Lease is not originally a mode of financing. It is simply a transaction meant to transfer the usufruct of a property from one person to another for an agreed period against an agreed consideration. However, certain financial institutions have adopted leasing as a mode of financing instead of long term lending on the basis of interest.

This transaction of lease may be used for Islamic financing, subject to certain conditions. It is not sufficient for this purpose to substitute the name of 'interest' by the name of 'rent' and replace the name of 'mortgage' by the name of 'leased asset'. There must be a substantial difference between leasing and an interest-bearing loan. That will be possible only by following all the Islamic rules of leasing.

• Leasing is a contract whereby the owner of something transfers its usufruct to another person for an agreed period, at an agreed consideration.
• The subject of lease must have a valuable use (which is recognized as Mal-e-Mutaqawwam in Shariah. Therefore, things having no usufruct at all or whose usufruct is not permissible according to Shariah cannot be leased.
• It is necessary for a valid contract of lease that the corpus of the leased property remains in the ownership of the seller, and only its usufruct is transferred to the lessee. Thus, anything which cannot be used without consuming cannot be leased out. Therefore, the lease cannot be effected in respect of money, eatables, fuel and ammunition etc.
• As the corpus of the leased property remains in the ownership of the lessor, all the liabilities emerging from the ownership shall be borne by the lessor, but the liabilities referable to the use of the property shall be borne by the lessee.
• The period of lease must be determined in clear terms.
• The lessee cannot use the leased asset for any purpose other than the purpose specified in the lease agreement. If no such purpose is specified in the agreement, the lessee can use it for whatever purpose it is used in the normal course.
• The lessee is liable to compensate the lessor for any damage to the leased asset caused by any misuse or negligence on the part of the lessee.
• The leased asset shall remain in the risk of the lessor throughout the lease period in the sense that any harm or loss caused by the factors beyond the control of the lessee shall be borne by the lessor.
• A property jointly owned by two or more persons can be leased out, and the rental shall be distributed between all the joint owners according to the proportion of their respective shares in the property.
• A joint owner of a property can lease his proportionate share to his co-sharer only, and not to any other person.
• It is necessary for a valid lease that the leased asset is fully identified by the parties.
• The rental must be determined at the time of contract for the whole period of lease.
• In the long term lease agreements, it is mostly not in the benefit of the lessor to fix one amount of rent for the whole period of lease because the market conditions change from time to time. For this purpose it is allowed to use benchmark rate to determine the rental amounts. However, rent for the month will be fixed at the start of the month, any change in benchmark rate during the month will not cause rent for that month to change. It is also necessary to define a floor and ceiling.
• The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.
• The rent or any part thereof may be payable in advance before the delivery of the asset to the lessee, but the amount so collected by the lessor shall remain with him as 'on account' payment and shall be adjusted towards the rent after its being due.
• The lease period shall commence from the date on which the leased asset has been delivered to the lessee, no matter whether the lessee has started using it or not.
• If the leased asset has totally lost the function for which it was leased, and no repair is possible, the lease shall terminate on the day on which such loss has been caused. However, if the loss is caused by the misuse or by the negligence of the lessee, he will be liable to compensate the lessor for such negligence.