Partner’s investment in a property until a certain amount is paid, after which the property passes to the other partner

Shalom.

Reuven has a plot of land. Shimon wants to build a housing unit there in order to receive rent up to a certain amount that will cover his investment plus an additional sum, and afterwards the unit will belong to Reuven. Is there a problem of ribit (interest) in this arrangement?

Shalom u’vracha.

If Reuven assumes liability for Shimon’s investment, it is forbidden, and if not, it is permitted.

This case is similar to one that is “close to profit and far from loss.” In Siman 172:1 there is a similar scenario called “mashkanta benichyata” or “mashkanta d’Sura,” meaning that a person borrows a sum of money from his fellow and gives his field as collateral for the loan. The lender eats the produce in the meantime, and the value of the produce is calculated as repayment of the loan. The Rishonim disagree regarding the halachic status of mashkanta. The halachic conclusion is that in “mashkanta d’Sura,” meaning that at the end of the period the field returns to its owner with no remaining debt, it is permitted according to all, since this is considered a sale, even if the value of the produce exceeds the amount of the loan. “Mashkanta benichyata,” meaning that the debt is only offset but not fully repaid, is forbidden according to the Shulchan Aruch and permitted according to the Rema. However, one must distinguish between mashkanta benichyata and our case, since in mashkanta benichyata there is always some possibility that the lender will lose: if there is no produce that year, he must still deduct from the loan even though he did not eat any produce. And if the borrower undertakes liability that if there is no produce he will nevertheless pay him, the Rishonim write that this is forbidden, and the Rema there cites their words. Therefore, in all such cases one must be careful that there be no liability on the part of the borrower, but only whatever comes out of the “produce” of the loan. Nevertheless, the recommendation is to sign a heter iska document for any major transaction of this sort, so as not to transgress the prohibitions of ribit inadvertently.