract that the lessee shall pay the rent using a paid electronic service, it is the lessee who should bear the expenses of using this service.  The Lessee’s Obligations: (2) Preserve the Leased Property Although this obligation is a mere application for the doctrine of good faith, the civil code has stated it explicitly. (544/1) The criterion of reasonable person shall be used to determine whether the lessee has performed his obligation to preserve the leased property. (544/1) If there are more than one lessee, each one of them is responsible for his own negligence or wrongdoings. (544/2)  The Lessee’s Obligations: (3) Utilize the Leased Property According to the Contract The lessee is entitled to utilize the leased property only in the way agreed upon in the contract. For example: if the contract states that the lessee shall use the leased house to live in, he may not use it as a headquarter for his company. In absence of an agreement, the lessee is entitled to utilize the leased property in the way: (545) consistent with what it was prepared for, or Consistent with the custom. For example: if the subject matter of the lease is a residential house, the lessee may not use it as a restaurant. If the lessee fails to fulfil his obligation, the lessor is entitled to ask for a compensation for any damage that occurred. (545)  Additionally, the lessee may not make any changes in the leased property without the lessor’s permission, unless the change is: (1) necessary, and (2) does not result in any damage to the lessor. (546/1) For example: if someone rents a house and finds that one room is very hot and dark because there is no window in it, he may argue that installing a window in the room is necessary. However, the change may not be permissible if there is a damage for the lessor like if neighbors will be able to see what is inside the room, and thus losing his privacy. If the lessee violates this obligation by making a change without the lessor’s consent that is not necessary or causes a damage to the lessor, the lessee must remove the change at the end of the lease term, unless otherwise agreed upon. (546/2)  The Lessee’s Obligations: (3) Utilize the Leased Property According to the Contract The lessee may not deprive the lessor from doing whatever deemed necessary to maintain the leased property. (548/1) If performing maintenance affects the lessee’s ability to utilize the leased property, the lessee may rescind the contract. (548/2) If the lessee does not rescind the contract during the performance of maintenance, he is entitled to decrease the rent but not to rescind the contract anymore. (548/2) For example: if after concluding the contract, the lessor of a house finds that the ceiling of one room is about to collapse and needs immediate action. In this case, the lessee may not deprive the lessor from hiring workers to enter the house to repair the ceiling. However, the lessee can rescind the contract. It should be noted though that if the lessee does not rescind the contract during the maintenance of the ceiling, he is entitled to decrease the rent but not to rescind the contract anymore. (548/3)  If an act by an administrative authority resulted in completely depriving the lessee from utilizing the leased property, the lease is rescinded and the lessee is not obliged to pay the rent from the date he becomes unable to utilize the leased property. (550/1) For example: expropriation of the leased property completely deprives the lessee from utilizing the leased property. If an act by an administrative authority resulted in partially depriving the lessee from utilizing the leased property, the lessee may rescind the lease and he is not obliged to pay the rent from the date he notifies the lessor. (550/2) For example: imposing a curfew for the lease term in the afternoon hours in the district where the leased property used as a restaurant is located.  The lessee is obliged to: 1. make the repairs agreed upon or that custom requires him to do. (547/1) 2. Clean the leased property by removing dust and rubbish. (547/2) The lessee is entitled to rescind the lease contract in two more cases: 1. If performing the contract shall result in an evident damage to the life or the property of the lessee or his followers. (551/1) 2. The occurrence of a circumstance that prevents him from performing the contract. (551/2)  The Lessee’s Obligations: (4) return the leased property The lessee is obliged to return the leased property to the lessor once the lease term is expired. (552) If the lessee violates this obligation by keeping the leased property after the expiration of the lease term, he has to pay: A rent estimated on the basis of the rent of alike item ‫أﺟﺮة اﻟﻤﺜﻞ‬, and A compensation for any damage that the lessor may have suffered.  The lessee is obliged to return the leased property at the same condition it was at the time of receiving it. (552) Consequently, the lessor can force the lessee to remove any improvements he may have created in the leased property without his permission, even if these improvements could result in increasing the value of the leased property. (553)  Provisions of Subleasing Subleasing is a lease of the leased property by the lessee to a sublessee (third party). A lessee may not sublease the whole leased property or a part of it without a written permission from the lessor. (554) If the lessee obtains the consent of the lessor to sublease, restrictions as to the type of lease and term are still applicable. (555) The sublessee always has the same rights and obligations of the lessee. (556) If the contract between the lessor and the lessee is rescinded, the lessor can recover the leased property from the sublessee. (557)  Termination of the Lease Contract The contract of lease is terminated once the lease term agreed upon in the contract is expired, unless the parties to the contract agree to renew it automatically. (558) As a general rule, the death of one of the parties does not result in the termination of the contract. (559/1) However, there are some exceptions to this rule: 1. The heirs of the lessee may request the termination of the contract if they prove that they cannot afford paying the rent or they are not in need for this leased property any more. (559/1) 2. Both the lessor and the heirs of the lessee may request the termination of the contract if the lease is concluded for a reason related to the job of the lessee or for a reason related to the personality of the lessee. (559/2)  Each party to the contract may request the termination of the contract due to any urgent circumstances provided that he pays a compensation to the other party for any damage that he may suffer. (560/1) If the party that requests the termination of the contract is the lessor, the lessee does not have to return the leased property unless he receives the compensation or a warranty that the lessor will pay it. (560/2)