Praise be to Allah.
Firstly:
The real nature of the annual contract that is drawn up between the customer and the telecommunications company is a rental of use contract, in which the company offers the customer the use of communication, according to the pricing of minutes that is agreed upon. In return, the customer pays the fixed fee and the costs that may change according to his use of the service.
This is a permissible kind of contract and there is nothing wrong with it, as it fulfills the essential parts and conditions of a contract, and there is nothing ambiguous about it.
It says in al-Ma‘aayeer ash-Shar‘iyyah: It is permissible for rental to be for a fixed or changeable sum, according to the way agreed upon by both parties."(Al-Ma‘aayeer ash-Shar‘iyyah, p. 115 no. 9, 5/2/1.
Secondly:
If agreement has been reached with the telecommunications company on a year-long contract, this is a binding contract and it is not permissible for either of the two parties to cancel it except with the agreement of the other party. Ibn Qudaamah (may Allah have mercy on him) said: Rental is a binding contract on both parties, and neither of them has the right to cancel it. This is the view of Maalik, ash-Shaafa‘i, and ashaab ar-ra’y. That is because it is a contract in which a benefit or service is offered in return for compensation; hence it is binding, like a sale contract, whether the individual has an excuse or not."(Al-Mughni, 5/332)
If the contract includes a penalty in the event of cancellation, then this is a binding and valid condition. We have explained previously that such conditions are islamically acceptable, in the answers to questions no. 112090 .
It says in a statement issued by the Islamic Fiqh Council:
It is permissible to stipulate a penalty in all financial contracts, apart from contracts in which the basic commitment is a debt, because that is obviously riba.
And they said: The harm for which it is permissible to receive compensation is actual financial harm and actual losses that result from cancellation, and what one misses out on of certain earnings. It does not include intangible harm such hurt feelings and damage to reputation. End quote.
If the other party agrees to let off the party that wants to cancel the contract, that is better and is preferable, because the Prophet (blessings and peace of Allah be upon him) said: “Whoever lets a Muslim off a transaction, Allah will let him off his sins on the Day of Resurrection.” Narrated by Abu Dawood.
However it is a good idea for the company to make allowances emergencies and unforeseen circumstances which may force customers to cancel their contracts, and not to treat those who have legitimate excuses like those who cancel for no good reason.
Thirdly:
There is nothing wrong with the second type of contract mentioned in the question. Compelling the customer to pay the remaining installments on the mobile phone when cancelling the contract is acceptable so long as he is not required to pay anything more than the price of the phone that was agreed upon.
And Allah knows best.
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