Wa `alaykum as-salam wa rahmatullahi wa barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
1- What you mentioned in your question is a typical riba contract.
2- This wrong situation can be made right only by paying the standard market rent.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
Prohibition of Riba
A Muslim should be keen on adhering to Islam and to stay away from anything that, in one way or the other, may let him or her fall prey to haram.
Riba is one of the most heinous sins in Islam regarding which Almighty Allah promised to wage war against those who deal with it.
The Ruling on Privileging Residential Houses
Dear brother, what you mentioned in your question is a typical riba contract. The benefit of staying in the residential houses for a year is a full-fledged lease.
Here we have a case in which you give a loan for a year and take your money back after that year ends trading that for making use of this additional property (the benefit of staying in the house for a year).
This wrong situation can be made right only by paying the standard market rent — which is called ajr al-mithl (Arabic for: the rent of the equivalent) in Shari`ah terminology.
Paying a symbolic amount (the USD 10 you mentioned) is nothing but cheating yourself into feeling that what you are doing is not haram.
The difference between this symbolic amount and the real rent is riba that you are taking for the loan (in the form of your rent-free house).
Please give the house back to the landlord together with the accumulated rent for the period for which you have already made use of the house. Or pay the standard rent for the whole period, past and future.
Otherwise, there is riba in this transaction.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.