A security deposit is money paid in advance of a transaction to protect a seller or renter against damage or non-payment.
A security deposit is paid by a purchaser in advance of a sale or by a lessee before renting a property or an item. The security deposit protects the interests of the seller or leaser from substantial loss in the event that the purchaser or lessee defaults on the contract and in cases where the lessee causes undue damage to the property under lease.
A security deposit differs from an advance payment in that it remains the property of the purchaser or lessee, whereas an advance payment is transferred to the possession of the seller or leaser.
In today's commercial environment, security deposits are generally deemed as being a indispensable for most major purchases. They are usually required for sale and rental contracts involving real estate. Likewise, we find them commonly required for the purchase of automobiles and other expensive items.
Though some scholars of the past have expressed reservations about security deposits, the more prevalent and correct view is that they pose no problem from a standpoint of Islamic Law. Ibn Taymiyah and Ibn Qayyim al-Jawziyyah are among the scholars who uphold the validity of security deposits.
Ibn al-Qayyim writes [Ighâthah al-Lahfân
It is permissible for the item being sold to be held in security until payment is made. This is the most correct of the two opinions expressed in the Hanbalî school of thought. Alternatively, it is permissible to have a security deposit in the form of a debt which is advanced by someone other than the seller and which is not counted as part of the purchase price.
This deposit can be in the form of some other property or of the currency of the purchase price. It is to be kept by the seller until the purchase price is paid. Indeed, it is better for the deposit to be of the currency of the purchase price, since if the seller can withhold it as a part of the purchase price without a deposit, then it is certainly suitable as a security deposit.
He also writes [I`lâm al-Muwaqqi`în
Scholars agree that it is permissible to make it a condition of sale for the buyer to give some other item over as security. What, then, is the problem of using the purchase price itself as a security deposit?
…Imam Ahmad b. Hanbal explicitly stated that it is permissible to make a security deposit of the purchase price a condition of sale. This permissibility is in accordance with the general principles and objectives of Islamic Law.
Recent Hanbalî scholars, including Ibn Sa`dî and al-`Uthaymîn concur with this ruling.
It makes no difference whether the bill of sale transfers the title to the buyer with the security deposit duly recorded upon it, or title is retained by the seller until payment is made.
And Allah knows best.