we are setting up a property syndicate company [in the UK] with the following details and wanted to know if we need a heter Iska, the process is as follows:-
• clients give us money to invest in property.
• we purchase the property in our name and create a trust deed with the client.
• we create a rental agreement with the client at a fixed rent of 6% of the purchase price,
• this rent is paid to the client annually, whether the property is let or not.
• we then sub let the property out further [to the man on the street] at the best rent we can get [which is higher than 6%].
• we keep any surplus rent over and above the 6% rent agreed.
• we take full responsibility for any up keep or maintenance or cost needed at the property. which we will pay out from the surplus rent, or from our own money.
• we sell the property [once the price has increased] and split the profit with the client 50-50
I seems that you will need a heter iska. The reason is because the client is giving you money to invest and he is guaranteed a return of 6%, even if the apartment isn’t rented out. Since he has no liability it is like interest, where you give a loan and you are guaranteed the interest.
What has to be done, is that the owners of the company sign the heter iska, and they should include a clause when printing the contracts that all contracts are subject to the heter iska that the company has in its office. The customers should also be told that their contract is subject to the heter iska
It is important for the owners to understand how the heter iska works. The capital invested is considered the clients, and any profits essentially are his. He is paying the company its salary according to the agreement that they sign on, which in your case is all the excess money above 6% minus expenses. In the event that there isn’t any renter, and therefore there is no profit, essentially the owner doesn’t have any profit that he can take, as it is his money that didn’t make a profit. For this there is another clause to the heter iska, that the company is not believed to say that there wasn’t a renter, unless they will swear in beis din with a sefer torah- something that they are not going to do. Therefore the company is going to have to pay the owner of the money, as if it made profit, meaning the owners 6%.
You didn’t write what happens if the property decreases in value. The heter iska deals with this also. You can download the “Heter Iska Bris Pinchos” in English, http://dinonline.org/2010/02/24/heter-iska/ for the company’s owners to read, and sign.
May you have much success in your business.