Print page Send link

Finance lease and operating lease

We assist both lessors and lessees on leasing of residential and non-residential property, land lease, consumer lease, lease of motor vehicles, etc.  In particular, we prepare contractual documentation and advise on the following matters:

Knowledge & Insights

Finance lease 

The transactions of the finance lease normally contemplates that the lessee takes the risk of loss and benefit of assets under the lease. In case of the finance lease, the lessee receives a possession of the property and pays the lease rentals that cover the loss of capital and agreed interest. The Lithuanian Civil Code understands the lessor as a financing party that purchases property from a seller following the instructions  of the lessee. Upon payment of the total amount provided for in the leasing agreement, the title of the property shall pass to the lessee, unless the parties agree otherwise. 

The Lithuanian law is liberal with regards to exercising of the finance lease. This transaction is not subject to any licensing requirements. The finance lessor can be a bank or any other legal entity. The subject matter of the finance lease arrangement can be any non-consumable movables or immovable property, save land and natural resources. The finance lessor shall have a right to assign the lease only if a prior written consent of lessee was received. The lessor shall not be entitled to mortgage the property on lease without a prior written consent of the lessee. 

The lessee must maintain the assets properly at the same level as delivered given due regard to the wear and tear and the derogations as may be specified in the finance lease agreement. In case this duty is breached by the finance lessee, the lessor would normally be entitled to require the immediate payment of the full purchase price or terminate the lease and claim for damages.

Operating lease 

The operative lease is more often simply called as the “lease”. By reason of the Lithuanian law, the subject matter of the lease can be any non-consumable property. The lease agreement must specify the assets that are transferred by the Lessor to the  Lessee. If the specification or other identifiable features of assets are not identified, the lease shall be deemed as ineffective.  

Customarily, the main risk and rewards lies with the lessor in this type of lease, and lessor get the property back after the agreed time. Unless the lease agreement specifies otherwise, the Lithuanian Civil Code specifies that the lessor is responsible for a capital repair of the property on lease, whilst the lessee is responsible for the on-going repair and proper maintenance of the property on lease. The lessee shall have the right to terminate the lease if the property is unfit for the agreed use.

By reason of the Lithuanian law, the lease agreement concluded for longer period than one (1) year must be made in writing. The lease concluded for a period longer than one (1) year may be used against third persons only if it was properly registered in the public register. The lease agreement can be concluded for an unspecified term, but in any event for not longer than hundred (100) years.

In case the lease agreement is concluded for an unspecified period of time, a person may terminate it by giving a one (1) month notice if the subject matter of the lease were movables or three (3) month term if the subject matter of the lease was immovable property. The lease agreement may specify longer terms of notices. If following expiration of the lease term, a person uses the property for a longer period than ten (10) days and the lessor does not object to such use, it shall be deemed that the lease is extended for an unspecified period.

The Lithuanian Civil Code specifies that in the event the property on lease is sold or mortgaged or the proprietary rights of the owner are otherwise limited, the lessor must notify the buyer about the on-going lease agreement, and the lessee about the anticipated sale or other liens.

Hire purchase 

It is also possible to combine lease with a purchase option, which entitles the buyer to purchase assets at the end of the lease period for the agreed price or earlier for amount of unpaid installments.  Lithuanian Civil Code permits the seller to retain the title until the buyer pays the purchase price in full. The fact that the title stays with the seller and when the goods are purchased for business, may be used against third parties only if the such agreement including the title retention clause, is properly registered in the public register. By reason of the Lithuanian law, the hire purchase agreement has to be concluded in writing, the agreement must specify the purchase price amount of each installment, the terms for payment of installments, and the payment terms.

In case it agreed that the title is passed to the buyer not following the delivery of goods, but after the purchase price is paid in full, it shall be deemed that the property was mortgaged to the seller (mandatory hipotheca) until the full payment, unless the parties agree otherwise. In case such property is seized or transferred to third persons, the seller shall be entitled to claim the immediate payment of the full price.  

Šulija Partners Law Firm Vilnius, registered office Jogailos street 4, 3rd floor, Vilnius, LT-01116, Lithuania, fax +370 52051926, e-mail: info@SulijaPartners.com

Contact details | Sitemap | Know your customer | Privacy policy | Feedback | Links | Terms and Conditions | Attorney advertising | Copyright Back to the top