Is the penalty amount of advance payment halaal for me to keep?

Question

I have done an agreement for sale of property with a person and got X amount as advance payment. Remaining have to paid within 3 months. There was a clause in the agreement that if the buyer is unable to pay the remaining amount or backs off from the deal, I will keep the advance payment as a penalty. (There was another clause for the seller also if he backs off, he will give double of advance taken to buyer).

Now the buyer is backing off and wants to cancel the deal due to unavailability of remaining payment. Is the penalty amount of advance payment halaal for me to keep?

Mufti Zakaria Makada · Accepted Answer

After the sale is concluded, it is not permissible for any party to unilaterally cancel the sale. However, if the other party agrees to the cancellation, then the cancellation will take place. When both parties mutually agree to the cancellation, then all the money paid by the purchaser will have to be returned to him. It is not permissible for the seller to hold back any amount of the money he received (unless the purchaser had damaged the item purchased or property etc, then in this case, the seller has the right to hold back some portion of the money to the extent of the damages caused).

Note: These conditions included in the agreement are impermissible conditions and are against the laws of shariah. Therefore, if both parties agree to the cancellation of the sale, then the money paid by the purchaser will have to be returned to him. If the seller keeps any portion of the money, it will not be permissible and will be regarded as riba (interest).

And Allah Ta'ala (الله تعالى) knows best.

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