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02 February 2018
Definition of 'financial lease'
Rules governing breach and termination of agreement
Law 124/2017 (the Competition Law), which entered into force on August 29 2017, introduced long-awaited legislation on financial leases. As a result, the legislature has finally established a clear legal framework by defining:
The Italian legal system previously lacked a specific definition of a 'financial lease', despite the fact that several provisions governing their effects are included in the bankruptcy law and other pieces of legislation.
The Competition Law defines a 'financial lease' as an agreement in which a lessor – which must be a bank or a financial intermediary enrolled with the register provided for in Article 106 of Legislative Decree 385 of September 1 1993 (the Banking Law) – undertakes to buy or build an asset chosen by the lessee, which takes on all associated risks, including those relating to the loss of the asset.
The asset is made available to the lessee for a set period of time for a consideration that must take into account the purchase or construction price and the duration of the agreement. On the agreement's expiry, the lessee can:
This definition transposes the features of financial lease agreements as developed over time in accordance with market practice. The definition is general in scope and applies regardless of the nature of the underlying assets, including both real estate properties and movable assets (eg, machinery, equipment, vehicles and ships).
The Competition Law clarifies, in terms of quality and quantity, when a breach by the lessee can be deemed as serious and, thus, entitles the lessor to terminate the contract.
Failure to pay is serious if it concerns:
On termination of the agreement, the lessor has the right to demand the return of the asset and dispose of it at market value through a sale or new lease in accordance with procedures to be governed by the transparency, swiftness and publicity criteria.
The lessor must then transfer to the lessee the net proceeds of the sale, after deducing:
If the proceeds of the sale are lower than the amount due by the lessee to the lessor, the lessor has the right to claim the difference from the lessee as an unsecured and unsubordinated claim.
The new rules on financial leases are expected to provide legal certainty in a matter formerly ruled by case law, which gave rise to several conflicting decisions.
The Competition Law strives to provide clarity and certainty regarding the rights of the parties involved.
These provisions make financial leases a more transparent tool with the aim of boosting their appeal and increasing investment by Italian companies, thus fostering economic growth.
For further information on this topic please contact Andrea Giannelli or Luca Autuori at Legance Avvocati Associati by telephone (+39 02 89 63 071) or email (email@example.com or firstname.lastname@example.org). The Legance Avvocati Associati website can be accessed at www.legance.it.
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