Leasing law

Today’s economic and industrial operations are marked by an ever-increasing importance of leasing contracts, as they allow both consumers and companies the necessary  degree of liquidity when it comes to purchasing  material objects. Apart from real estate leasing it is especially the realm of movables leasing which is particularly relevant. It is specifically leasing contracts for automotive vehicles which are included in this field.

Generally speaking leasing can be practiced in manifold forms. General leasing criteria are the non-terminability of the term or life of the leasing contract and the fact that it is, as a matter of principle, the lessee who is to run the investment risk. Basically the leasing contract constitutes a triangular contractual relationship between the parties involved, i.e. the lessee, the lessor company and the supplier.

In the case of contracts which provide for a so-called residual value settlement the lessee is the party who runs the risks involved with the residual value of the leased object. It is the lessee who has to make up for a deficiency in the proceeds which may be gained. Another form of contracts are those leasing contracts which provide for the lessor’s right to make delivery of the object concerned. In these cases the lessor may demand that the lessee purchase the leased object - which is normally a car – for its residual value. In addition there are also contracts which stipulate final contract fees and kilometer accounts and charges . In considering the fiscal concept and aspects of a leasing contract it must equally be taken into account that the  hoped-for tax benefit  can only be realized if the leased object is to be economically attributed to the lessor. (Section 39 sub-section 2 No. 1 of the German Fiscal Code).

As a rule it is the lessee who will be held liable for loss and deterioration of the leased object and it is  a matter of principle that he owes repayment of the invested capital as well as reimbursement of all expenditures inclusive of profit to the lessor. In addition the lessee is also obliged to take out an appropriate insurance coverage for the leased object.

As far as warranty of quality is concerned the lessor will, as a matter of principle, contract out of liability for any and all claims. Warranty claims which may be asserted in relation to the supplier will, however, be assigned to the lessee.

When it comes to the verification of a leasing contract it is a lawyer’s task to check whether the contract is properly concluded and to more particularly see to it whether any of the contract provisions might be invalid (General Business terms and Conditions). Difficulties which arise in connection with leasing contracts are frequently met with reference to warranty of quality issues or the premature return of the leased object, once notice of termination of the leasing contract will have been given. In situations like these considerable problems usually have to be faced when the leased object is returned to the lessor, particularly in the case of automobiles. In this context one of the relevant problems frequently has to do with the question as to whether and, if so, which damages must be considered as being of a depreciating nature.

Special problems are met when it comes to the winding up of the contract in the case of the lessee’s or the lessor’s insolvency, when the specific provisions of insolvency law must additionally be taken into special account.


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