10TH ANNIVERSARY OF COMPANY LAW

(Riga, 20-21 September 2012)

THE UNIDROIT MODEL LAW ON LEASING

by Mr M.J. Stanford

Immediate past Deputy Secretary-General

Unidroit

Objectives

• Potential of leasing as an engine of growth

• Particularly serious shortfall in infrastructure

financing in Africa

• Link between establishment of modern legal

framework for leasing and attracting of foreign

investment

Background

• Unidroit’s preparation of 1988 Convention on

International Financial Leasing

• Provision of a model for countries

contemplating drafting of national law

• International Finance Corporation’s efforts to

establish national leasing industries as a means

of creating sustainable private sector

development

Procedure

• Initial Advisory Board:

– three sessions (October 2005 / February 2006 /

April 2006) for preparation of first draft

– manned by leasing law experts from all parts of the

world, facilitated by Unidroit’s network of expertise

Procedure (continued)

• Intergovernmental negotiations

– Committee of governmental experts

• two sessions (May 2007 and April 2008), held in

Johannesburg and Muscat

– Joint session of Unidroit General Assembly and

Committee of governmental experts

• adopting Model Law in Rome in November 2008

– attended by 44 States

The Model Law: some general points

• Enacting States free to take this or that part -

and dispense with this or that part - to respect

special national exigencies

• Compactness and flexibility: almost total

freedom of contract

• Fair and balanced legal framework suitable for

countries at all levels of economic development

Sphere of application

• What is not covered?

– areas seen as particularly sensitive at the domestic

law level

• fiscal, accounting and supervisory aspects of leasing;

consumer leases

– neighbouring areas of the law covered by other

international instruments

• leases that function as security rights under the

UNCITRAL Legislative Guide; leases of large aircraft

equipment under the Cape Town Aircraft Protocol

Sphere of application (continued)

• What is covered?

– principal types of leasing covered

• financial leases

• leases other than financial leases (bailment)

– types of asset covered

• 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

Sphere of application (continued)

• Financial leases distinguished from other leases

– criteria common to both:

• a transaction in which one person provides another with the right to possess and use an asset for a specific term in return for rentals

– additional criteria peculiar to financial leases

• lessee specifies the asset and selects the supplier

• lessor acquires the asset in connection with a lease and the supplier knows this

• rentals take into account or do not take into account the amortisation of the whole or a substantial part of the lessor’s investment

Rights and duties of the parties

• To be distinguished according to whether

– rights and duties are common to both financial lease

and non-financial lease

– rights and duties differing according to whether the

lease is in the nature of a financial lease or a non-

financial lease

– rights special to financial leases

Rights and duties common to

financial leases and non-financial

leases

• Duty of lessor to provide lessee with right to

possession and use of asset for a specific term /

duty of lessee to pay lessor rentals

• Duty of lessee to take proper care of leased asset

and to keep it in the condition in which it was

delivered, subject to fair wear and tear

• Duty of lessee at end or termination of lease to

return asset to lessor in a reasonable condition

Rights and duties differing according

to whether the lease is a financial

lease or a non-financial lease

• Warranty of quiet possession

• Warranty of suitability for purpose

• Rule on the irrevocability and independence of

the duties of the lessor and the lessee

• Risk of loss

Rights special to financial leases

• Lessee is treated as the beneficiary of the

supplier’s duties vis-à-vis the lessor under the

supply agreement

• Lessor, in its capacity of lessor, will not be liable

to the lessee or third parties for death, personal

injury or damage to property caused by the

leased asset or use of that asset

Other issues covered by

the Model Law

• Default

• Damages (including liquidated damages)

• Termination

Follow-up and implementation

• Preparation by the Unidroit Secretariat of an official commentary on the Model Law

• Organisation of seminars in different parts of the world

– first seminar held in Beijing in May 2011

• Model Law has been implemented in Latvia

• Model Law being used by the I.F.C. in its work (Jordan, Tanzania, Yemen, Afghanistan and West Bank)

THANK YOU FOR YOUR

ATTENTION