According to Ordinance No. 51 of August 28, 1997, which regulates this matter, leasing operations are those procedures by which one party, called the lessor/financier, transfers for a specified period the right to use an asset, of which it is the owner, to the other party, called the lessee/user, at the latter’s request, in exchange for a periodic payment, known as a leasing installment, and at the end of the leasing period, the lessor/financier undertakes to respect the lessee/user’s option to purchase the asset, to extend the leasing contract without changing the nature of the lease, or to terminate the contractual relationship.
The lessee/user may opt to purchase the asset before the end of the lease term, but not earlier than 12 months, if the parties so agree and if all obligations assumed under the contract are paid.
With regard to the subjects of a lease agreement, on the one hand, we have the lessor-financier, which, as a leasing company, may be any Romanian or foreign legal entity, and on the other hand, the lessee-user, which may be any natural or legal person. Of course, as this is a contract, the conditions of validity of a contract must be complied with, in particular the capacity to contract, but the contract must also be in writing.The legislator has included in the legal provisions of the ordinance mandatory clauses that a contract must include, as provided for in Articles 6, 9, 10, etc., among which we find: the clause defining the lease agreement as a financial or operating lease; the name of the asset that is the subject of the lease agreement and its identifying characteristics; the exact amount of the monthly lease payments and the exact date of payment, etc.
According to this legal operation, the mechanism is as follows: the lessor-financier transfers for a specified period the right to use an asset owned by them to the lessee/user in exchange for a periodic payment called a lease payment. At the end of the leasing period, the lessor/financier is obliged to respect the lessee/user’s right to choose whether to purchase the asset, extend the contract, or terminate the contractual relationship. The subject matter of the leasing contract is nothing other than the asset that the lessee/user wishes to use during the contractual period. Therefore, the initiative to conclude a leasing contract lies with the lessee/user. The latter is required by law to submit a firm request to the financier, describing, specifying, and detailing the asset that will be the subject of the leasing contract.
There are two types of leasing contracts, namely financial and operational, so it is necessary to compare them.
In the case of financial leasing, the lessor makes a certain asset available to a user for a fixed period in exchange for periodic payments (installments). The main feature is that, at the end of the contract, the user has the option to purchase the asset at a pre-determined residual value, thus becoming the owner.
Secondly, operating leases require that the asset be returned to the supplier at the end of the contract. Therefore, the fundamental difference between the two types of leasing lies in the fact that through financial leasing, the user can become the owner of the contracted tangible asset, whereas through operating leasing, this is not possible, so temporary use or periodic renewal of the assets is required.
There are other significant differences between the two types of contracts, which concern aspects that are essential to the beneficiaries’ activities, such as responsibilities, financial implications, and more. In terms of responsibilities during the contract, in the case of operational leasing, the risks associated with the use of the cars are assumed by the company that provides them to the beneficiaries, and this prerogative has led to increasingly intense acceptance in recent times. Financial leasing, on the other hand, transfers the obligations involved in the maintenance and management of the fleet of vehicles or cars to the beneficiary. This includes taxes, such as CASCO for legal entities, and the management of any car damage, which are the responsibility of the beneficiary.
The subject of the leasing contract is the movable or immovable property that the financier purchases from a supplier and transfers to the user for use for a fixed period in exchange for periodic payments (leasing instalments). The asset that is the subject of the lease must meet the following conditions: it must be individually identifiable or identifiable (e.g., a car, a machine, equipment, real estate); it must be able to be put into use and operated according to its intended purpose; can subsequently be transferred to the user as property (in financial leasing) or returned to the financier (in operational leasing).
The costs of a lease agreement vary and involve several payment operations, such as the down payment, the total amount of the installments, and the residual value.
Thus, the entry value refers to the purchase cost, the value at which it was purchased, and the total value represents the total value of the lease payments, plus the residual value. The residual value is the value within the financial lease, at which, after the user has paid all the lease payments provided for in the contract, as well as all other amounts due under the contract, the transfer of ownership of the asset to the user takes place and is determined by the contracting parties. The lease payment represents, within the lease, the share of the entry value of the asset and the lease interest, which is determined on the basis of the interest rate agreed by the parties, and in the case of operating leases, the rent is determined by agreement between the parties.
With regard to the liability of the parties, Chapter IV of GO 51/1997 also regulates the liability of the parties, from which the following results:
-if the user fails to fulfill their obligation to receive the goods, the financier has the right to terminate the lease agreement;
-if the user fails to pay the full amount of the installment specified in the agreement for two consecutive months, the financier has the right to terminate the lease agreement;
-if the agreement is terminated, the user must return the goods and pay all amounts due up to the date on which the goods are returned;
-if the financier does not respect the user’s option to purchase the asset after the expiry of the contract, the user has the option of claiming damages or requesting the court to issue a judgment, which will take the place of a deed of sale.
The termination of the lease agreement may occur, first, as a result of its expiry, and second, through the intervention of certain causes for termination. Thus, when the lease period expires, the contract will terminate, and the user may exercise one of the three options permitted by law: purchase of the asset by paying the residual value, extension of the lease contract for an additional period agreed by both parties, return of the asset to the financier, and definitive termination of the contractual relationship. The contract may also be terminated before expiry, as mentioned above, by cancellation.
In the case of an operating lease agreement, it terminates if the user has fulfilled all payment obligations to the lessor and returned the vehicle in perfect working order and with a normal degree of wear and tear for the mileage traveled.
At the end of a finance lease agreement, after paying the residual value, all lease payments provided for in the agreement, as well as all other amounts due under the agreement and fulfilling all obligations to the lessor, the user becomes the owner of the vehicle.
Analyzing this leasing contract and leasing operations, it is worth mentioning the advantages and disadvantages of such a contract/operations. Therefore, the advantages of financial leasing include:
-flexibility regarding the down payment amount and the duration of the financing period;
-flexibility of the residual rate, which can reduce the monthly rate;
-amortization of expenses related to the asset (insurance, exchange rate differences, VAT, and interest), and the user can become the owner of the asset at the end of the contract.
On the other hand, the disadvantages of a financial leasing contract include:
-mandatory payment of the down payment upon signing the contract;
-insurance costs increase the leasing rate;
-the costs related to the maintenance of the car borne by the user, and the user is also responsible for the risks associated with the use of the contracted asset.
In the case of an operating lease, there may be several disadvantages, such as: at the end of the contract, the user cannot take possession of the contracted asset; if the number of kilometers specified in the contract has been exceeded, the user will have to pay additional fees to the supplier.
Operating leases and finance leases are two distinct forms of financing, each tailored to different user needs. Finance leases are suitable when the main objective is to acquire ownership of the asset at the end of the contract. This involves assuming the risks and responsibilities associated with use, but offers the advantage of deferred payment.
Considering the above, the choice between financial and operating leases depends on the user’s purpose: ownership and long-term investment – financial lease; flexibility, controlled costs, and periodic renewal of equipment – operating lease. Thus, each form of leasing can become the optimal solution depending on the economic strategy and real needs of the user.
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