What is the nature and ruling of the new two-year house rental contract, where the full amount is paid upfront and returned after the contract ends? Is it considered a circumvention of a usurious loan? What are the legal implications in case of default? Is the tenant allowed to sublease it if the landlord agrees? And how can this contract be rectified Islamically?

If the tenant pays a sum of money to be refunded at the end of the rental period and after using the dwelling, this is a stratagem for usurious interest-bearing loan, which is a loan that draws a benefit, and the benefit here is living in the house for free. This contract falls under the category of "Bay' al-Amanah (definition)" (trust sale) or "Bay' al-Wafa'" (fulfillment sale), which are forbidden according to the majority of jurists, and there is a resolution from the Islamic Fiqh Academy concerning it.

To correct this contract, it must either be a genuine lease with a non-refundable rent, or a benevolent loan (qard hasan (definition)) that does not stipulate any benefit. It is not permissible to stipulate any benefit in a loan, because the Prophet (peace be upon him) forbade combining a sale and a loan.

If a person borrows and mortgages a house, it is not permissible for the mortgagee (the lender) to live in it for free or at a preferential rent. Rather, he must pay the market rent, otherwise it would be a loan that draws a benefit.