How to avoid the pitfalls in the leasing contract?

Service Business

Leasing is a contractual civil law relationship between the lessor (financing party) and the lessee (user). It consists in the lessor transferring the right to use certain things to the other party for the period specified in the leasing contract. Payment is made by the lessee in installments - these are the so-called leasing installments. This form brings several benefits to the user, including no need for a high financial contribution, the possibility of VAT settlement or optimization of tax burdens, referred to as the tax shield.

What do we mean by a leasing contract?

The leasing contract is governed by the Civil Code in Art. 709-709. As indicated by the beginning of the above-mentioned provisions: "through the leasing contract, the financing party undertakes, in the scope of the activity of his enterprise, to purchase the item from the designated vendor under the conditions specified in this contract, and to give this item to the user to use or use and receive benefits for a specified period of time, and the user undertakes to pay the financing party, in agreed installments, a cash remuneration, at least equal to the price or remuneration for the purchase of goods by the financing party. " In short - the financing party undertakes to purchase the item from a third party, and then transfer it to the lessee for use or use, and at the same time retrieve the provided item for use for the period specified in the lease agreement.

How to avoid pitfalls in the leasing contract?

First of all, you should read the Civil Code, which specifies in detail the clauses prohibited in the leasing contract. However, lessees often try to take advantage of the other party's inexperience and impose their own - often illegal - terms and conditions. To begin with, it is important to identify who is a party to the lease. The lessor must necessarily be a trader, while the lessee can be both a trader and a consumer. The form of the contract is no less important, and it is valid only if it is concluded in writing - otherwise it is invalid, and this rule applies to both oral and telephone form.

What are the lessor's obligations?

An important issue is the state of affairs to which the leasing contract relates. The lessor's obligation is to deliver the goods to the lessee in the same condition as it was when it was handed over by the seller. Additionally, the user should receive a copy of the guarantee received from the vendor or producer, a copy of the contract with the vendor or copies of other documents relating directly to the contract being signed.

On the other hand, it must be remembered that the lessor is not responsible to the user for the suitability of the item for the use described in the contract. This means that in the case of delivering the item to the user after the agreed date due to the fault of the financing party, the agreed installment payment dates remain unchanged. Let's present it with an example.

Example 1.

Jan N. leased a car from company F, but the leased vehicle was not collected on time. For this reason, Jan N. must pay the amount specified in the contract - including the period in which he did not use the car. It also means that if the goods (in this case the vehicle) are not collected on time, the duration of the contract and the repayment dates are not automatically extended.

What are the lessee's obligations?

The party using it should, first of all, follow the rules of use. It is forbidden to use things in a way other than that specified in the leasing contract. Of course, this point can be easily circumvented if the contract does not clearly state what the application is. However, the lessee should remember that even in such a situation, he is obliged to use the equipment in a way that corresponds to the purpose and properties of this item. You cannot change the use of the subject of the lease during the term of the contract, without the consultation and consent of the financing party. An exception may occur when this change results from the purpose specified in the contract.

In the event of a breach of the terms of the contract by the lessee, he may receive a written reminder from the financing party. If the situation reoccurs and the changes made only by the user are not removed, the lessor may terminate the lease agreement with immediate effect instead of another reminder.

The lessee is also responsible for taking care of, maintaining and repairing things so that they retain their original condition as at the lease agreement date. It is strictly forbidden to give the goods covered by the leasing contract to a third party.

Example 2.

Jan N. leased the car from company F, but after some time he gave it to a friend for use. In such a case, company F. may terminate the contract with the lessee with immediate effect.

No less importance should be attached to timely payments. If the lessee is late with even one installment, the lessor is obliged to set an additional deadline in writing, which is the final date for the repayment of the arrears. This letter should make you aware that in the event of failure to comply with the terms of the contract, exceeding the deadline will result in the termination of the lease agreement with immediate effect.

What if things are stolen or lost?

When using the things covered by the leasing contract, the person responsible for its condition is the lessee. This rule also applies in the event of loss or theft. If such a situation occurs, the user should immediately inform the financing party about it. In this case, the lessor may demand immediate payment of unpaid installments and reimbursement of damages. The user may also reduce the installments in a situation where he has obtained benefits from the use of the thing covered by the contract. As a rule, leasing contracts contain a statement that it is the user who is obliged to bear the cost of the insurance. If this issue is not specified in the contract, pursuant to the Civil Code, the costs are covered by the insurance premium under generally accepted conditions.

What is the transfer of ownership?

Depending on the form of the contract, it is possible to transfer ownership of the item to the user from the expiry of the lease contract. If there is such a provision, the lessee is obliged to transfer the ownership of the goods within one month from the end of the contract term. It is also possible to set a different date by agreement of the parties, but the final decision in this matter may be taken by the current lessee.