Praise be to Allah.
The Sunnah is to offer the funeral prayer for the deceased in congregation, because that is what the Prophet (blessings and peace of Allah be upon him) and his Companions did, and that is what the people continued to do. But if they offer the funeral prayer individually, that is permissible.
An-Nawawi (may Allah have mercy on him) said: It is permissible to offer the funeral prayer individually, but the Sunnah is to offer this prayer in congregation, because of the hadith: “There is no one who dies and three rows of Muslims offer the funeral prayer for him, but (Paradise) is his due.” There are other well-known authentic hadiths regarding that, in addition to the consensus of the Muslims. The greater the number of the congregation, the better it will be… (End quote from Sharh Al-Muhadhdhab, 5/171).
It says in Al-Mawsu`ah Al-Fiqhiyyah (16/18): … The Hanafis, Shafa`is and Hanbalis stated that praying in congregation is not a condition for the funeral prayer to be valid; rather it is Sunnah… (End quote)
The Malikis said: One of the conditions of it [the funeral prayer] being valid is that it should be offered in congregation, like Jumu`ah prayer. If the funeral prayer is offered without an imam, the prayer should be repeated, unless it is too late. (End quote).
Shaykh Ibn ‘Uthaymin (ma y Allah have mercy on him) favoured the view of the majority, and said in Ash-Sharh Al-Kafi:
Offering this prayer in congregation is not one of its conditions, so if they offer the funeral prayer individually, it is valid.
The Companions (m ay Allah be pleased with them) offered the funeral prayer for the Prophet (blessings and peace of Allah be upon him) individually, because they did not want to choose an imam other than the Messenger (blessings and peace of Allah be upon him) at that time. So they came and offered the funeral prayer for him individually, the men first, then the women. (End quote)
Ibn ‘Abd Al-Barr (may Allah have mercy on him) said: With regard to the people offering the funeral prayer for the Prophet (blessings and peace of Allah be upon him) individually, what is agreed upon by the biographers and a number of hadith scholars is that they did not differ regarding that. (End quote from At-Tamhid, 24/397).
And Allah knows best.
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