Leasing Agreements in General
Leasing is mostly used to refer to agreements relating to lease of movable goods and capital assets. Leasing agreements can be concluded to acquire, for example, it hardware, photocopiers, cars and various production equipment. Also real estate leasing agreements relating to real estate and apartments can be concluded.
There is no legislation specifically applicable to leasing in Finland. However, leasing is mentioned in, for instance, the Act on the Adjustment of the Debts of a Private Individual and the Restructuring of Enterprises Act. These acts refer to leasing as hire-purchase schemes and credit-lease agreements.
Financial leasing means financing of the leased object, where the financing company (the lessor) purchases the object from the seller, thereafter leasing it for use by the lessee for a fixed duration. In operating leasing, on the other hand, the seller enters into the leasing agreement directly with the user. Additionally, service leasing agreements cover also repairs and maintenance of the leased object (such as a car or photocopier).
Individual leasing agreements vary considerably. In a leasing process, as a rule the financing company purchases the equipment requested by a company, and permits the company to use the equipment in consideration of payment of rent. The financing company does not usually require collateral. Particularly as regards financial leasing, the equipment covered by the agreement is usually purchased bearing in mind the ordering company’s requirements, in which case the lessee chooses the leasing object and the supplier, as well as negotiates contractual terms.
The terms of a leasing agreement is dependent on the price, life and ageing of the purchased equipment. Often, a term of two to six years is agreed upon. Failure of the lessee to pay the rent and care for the object may entitle the lessor to rescind the leasing agreement.
It is possible to agree in a leasing agreement that the lessee is entitled to redeem the equipment subject to certain conditions. In the absence of such agreement, the leasing company is entitled to sell the equipment after expiry of the leasing term to a third party. The lessor often requires the supplier to commit to buyback of the equipment in certain situations.
Among others, the following issues are agreed upon in a leasing agreement.
identification and contact details of the lessor and the lessee
leasing object
term of the leasing and expiry date of the rental period
amount of rent
rental period and the first due date
reference interest rate
service of the object
insurance of the object
terms applicable to return and redemption of the equipment upon expiry of the term
terms regarding termination and rescission of the agreement.
An upside of leasing is that a company’s capital is not committed to acquisition of equipment. In addition, since the leased equipment constitutes collateral in the leasing relationship, investments can be made without additional collateral. Finally, leasing rents are wholly deductible in a company’s taxation, and the rents can be deferred and classified according to the company’s operations.
In leasing agreements, particular attention should be paid to terms applicable to equipment warranty, reparation, pricing and termination. From the point of view of the lessee, the largest risk in leasing agreements is associated with the contractual fine payable upon early termination. Contractual fine for early termination of the agreement can often be quite substantial.
See further regarding leasing in [6.1.4.3 Leasing].