UNIDROIT MODEL LAW ON LEASING
(as adopted on 13 November 2008 by the Joint Session of the UNIDROIT General Assembly and the UNIDROIT Committee of governmental experts for the finalisation and adoption of a draft model law on leasing, held in Rome from 10 to 13 November 2008)
THE JOINT SESSION OF THE UNIDROIT GENERAL ASSEMBLY AND THE UNIDROIT COMMITTEE OF GOVERNMENTAL EXPERTS FOR THE FINALISATION AND ADOPTION OF A DRAFT MODEL LAW ON LEASING, MEETING IN ROME ON 13 NOVEMBER 2008,
Recognising that leasing provides developing countries and countries in transition in particular with an important source of capital for the development of infrastructure and small- and medium-sized enterprises;
Aware that many States, and in particular those with developing economies and economies in transition, require a legal framework that will foster the growth of a nascent leasing industry and that other States, whilst already having a well-developed leasing industry, may nevertheless be interested in adopting this Law;
Convinced accordingly as to the usefulness of proposing a model law on leasing for consideration by national legislators, which may adapt it to meet their specific needs;
Committed to the purpose of harmonising legal regulations of leasing on a global basis in order to facilitate trade in capital goods;
Finding that the Unidroit Convention on International Financial Leasing, signed in Ottawa on 28 May 1988, has not only removed certain legal impediments to the international financial leasing of equipment, while maintaining a fair balance of interests between the different parties to the transaction for States Parties thereto, but has also frequently served as an important reference for States drafting their first leasing laws;
Considering the legal regimen enshrined in the aforementioned Convention as a useful starting point for the development of a comprehensive model law governing such transactions;
Being of the view that in the preparation of such a model law priority must be given to the establishment of rules governing aspects of leasing other than its fiscal and accounting aspects;
Mindful of the proven usefulness of the UNIDROIT Principles of International Commercial Contracts as a model for legislators in the general context of contract law as opposed to the specific area of that law reserved to leasing;
Taking account of the important contribution made by developing countries and countries in transition which, though not members of UNIDROIT, served on the Committee of governmental experts in the preparation of this Law;
HAS APPROVED THE FOLLOWING TEXT OF THE UNIDROIT MODEL LAW ON LEASING:
CHAPTER I: GENERAL PROVISIONS
Article 1 ― Sphere of application
This Law applies to any lease of an asset, if the asset is within [the State], the centre of main interests of the lessee is within [the State] or the lease provides that [the State’s] law governs the transaction.
Article 2 ― Definitions
In this Law:
Asset means all property used in the craft, trade or business of the lessee, including immovables, capital assets, equipment, future assets, specially manufactured assets, plants and living and unborn animals. The term does not include money or investment securities. No movable shall cease to be an asset for the sole reason that it has become a fixture to or incorporated in an immovable.
Financial lease means a lease, with or without an option to purchase all or part of the asset, that includes the following characteristics:
(a) the lessee specifies the asset and selects the supplier;
(b) the lessor acquires the asset in connection with a lease and the supplier has knowledge of that fact; and
(c) the rentals or other funds payable under the lease take into account or do not take into account the amortisation of the whole or a substantial part of the investment of the lessor.
Large aircraft equipment means all “aircraft objects” as defined in the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment, signed in Cape Town on 16 November 2001.
Lease means a transaction in which one person provides another person with the right to possess and use an asset for a specific term in return for rentals. The term includes a sub-lease.
Lessee means a person who acquires the right to possess and use an asset under a lease. The term includes a sub-lessee.
Lessor means a person who provides another person with the right to possess and use an asset under a lease. The term includes a sub-lessor.
Person means any legal, private or public entity or an individual.
Supplier means a person from whom a lessor acquires the asset for lease under a financial lease.
Supply agreement means an agreement under which a lessor acquires the asset for lease under a financial lease.
Article 3 ― Other laws
Article 4 ― Interpretation
Article 5 ― Freedom of contract
Except as provided in Articles 7(4) and 22(3) and the law of [this State], the lessor and the lessee may derogate from or vary the effect of this Law and are free to determine the content of a lease.
CHAPTER II: EFFECTS OF A LEASE
Article 6 ― Effectiveness between the parties and as against third parties
Except as otherwise provided in this Law:
(a) a lease is effective and enforceable according to its terms between the parties; and
(b) the rights and remedies of such parties are enforceable against purchasers of the asset and against creditors of the parties, including an insolvency administrator.
Article 7 ― Lessee under financial lease as beneficiary of supply agreement
Article 8 ― Priority of liens
Except as otherwise provided by the law of [this State]:
(a) a creditor of the lessee and the holder of any interest in land or personal property to which the asset becomes affixed take subject to the rights and remedies of the parties to the lease and cannot impair any interest arising under the lease; and
(b) a creditor of the lessor takes subject to the rights and remedies of the parties to the lease.
Article 9 ― Exclusion of liability of the lessor
In a financial lease, the lessor when acting in its capacity of lessor and as owner within the limits of the transaction, as documented under the supply agreement and the lease, shall not be liable to the lessee or third parties for death, personal injury or damage to property caused by the asset or the use of the asset.
CHAPTER III: PERFORMANCE
Article 10 ― Irrevocability and independence
(b) In a lease other than a financial lease, the lessor and lessee may agree to make any of their duties irrevocable and independent by specifically identifying each duty that is irrevocable and independent.
Article 11 ― Risk of loss
(a) risk of loss passes to the lessee when the lease is entered into; and
(b) when an asset is not delivered, is partially delivered, is delivered late or fails to conform to the lease and the lessee enforces its remedies under Article 14, the lessee, subject to Article 18(1), may treat the risk of loss as having remained with the supplier.
Article 12 ― Damage to the asset
(a) if the loss is total, the lease is terminated; and
(b) if the loss is partial, the lessee may demand inspection and either treat the lease as terminated or accept the asset with due allowance from the rentals payable for the balance of the lease term for the loss in value but without further right against the lessor.
Article 13 ― Acceptance
(a) in a financial lease, the lessee is entitled to damages from the supplier if the asset does not conform to the supply agreement; and
(b) in a lease other than a financial lease, the lessee is entitled to damages from the lessor if the asset does not conform to the lease.
Article 14 ― Remedies
(b) In a lease other than a financial lease, once a lessee has accepted the asset, the lessee may reject the asset under the preceding sub-paragraph only if the non-conformity substantially impairs the value of the asset and either
(i) the lessee accepted the asset without knowledge of the non-conformity, owing to the difficulty of discovering it, or
(ii) the acceptance by the lessee was induced by the assurances of the lessor.
(c) In a lease other than a financial lease, when the lessee rejects an asset in accordance with this Law or the lease, the lessee is entitled to withhold rentals until the nonconforming delivery has been remedied and to recover any rentals and other funds paid in advance, less a reasonable sum corresponding to any benefit the lessee has derived from the asset.
(d) If the lessee rejects an asset in accordance with paragraph 2 and the time for performance has not expired, the lessor or supplier has the right to remedy its failure within the agreed time.
Article 15 ― Transfer of rights and duties
(ii) The lessor and lessee may agree that the lessee shall not raise against a transferee any of its defences or rights of set-off against the lessor other than those arising from the incapacity of the lessee.
(iii) Nothing in this sub-paragraph shall affect the lessee’s ability to assert its rights against the lessor.
(b) The duties of the lessor under the lease may be transferred only with the consent of the lessee, which may not be unreasonably withheld.
Article 16 ― Warranty of quiet possession
(a) the lessor warrants that the quiet possession of the lessee will not be disturbed by a person who has a superior title or right or who claims a superior title or right and acts under the authority of a court, where such title, right or claim derives from a negligent or intentional act or omission of the lessor; and
(b) a lessee that furnishes specifications to a lessor or a supplier shall hold the lessor and the supplier harmless against any claim of infringement that arises out of compliance with the specifications.
Article 17 ― Warranty of acceptability and fitness for purpose
Article 18 ― Duties of the lessee to maintain and return the asset
(b) When a lease sets forth a duty to maintain the asset or the manufacturer or supplier of the asset issues technical instructions for the use of the asset, the compliance by the lessee with such agreement or instructions shall satisfy the requirements of the preceding subparagraph.
CHAPTER IV: DEFAULT AND TERMINATION
Article 19 ― Definition of default
Article 20 ― Notices
An aggrieved party shall give a defaulting party notice of default, notice of enforcement, notice of termination and a reasonable opportunity to cure.
Article 21 ― Damages
Upon default, the aggrieved party is entitled to recover such damages as will, exclusively or in combination with other remedies provided by this Law or the lease, place the aggrieved party in the position in which it would have been had the agreement been performed in accordance with its terms.
Article 22 ― Liquidated damages
Article 23 ― Termination
(b) Except as otherwise provided in sub-paragraph (c), after the asset subject to the lease has been delivered to and accepted by the lessee, the lessee in a financial lease may not terminate the lease upon fundamental default by the lessor or the supplier but is entitled to such other remedies as are provided by the agreement of the parties and by law.
(c) In the event of a fundamental default by the lessor in respect of the warranty of quiet possession referred to in Article 16, the lessee in a financial lease may terminate the lease.
Article 24 ― Possession and disposition
After the lease comes to an end or is terminated, the lessor has the right to take possession of the asset and the right to dispose of the asset.