Question:
Is it permissible to use master agreements?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salamu ‘alaykum wa-rahmatullahi wa-barakatuh.
The Answer:
Using master agreements as a reference for any future transaction is permissible on condition that the offer (‘ījāb) and acceptance (Qabūl) are exchanged at a future date when the parties intend to transact.
The Fiqh (jurisprudence of the answer):
The master agreement is a document agreed to between two parties that sets out standard terms that apply to all the transactions entered into between those parties. Each time that a transaction is entered into, the terms of the master agreement apply automatically and do not need to be re-negotiated. As such, it is not a contract of exchange, but an agreement of a framework and standard terms for any future transactions.
Agreeing to a master agreement is not regarded as an offer and acceptance for a sale. Rather, it is an agreement to conduct a transaction in the future on the terms within the master agreement. Discussing and agreeing to terms in advance is customary practice and takes place all the time before most transactions. However, the only difference is that in those circumstances, a transaction follows immediately, in financing agreements where master agreements are used, the transactions are not always executed immediately.
In practice, most Islamic financial institutions which use master agreements will have a notice of offer and acceptance outlined in the schedules of a master agreement. This notice is then exchanged on the day of the transaction with the details of the transaction as a formal offer and a formal acceptance. Therefore, any future transaction will require its own offer and acceptance.
And Allah Alone Knows Best
Mufti Faraz Adam
Shariah Advisor
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