UNIDROIT Model law on leasing 

Nidhi Bothra nidhibothra@rediffmail.com

Leasing is considered to be an important source of capital for development of infrastructure and industries, particularly in developing countries. The Joint Session of the UNIDROIT General Assembly and UNIDROIT Committee of general experts finalized and adopted the draft model law of leasing in Rome on 13 November, 2008, the salient features of which are mentioned below:

Features of Lease:  Features Financial Lease Lease other than Financial

Lease 1 Definition Lease with or without the

option to purchase all or part of the asset, wherein lessee acquires asset from the supplier based on the specifications provided to him and the lease rentals take into account amortization of whole or substantial part of the investment of the lessor

Leases not included in the definition of financial lease

2 Beneficiary of supply agreement with regard to asset that is leased

Lessee Lessor

3 Irrevocability and independence

Duties of the lessor and lessee becomes irrevocable after the delivery and acceptance of the asset by the lessee

Lessor and lessee may decide to make some of the duties irrevocable and independent by specifically identifying such duties

4 Risk of loss Risk of loss is borne by lessee

Loss retained by the lessor

5 Damage to the asset In case the asset is damaged not being lessee or lessor’s fault, before the delivery of the asset, the lessee may claim compensation/ remedies from the supplier

• If the loss is total – lease is terminated

• If the loss is partial, lessee make seek remedies from the lessor and demand allowance from the rentals due

6 Acceptance and Remedies • In case the asset is not • In case the asset is not

delivered or delivered late lessee may seek remedies from the supplier

• Once the lessee signifies his acceptance of the asset, lessee is entitled to damages with regard to the asset from the supplier

delivered or delivered late lessee may reject the asset and withhold rentals or seek remedies from the lessor

• Once the lessee signifies his acceptance of the asset, lessee is entitled to damages with regard to the asset from the lessor

7 Warranty of acceptability and fitness for purpose

Supplier warrants that the asset in question is fit for ordinary purposes, in the trade under description in the lease

Lessor gives the warranty

Rights & Obligations of the lessee: • Once the asset is delivered lessee must provide his acceptance to the lessor or supplier

signifying that the asset conforms to the agreement • Lessee shall take reasonable care of the asset and shall keep it in the condition as it was

delivered subject to the wear and tear • Rights and obligations of the lessee may not be transferred without the consent of the

lessor, which may not unreasonably withheld • At the end of the lease period, unless the lessee exercises the right to buy the asset or

renew the lease period, he must return the asset to the lessor

Rights & Obligations of the lessor: • Rights of the lessor under the lease may be transferred without consent of the lessee,

however the duties of the lessor can only be transferred with the consent of the lessee • At the end of the lease period the lessor has the right to take possession of the asset and

dispose of the asset. • Lessor warrants that the quiet possession of the lessee will not be disturbed by any person

who claims to have a superior right or title or who makes a claim by way of infringement The law does not apply to leases that function as security right. The law shall not be applicable for lease of large aircraft equipment unless agreed by the parties in writing. This model law is intended to provide countries a framework, to be able to adopt lease regulations based on the model and to harmonize the legal regulations of leasing on global basis.