Sign a leasing contract is not a trivial act. It commits your company over an often long period, with precise obligations and stages to be respected. Unlike a simple rental or direct purchase, leasing involves a specific procedure, from its inception to its completion. Knowing these key stages and the associated points to watch out for is fundamental to navigating this tripartite contractual relationship with peace of mind.
This article guides you through the typical life cycle of a leasing operation: the decisive role you play at the outset, the essential content of the contract and its implications, the security mechanisms such as guarantees and insurance, the importance of advertising, and finally, the various possible outcomes when the contract comes to an end.
Setting up the transaction: the lessee's active role
One of the special features of leasing is the central role played by the user company, the lessee, in the initial phase of the transaction. Although the lessor is the final purchaser of the asset, it is you who takes the initiative in a number of fundamental respects.
Choice of goods and supplier
It's an almost universal rule in leasing: it's you, the future user, who chooses the equipment, vehicle or building best suited to your needs, as well as the supplier from whom to acquire it. You lead the initial technical and commercial discussions. In legal terms, the lessor then gives you, often implicitly by ratifying your actions in the leasing contract, a right to use the equipment. mandate to make this choice. In this respect, you are acting on behalf of the funder, which has consequences for your responsibilities if the equipment turns out to be unsuitable (a point we will address in our next article on disputes).
Acceptance of the property: a decisive stage
Once the goods have been chosen and the finance granted, the lessor places the order with the supplier. Delivery is usually made directly to your home. It is then up to you, the lessee, to carry out another essential task, often by means of a new mandate. reception of the goods. This means carefully checking that the goods delivered comply with the order, that they function correctly and that there are no apparent defects.
The signature of the acceptance report (sometimes called a delivery note or delivery certificate) is a document with far-reaching consequences. It confirms to the lessor that the goods have been delivered as agreed, and generally triggers two major effects: payment of the price by the lessor to the supplier, and the start of the leasing period, meaning that you are liable for the rental payments. Signing this document lightly, without checking it thoroughly, can put you in a tricky situation if problems subsequently arise. You could be required to pay rent even for a property that is unusable, while at the same time finding it difficult to take legal action.
Special case of buildings to be constructed
When leasing finances the construction of a building, your role is even more active during the construction phase. Whether the land belongs to the lessor or to you (via a construction lease), it is often you who supervises the site. Depending on the contract, you act either as delegated project owner (lessor's agent), concluding contracts with architects and contractors on behalf of the lessor, either as main contractorIn this case, you are your subcontractor. This arrangement determines the division of responsibilities in the event of defects.
The leasing contract: what does it contain?
The leasing contract itself is the central document governing your rights and obligations and those of the lessor throughout the term of the transaction. It generally contains a number of key clauses.
Term and rent
The contract sets the term of the lease, which is often based on the economic or tax depreciation period of the asset. This period is often referred to as "irrevocable", meaning that it cannot be terminated early, with certain exceptions (such as compulsory early termination for property). The terms of rent payment (amount, frequency, indexation if applicable, payment in advance or in arrears) are precisely defined.
Obligations of the lessee
In addition to the punctual payment of rent, the contract details your obligations as a user :
- Reasonable use : You must use the goods in accordance with their intended purpose and the supplier's recommendations (article 1728 of the Civil Code, implicitly).
- Interview: This is a crucial point. Leasing contracts very often derogate from ordinary leasing law (articles 1719 and 1720 of the Civil Code). They generally make the lessee responsible for in full maintenance and repair costs, including the cost of major repairs (Those affecting the structure of the building, for example, are normally the responsibility of the landlord under article 606 of the Civil Code). You therefore assume a much wider responsibility than a traditional tenant.
- Risks : Similarly, contracts almost always transfer the risk of loss, theft or destruction of the asset to the lessee, even in cases of force majeure (fire, natural disaster, etc.). If the asset disappears, not only do you lose its use, but the contract often provides for its termination and the payment of substantial compensation to the lessor (often equal to the remaining rental payments due).
The lessor's (limited) obligations
As the lessor's role is mainly financial, its contractual obligations are often reduced to a minimum:
- Initial provision : This is done via delivery by the supplier, which you take delivery of. The lessor does not deliver the goods directly to you.
- Transfer of shares : In return for not having a direct warranty on defects in the goods, the lessor transfers to you, under the terms of the agreement, the claims that it holds, as the buyer, against the supplier (warranty for latent defects, action for conformity, etc.).
Subletting or assigning the contract is frequently prohibited
Unless expressly authorised by the lessor, contracts generally prohibit the lessee from subletting the asset or assigning the leasing contract to a third party. The lessor wishes to control who uses the asset it owns and who owes it money. Any unauthorised subletting or assignment constitutes a breach of contract that may result in termination of the contract.
Guarantees and insurance: securing the deal
To protect itself against financial risks, the the lessor generally requires or offers additional security.
Securities required from the lessee
It is very common for the lessor to ask for personal guarantees to cover rental payments. Most often, this involves a surety bond personal and joint and several liability of the director of the lending company. Sometimes a first demand guarantee (or autonomous guarantee) may be required, particularly from the parent company. These commitments have far-reaching consequences for the guarantors.
Insurance for the rented property
The contract systematically requires you to insure the asset against all risks (damage, loss, theft, etc.) for the entire duration of the lease. This insurance must be taken out "on behalf of" the lessor, who is the designated beneficiary in his capacity as owner. In the event of damage destroying the property, the compensation paid out by the insurer will generally be deducted from the cancellation indemnity that you owe to the lessor.
Death and disability insurance
For sole proprietorships or small companies where the business relies heavily on the manager, the lessor often offers or requires insurance to cover the death or disability of this key person. In the event of a claim, the insurance will reimburse the lessor for the balance of the finance, thereby relieving the company or its heirs of part of the debt.
Advertising the contract: why is it important?
To ensure that the lessor's right of ownership of the leased asset is fully effective vis-à-vis third parties, the law provides for specific disclosure of the leasing contract.
Publicity at the registry for movable property
Leasing contracts for movable assets (equipment, vehicles, etc.) must be entered in a special register held at the registry of the commercial court to which the lessee belongs (article L. 313-10 and R. 313-3 et seq. of the French Monetary and Financial Code). The main purpose of this publication is to inform third parties, in particular your company's other creditors, that you are not the owner of the assets you are using. If this information is not published, or is not published correctly, the lessor runs the risk of not being able to assert his right of ownership in the event of your company's insolvency proceedings, and therefore of not being able to recover his asset.
Land registration for buildings
For property leasing contracts with a term of more than 12 years, the contract is registered with the land registry (formerly the mortgage registry), in accordance with the rules for registering long-term leases (decree of 4 January 1955). This ensures that the contract is enforceable against third-party purchasers or mortgagees of the property.
The end of the contract: the lessee's options
Barring an incident leading to early termination (which we'll look at in the next article), the leasing contract ends on the scheduled expiry date. At that point, you generally have several options open to you.
Full term: time to choose
The contract sets out the terms and conditions under which you must inform the lessor of your choice a few months before the expiry date. There are three main possible outcomes.
Exercising the purchase option
This is the most common outcome and the initial objective of many businesses. You may decide to acquire full ownership of the property. To do this, you generally need to be up to date with your rental payments and pay the lessor the residual value. This amount, fixed at the outset in the contract, corresponds to the part of the price of the asset not yet amortised by the lease payments. It is often symbolic or much lower than the market value if the lease term corresponded to the economic life of the asset. Payment of this sum effects the transfer of ownership.
Return of the property
If the asset has become obsolete, or if you no longer have any use for it, you may choose not to exercise the option and to return the equipment or building to the lessor. This return must be in a good state of repair (normal wear and tear is tolerated) and generally at your expense, in accordance with the terms of the contract.
Lease renewal
Less systematically, some contracts offer the possibility of continuing to rent the property beyond the initial term. This is often a new contract, with renegotiated terms and conditions (including a reduced rent, as the property has already been depreciated).
Early termination for property
Point specific to property leasing: the law (article L. 313-9 of the French Monetary and Financial Code) requires that the contract stipulate the conditions under which you, the lessee, may request a "credit transfer". early terminationbefore the agreed term. However, this option is subject to restrictions and is generally accompanied by the payment of substantial compensation to the lessor.
A leasing contract is therefore made up of a series of stages, governed by precise clauses whose scope must be carefully assessed. From the initial selection of the asset to the final decision at the end of the contract, including maintenance and insurance obligations and the consequences of any sale, each phase has significant legal and financial implications for your company.
A clear understanding of the terms of your leasing contract and careful monitoring of its performance are essential. If you are in any doubt, or before taking an important decision (such as assigning the contract or exercising the option), legal advice can help you to secure your choices and protect your company's interests. Don't hesitate to contact us contact us for advice.
Sources
- Monetary and Financial Code: in particular articles L. 313-7 to L. 313-11, R. 313-3 et seq. (advertising of movable property), L. 511-5.
- Civil Code: articles 1717 (subletting/assignment), 1719, 1720, 1728, 1732 (rental obligations), 606 (major repairs), 1134 old / 1103 new (binding force), 1152 old / 1231-5 new (penalty clause).
- Decree no. 55-22 of 4 January 1955 reforming land registration.
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