We find out why and how the legislation on financial leasing was updated in Ukraine
President Volodymyr Zelensky signed a new version of the law “On financial leasing”. The document will enter into force three months after its publication in the official press. Obviously, “for convenience”, the updated rules (the previous version of the leasing law was approved in 2004) will be timed to July 1. What will change in the second half of this year? Are innovations limited to “modernization” and reduction to a single denominator of industry terminology, as, among other things, the developers aimed? Does it provide real relief for potential consumers of leasing services who have taken the opportunity to purchase expensive goods – real estate, equipment, cars, etc. – through a mechanism “for payment”. After all, the benefit is obvious, a person immediately uses the right thing for their own needs or for business and at the same time pays the lessor its value. Of course, with a commission. So the questionand how beneficial is the new law to all parties to the lease agreement?
Another way to find money for fixed assets
The document is focused, first of all, on technological and technical updating of domestic production business. It also provides a number of incentives for the opening of new leasing structures in Ukraine, the number of which has been constantly declining in recent years, mainly due to the imperfection of regulatory and legislative regulation. Globally, this is one of the reasons for limiting Ukraine’s opportunities to attract foreign capital and the experience of international markets, where leasing is actively developing. At least, this is how the authors of the proposed changes explain the need to update the legal framework.
They expect that the law will improve financial leasing instruments. Which will expand opportunities for business to upgrade production facilities, purchase vehicles, equipment, machinery, real estate. “Financial leasing services are one of the factors of increasing the competitiveness of domestic enterprises, improving the quality of their services, increasing production efficiency, as a result – strengthening positions in the domestic market and increasing the chances of entering the international market. After all, in developed countries almost a third of investments in fixed assets are made through leasing, while in Ukraine this figure has fluctuated between 3-4% in recent years, ”the President’s Office said, commenting on the signing of the legislation by the head of state. Plus, the document harmonizes Ukrainian legislation with European legislation. In the Venice Commission, by the way,rather appreciated the legislative efforts of Ukraine in this area.
Thus, the new law defines financial leasing as a type of legal relationship under which the lessor undertakes, in accordance with the financial lease agreement for a term and for a fee specified in such agreement, to transfer to the lessee the possession and use of property owned by the lessor. This property can be purchased without prior agreement with the lessee, and by special agreement with him, and selected according to his criteria.
In this case, the lease is considered financial if all risks and benefits of using and owning the property are transferred to the lessee. And if a number of special conditions are met. Separately, the new law defines the features of concluding a financial leasing agreement with an individual (except for private individuals).
At the same time, the legislator limited the list of potential objects of financial leasing. For example, it will not be possible to purchase land and other natural objects in this way. And also the objects defined by the law “About rent of the state and municipal property” providing performance by the state of the functions, and also defense capability of the state, its economic independence, and objects of the property right of the Ukrainian people (highways, highways) , property that ensures the integrity of the integrated power system, main oil and gas pipelines, underground oil and gas storage facilities, seaports, hydraulic structures, airfields, reservoirs and even burial sites).
Cars and housing: rent for a long time or buy quickly “for payment”?
The most “interesting” types of financial leasing for Ukrainians are leasing of motor vehicles and residential real estate. In both cases, leasing agreements are mixed agreements and contain elements of lease and purchase agreements.
Financial leasing of a car is a rental vehicle with the right of redemption. This is not only about financing the purchase of a car, but also about additional services – in particular, the leasing company takes care of the registration and insurance of the vehicle. However, all this is at the expense of the consumer. However, leasing companies are trying to “sweeten” the client’s life, offering him on favorable terms fuel cards, replacement cars (in case of an accident or car breakdown) and repairs. In the event of an accident, the lessor assumes communication with insurance companies…
According to government officials, 2021 should also be a year of real development of “housing” leasing. As you know, at the end of last year in Ukraine created PJSC “Ukrainian Financial Housing Company”. Its main task is the introduction of financial and credit mechanisms to provide citizens with housing and refinancing of mortgage loans. It is through her that Ukrainians will be able to buy housing on a lease basis – at 5% per annum.
“New affordable housing programs – mortgage at 7% and leasing at 5% – will operate in parallel. If we talk about a mortgage, the borrower gets the property immediately in the property, and financial leasing is a rental of housing, which after some time may become your property, “- recalls the differences MP Olena Shulyak. According to her, the financial leasing program is less risky for banks that provide such loans than mortgages. “The fact is that the current banking legislation allows developers to build housing sometimes not according to the rules. And these are risks. That is why banks do not want to reduce mortgage rates, ”Ms. Shulyak explained. Therefore, according to her forecasts, the financial leasing program will be more popular. It is expected that leasing agreements will be concluded annually by up to 20,000 families.
Among the advantages of buying real estate on the terms of financial leasing, experts say:
- Fixed rates that are not affected by the market situation. Although – by agreement of the parties – the contract may provide for the condition of revision of rates after a certain time.
- By agreement, payment can be made not only in cash (for example, goods or services). Although this is more true for businesses that rent real estate with the right of redemption.
- When leasing, unlike a mortgage, real estate is not pledged. That is, the lessee does not incur additional costs associated with the mortgaged property.
- With the consent of the parties or by court decision, there is a possibility of early termination of the contract. Then the lessee is refunded part of the funds paid, which exceeds the cost of rent during the stay in the house or apartment.
And there are disadvantages:
- The lessee has no ownership of the housing until he fully repurchases it.
- Possibility to recover real estate under the obligations of the leasing company. The company’s creditors can even take away the house, although you regularly pay the landlord for it. And this issue, which, according to experts, needs to be addressed at the legislative level. To protect lessees. At least when it comes to state-mediated leasing operations.
- Double payment by the lessee for registration of ownership of housing (initially in favor of the leasing company, and upon termination of the contract – for yourself).
- Unlike mortgage interest, lease payments cannot be added to the tax deduction.
- The lessee is the actual payer of insurance (despite the fact that legally insurance contracts are drawn up by the leasing company), as well as utility bills, real estate tax, etc. All these costs are included in the lease payments.
That is, it is not a fact that leasing will be a cheaper financial instrument. But the good thing is that there is at least some alternative to traditional tools. In particular, in the housing market. For example, this type of tool was very lacking in efficient and disciplined tenants, who for years paid high rents for “foreign” square meters, at a time when they could pay as “their”.
Prepared by Vladislav Obukh, Kyiv