In the first article on the subject of Wakalah Bi Istithmar or investment agency last week, I had concluded by asking a question to readers whether, acting as the principal or Muwakkil, they would like to enter into a revocable or irrevocable agreement, ie without or with the payment of agency fee to the Wakil.
I did not get any response in my email to the question but let me explain the difference between the two. As usual, I will use a live example to make it clear as to why it is important for the Muwakkil to always enter into an irrevocable Wakalah agreement by paying an agreed fee to the Wakil.
Ahmed works in an international chartered accountancy firm in Dubai and owns a property in Abu Dhabi’s Al Reef area which is closer to the airport and hence is quite popular among the pilots and aviation staff.
Due to some pressing financial need, he wanted to sell the apartment but found himself unable to do so due to his preoccupation in various audit missions as the team leader.
Ahmed asked his friend of a decade Badar who resides in Abu Dhabi to look for a buyer and sell the property at the maximum possible price. Badar needed the agency agreement from Ahmed to be able to deal with various parties who play their respective role in the sale and purchase of a property in Abu Dhabi, most importantly the real estate department at Abu Dhabi Municipality and the financing bank to release the mortgage after getting fully paid.
Trusting Badar, Ahmed appointed him as his lawful agent to deal with the chain in the process of selling the property and getting him the maximum possible sale proceeds and that too efficiently. When Ahmed asked Badar as to the compensation he would like to be paid for his effort, Badar assured Ahmed that he would not want to earn anything out of the agency and shall carry out all required tasks free of cost given their friendship of several years. Ahmed was in awe of Badar’s sincerity and thought of repaying the gesture somehow at an opportune time.
Ahmed waited for a few weeks and when he did not get any update, he called Badar who spoke abruptly on the pretext of being very busy but assured Ahmed that he is doing whatever he can to dispose of the property as soon as possible and at a good price.
Fast forward 2.5 months later, Ahmed took time out and gave a surprise visit to Badar who seemed embarrassed but reassured Ahmed of his efforts to sell the property very soon at the maximum possible market price.
Ahmed went back to Dubai satisfied and in the following weeks had to be stationed abroad to complete an audit assignment but the apartment was always at the back of his mind. He tried to call Badar a few times but Badar did not pick up the phone and Ahmed attributed it to the time difference between the UAE and Japan.
Upon returning to Dubai, Ahmed picked up the phone and spoke to Badar in a firm tone as his patience wore thin. He was shocked to learn that Badar had actually lost the duly notarized agency agreement and hence could not proceed to sell the property.
In addition, the real estate market of Abu Dhabi had started softening due to the arrival of summer when there are fewer buyers and those who are there, they are hunting for bargain prices.
Ahmed took the right decision six months down the line from granting the agency to Badar. He revoked the agency and took a fortnight’s leave from office and visited Abu Dhabi daily to meet with brokers and potential buyers.
With great difficulty, Ahmed found a buyer who truly twisted his arm and made him agree at a price which was about 27% lower than the market price half a year ago when he had granted the agency to Badar. Ahmed had to bite the bullet and agreed as he direly needed the funds.
On the way driving back to Dubai after completing the formalities to sell the property, the settlement of bank finance and receiving the balance amount in the form of a manager’s cheque, Ahmed thought, while analyzing the whole situation, whether Badar would have acted in the same careless manner if he was offered a percentage of the sale proceed by Ahmed as the agency fee.
As Ahmed was badly hurt, he took legal advice whether to sue Badar in the Shariah court for damages but was advised against it since the agency he had signed with Badar was revocable.
While on one hand, Ahmed may have saved the agency fee when Badar advised him that he will carry out the task pro bono, he took a big hit on the other by accepting a deep price cut.
The big difference between revocable and irrevocable agency and the protection from entering into an irrevocable agency by paying an agreed fee at the outset became very clear to Ahmed.
Certainly a very costly learning experience for Ahmed.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the Dubai Islamic Economy Development Centre, nor the official policy or position of the government of the UAE or any of its entities. The purpose of this article is not to hurt any religious sentiments either consciously or even unwittingly.
Sohail Zubairi is the senior advisor with the Dubai Islamic Economy Development Centre. He can be contacted at [email protected].
Next week: Continuation of Wakalah discussion.