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Operating Ijara

In one sentenceThe lease of an asset for a fixed term at a known rent without a promise to transfer ownership, so the asset returns to its owner at the end of the term.

Simply put

The owner (lessor) keeps the asset and bears its main ownership risks, and the lessee pays only for the use, such as renting a warehouse or vehicles for a period.

For the lessee, IFRS 16 applies to most leases, so a right-of-use asset and a liability are recorded even if ownership does not pass, except for short-term leases or low-value assets that the standard allows to be expensed. For the lessor, the asset stays in its books and the rent is recorded as revenue over the term.

Example

A restaurant leased a shop in a shopping mall for five years with no option to own it. In common usage this is an operating Ijara, but the restaurant records it in its books as a right-of-use asset and a lease liability under IFRS 16, and the shop returns to its owner when the contract ends.

Don't confuse it with

Ijara Muntahia BittamleekIjara Muntahia Bittamleek comes with a promise to transfer ownership of the asset to the lessee at the end of the term.