After 16 years in charge, the Egyptian businessman yesterday sold the west London club to billionaire Khan.
Al Fayed has bankrolled an incredible transformation by the Thames on and off the pitch, with the club rising from the lower leagues to become an established Premier League outfit.
That tenure has not been without its controversies, though, notably the decision to erect a statue of late pop star Jackson at Craven Cottage two years ago.
The statue of a man that only visited the ground once in 1999 has divided opinions and Khan promised to get fans' views rather than make a "knee-jerk reaction".
For Al Fayed, though, there is no negotiation - it stays or the heavily-moustached new owner will be "in big trouble".
"Michael Jackson will stay. He can't go, he is here," Al Fayed said, turning to Khan.
"It is part of the deal, it is history, it is listed. You can't change otherwise I will come and take your moustache in public. He knows that."
Al Fayed wore a fake moustache at a photocall to mark the passing of the club to Khan, but his extravagant acts should not detract from his work at Fulham - a club he believes is going to a good home.
"It is hard of course over so many years," the 84-year-old said. "I have done everything possible to help the club and give it what it deserves.
"It is time for me to have a rest. I have four grandchildren and I would just love to spend time with them.
"It is a hard decision but to find the right person, who really can takeover and look after the club and believe in the club, I find Mr Khan a great guy. He will follow my policy, he will look after the players, the fans.
"He is a great guy, he owns another football club in the United States and without me believing that he is a person who cares I would never pass the club to anybody."