3.3 Management of Capital Invested in Assets 27Leasing is always based on a contract between the lessor and the lessee. The
lessee may use the asset, but the ownership of the asset will remain with the les-
sor. This enables the parties to agree on the allocation of risks associated with the
residual value of the asset. On the other hand, the parties will have to address the
question of to whom the asset will belong after termination of the contract. Will it
return to the lessor or will remain with the lessee?
Leasing is a form of functional equivalent to security (see Volume II). The les-
sor wants to make sure that the lessor can enforce its ownership rights should the
lessee become insolvent. General rules on the enforcement of proprietary rights
will usually apply, because in Europe, the proprietary rights of a lessor are usually
not recognised as a distinct proprietary rights category on their own.^19 For exam-
ple, legal rules on the classification of a transaction as a “true sale” or an “assign-
ment by way of security” can influence the enforceability of the lessor’s proprie-
tary rights against third parties (Volume II).
Additional collateral is usually not necessary as the leased asset belongs to the
lessor. The lessor will ensure that the asset may be removed and repossessed in
case of repeated payment default as fixed in the contract. Repossession of the asset
may be constrained especially in consumer contracts and, depending on the juris-
diction, in contracts that are regarded as hire-purchase contracts (see below).
The parties can have conflicting interests regarding repossession. The lessor
will ensure that the asset can be repossessed in the event of serious non-payment
or breach of contract. The lessee, on the other hand, should ensure that important
assets will not easily be repossessed.
The parties may sometimes agree that the lessor shall offer services during the
leasing period to ensure that the asset functions as agreed. For the lessor, this
would also be a way to decrease the risk of non-payment. For the lessee, this could
be a way to ensure that the asset will fulfil the agreed specifications during the
term of the contract.
Generally, the parties can agree on the allocation of risk for the asset, liability
for normal wear and tear, the lessee’s duty to take reasonable care of the asset, as
well as responsibility for maintenance.
Approximation of laws. Member States’ leasing laws have not been approxi-
mated by Community law. In the EU, consumers are protected by the Consumer
Credit Directive in financial leasing transactions.^20 It does not apply to business-
to-business transactions. The DCFR recommends some rules on leasing.^21
(^19) Frick J, Finanzleasinggeschäfte am Beispiel von Aircraft Finance-Transaktionen - Struk-
turen, Vorteile und Risiken, SZW/RSDA 5/2000 pp 248–249: “Im Gegensatz zu den
Vereinigten Staaten ist in Kontinentaleuropa das Recht der Leasinggesellschaft als sol-
ches praktisch nirgends als sachenrechtliches Institut anerkannt worden; die dinglichen
Wirkungen des Rechts am Leasingobjeckt werden von der Einordnung in das System
der Vertragstypen abhängig gemacht (Miete, Abzahlungskauf).”
(^20) Directive 2008/48/EC on credit agreements for consumers and repealing Council Direc-
tive 87/102/EEC. See, for example, § 491 BGB and § 503 BGB.
(^21) DCFR IV.B.