Law on financial leasing

Parties to a financial leasing transaction

Law on financial leasing governs:

  • financial leasing transactions
  • financial lease agreements
  • rights and obligations of parties to a financial leasing transaction
  • terms of performing financial leasing transactions
  • supervision of Lessors’ operations and
  • the Register of Financial Leases.

Financial Leasing Transaction

A financial leasing transaction means a financial intermediation transaction which is performed by the Lessor and implies that the Lessor, while retaining the right of ownership of the Lease Asset, transfers to the Lessee, for an agreed period of time, the right to possession and use of the Lease Asset, including all risks and rewards incidental to ownership, in return for the Lease Payment which the Lessee pays to the Lessor, provided that at least one of the following conditions has been met:

  • the Lease Asset is chosen by the Lessee
  • the right of ownership of the Lease Asset is transferred from the Lessor to the Lessee after the expiry of the time period for which the agreement was concluded and after the total agreed amount of the Lease Payment has been paid
  • the Lessee has the right of option to purchase the Lease Asset after the total agreed amount of the Lease Payment has been paid
  • the Lessee has the right to extend the term of the Lease Agreement
  • the term for which the Lease Agreement is concluded is equal to the period of depreciation of the whole or a substantial part of the Lease Asset.

Lease Asset

The financial lease asset shall be any:

  • movable, durable goods (equipment, machinery, vehicles, etc.)
  • immovable property that can be the subject of the right of ownership within the meaning of the law governing proprietary relations.

Parties to a financial leasing transaction

Parties to a financial leasing transaction include:

  • the Lessor
  • the Lessee
  • the Supplier of the Lease Asset.

Definition and Activity of the Lessor

The Lessor means a limited liability company or a joint stock company with its head office located in the Republic of Serbia and licensed by the National Bank of Serbia to engage in financial leasing transactions in compliance with Law on financial leasing.

The Lessor shall engage in the financial leasing activity as its predominant business activity, within the meaning of regulations governing the classification of activities.

In addition to the financial leasing activity, the Lessor may also engage in the leasing of returned Lease Assets, as well as in activities normally associated with financial leasing activities (training of Lessees with regard to the usage of the Lease Asset, services of installation, disassembly, maintenance of the Lease Asset, procurement of spare parts, etc.).

The Lessor may, for a charge, dispose of the Lease Assets returned to its possession, after the expiry of the Lease Agreement and/or Rental Agreement.

The Lessor shall not grant loans.

The Founding and Initial Capital

The initial capital of the Lessor shall be provided by its founders from their own funds, and it may be in pecuniary and non-pecuniary form.

The founders’ own funds mean assets that do not originate from loans or credits.

The non-pecuniary assets from paragraph 1 of this Article may be items and rights used in the function of operations of the Lessor.

For the performance of financial leasing transactions that have movable property as the lease asset, the pecuniary portion of the initial capital of the Lessor shall not be lower than the dinar equivalent of EUR 500,000 at the official middle exchange rate as at the payment date.

For the performance of financial leasing transactions that have immovable property as the lease asset, the pecuniary portion of the initial capital of the Lessor shall not be lower than the dinar equivalent of EUR 5,000,000 at the official middle exchange rate as at the payment date.

Rights and Obligations of Recipient of Leasing

Taking over of the Subject of Leasing

A recipient of leasing shall be bound to take over the subject of leasing in the manner and at the time and location as stipulated by contract.

Rescission of Contract due to Non-delivery

If a supplier fails to deliver the subject of leasing to the recipient of leasing, if he is late in delivering it, or where the subject of leasing has a substantive defect, the recipient of leasing, in accordance to the Law regulating obligations (contracts and torts), may deny the delivery or repudiate the contract of leasing, and shall be entitled to compensation of damage.

A recipient of leasing who has repudiated the contract shall be entitled to refund of the fee already paid in accordance to the contract of leasing, reduced by the amount representing the compensation for the benefit realised by the recipient of leasing from the subject of leasing (reasonable amount).

Utilization of the Subject of Leasing

A recipient of leasing shall be bound to utilise the subject of leasing by applying the attention of a good businessman, i.e. a good master of the house, like as in accordance to the contract or the purpose of the subject of leasing.

Maintenance of the Subject of Leasing

A recipient of leasing shall be bound to maintain the subject of leasing in working condition and to make necessary repairs of the subject of leasing.

Payment of Leasing Fee

A recipient of leasing shall be bound to pay to the grantor of leasing a leasing fee in the amounts, at the time-limits, and in the way as stipulated by the contract of leasing.

Rescission of Contract due to Failure to Pay the Leasing Fee

A grantor of leasing may repudiate the contract should the recipient of leasing fail to pay the first installment on time.

Where after the payment of first installment the recipient of leasing fails to pay on time one or several consecutive installments whose total amount makes one quarter of the entire leasing fee, the grantor of leasing may repudiate the contract, or may request from the recipient of leasing the payment of the remaining leasing fee, including the interest

By exception, should the recipient of leasing fail to pay one installment, the grantor of leasing may repudiate the contract as far as all future obligations of payment are concerned, if it is obvious that, on the ground of given circumstances, they too would not be fulfilled.

Rescission of contract due to failure of payment of the leasing fee may be regulated by contract in another way, within the limits of compulsory regulations, the public order, and the good usage.

Indemnity

Compensation of damage caused by the failure to pay the leasing fee should bring the grantor of leasing into a position in which he would have been were the recipient of leasing fulfilled his obligation in accordance to the contract.

Risk of Accidental Loss of or Damage to the Subject of Leasing

Risk of accidental loss of or damage to the subject of leasing shall be born by the recipient of leasing. Unless otherwise stipulated by contract, the risk shall be incurred by the recipient of leasing at the moment of taking over the subject of leasing.

Returning the Subject of Leasing

After the termination of contract, the recipient of leasing shall be bound to return to the grantor of leasing, or the person designated by the grantor of leasing, the undamaged subject of leasing, together with accessories, unless the right has been stipulated in the contract of the recipient of leasing to buy up the subject of leasing, or to extend the validity of contract.

The recipient of leasing shall not be liable for the wearing out of the subject of leasing as a consequence of its regular use, the same applying to alterations effected in agreement with the grantor of leasing.

Duty to Insure

Unless otherwise stipulated by contract, the recipient of leasing shall be obliged to insure the subject of leasing against risks provided for by the contract

Handing over the Subject of Leasing to Another for Use

After obtaining a consent in writing of the grantor of leasing, the recipient of leasing may hand over the subject of leasing, in its entirety or in parts, to a third party for use.

The handing over of subject of leasing to a third party for use may be excluded by contract, or may be stipulated otherwise

Right and Duties of Supplier

Delivery of the Subject of Leasing

Unless being stipulated by contract of leasing that the subject of leasing be delivered by the grantor of leasing, the supplier shall be bound to deliver the subject of leasing to the recipient of leasing in working condition, together with accessories, and in the way, at the time and on the location as stipulated by the contract of delivery.

Alterations of Contract

Where the recipient of leasing has agreed with the contents of the contract entered into between the grantor of leasing and the supplier, on the ground of which the grantor of leasing has acquired the right of ownership over the subject of leasing, subsequent alterations of that contract shall have no effect for the recipient of leasing, unless he has accepted them.

Liability of Supplier Towards the Recipient of Leasing

If the supplier fails to deliver the subject of leasing to the recipient of leasing, if he fails to deliver it on time, or if the subject of leasing has a substantive defect, the recipient of leasing shall have against the supplier the rights that, in terms of the Law regulating the obligations (contracts and torts), he would otherwise have as a party in a contract with the supplier.

By exception, the recipient of leasing shall not be entitled, without the consent of the grantor of leasing, to repudiate or cancel the contract concluded between the grantor of leasing and the supplier, which shall apply also to the right to claim the price reduction.

The supplier shall not be liable for one and the same damage to the grantor of leasing and the supplier.

Joint and Several Liability of Grantor of Leasing and Supplier

If the grantor of leasing has chosen the supplier, he shall be jointly and severally liable to the recipient of leasing if the subject of leasing is not delivered to the recipient of leasing, if it is not delivered on time, or if the subject of leasing has a substantive defect.

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