Legal regulations on financial leasing contracts

Financial leasing contracts are an important financial instrument that enables enterprises to utilize assets for their production and business operations without having to pay the full costs upfront. Below, NPLaw invites readers to explore the legal issues related to financial leasing contracts.

I. Understanding financial leasing contracts

1. How is a financial leasing contract defined?

According to Clause 5, Article 3 of Circular No. 26/2024/TT-NHNN, a financial leasing contract is an agreement between the lessor and the lessee regarding the leasing of one or several assets in accordance with the law. Such a type of contract is irrevocable, meaning both parties must fulfill the obligations committed to in the agreement, unless otherwise stipulated by mutual agreement or by law.

2. Subject matter of a financial leasing contract

As stipulated in Clause 7, Article 3 of Circular No. 26/2024/TT-NHNN, the subject of a financial leasing contract is the leased asset, specifically a tangible asset that the lessor purchases upon the lessee’s request for use for a specified period. In return, the lessee is obligated to make periodic lease payments in accordance with the contract. During the lease term, the lessor retains ownership while the lessee has only the right to use the asset.

Assets eligible for financial leasing include:

- Machinery and production equipment;

- Means of transportation;

- Other fixed assets serving business operations;

- Other assets as permitted and specifically guided by the State Bank of Vietnam from time to time.

Accordingly, the subject matter of the financial leasing contract includes machinery, equipment, means, other fixed assets used in business, and other categories of assets regulated by the State Bank of Vietnam.

II. Legal provisions governing financial leasing contracts

1. Key contents of the financial leasing contract

Under Clause 1, Article 18 of Circular No. 26/2024/TT-NHNN, the financial leasing contract must be made in writing and comply with the provisions of the Civil Code on contracts. Essential contents include:

- Parties’ information;

- Description of the leased asset;

- Intended use of the asset;

- Currency of the lease and repayment;

- Lease payments and interest rate;

- Lease term and payment schedule;

- Debt settlement and contract termination;

- Security measures;

- Rights and obligations of the parties;

- Dispute resolution mechanism;

- Other terms agreed upon in accordance with applicable laws.

Thus, the financial leasing contract is not limited to only specifying the leased asset but also establishes legal mechanisms to protect the interests and responsibilities of both parties.

2. Rights and obligations of the parties to a financial leasing contract

Financial leasing contracts define the respective rights and obligations of the lessor and the lessee in accordance with Articles 14 to 17 of Circular No. 26/2024/TT-NHNN.

(1) Rights and obligations of the lessor

- Pursuant to Article 14, the lessor is entitled to:

+ Be exempt from liability for assets not being delivered in accordance with the agreement between the lessee and the supplier;

+ Retain ownership of the leased asset, even if the lessee becomes insolvent or enters into a dispute with a third party;

+ Affix ownership markings on the asset throughout the lease period;

+ Agree on security measures to protect rights to the leased asset;

+ Inspect and monitor the use of the leased asset;

+ Repossess the asset in case of premature contract termination or if the lessee fails to continue leasing or purchasing after expiry;

+ Claim compensation if the lessee breaches the contract;

+ Exercise other rights as prescribed by law and the contract.

- The lessor is obligated to:

+ Provide transparent information regarding interest rates, fees, and financial conditions prior to contract execution;

+ Assess the leased asset and the feasibility of the leasing plan;

+ Purchase and import the asset as agreed;

+ Register ownership and purchase insurance for the leased asset;

+ Ensure the lessee's right to use the leased asset;

+ Fulfill other obligations under the law and the contract.

(2) Rights and obligations of the lessee

- According to Article 16, the lessee has the right to:

+ Receive and use the leased asset in accordance with the contract;

+ Elect to purchase or continue leasing the asset upon lease expiration;

+ Claim damages if the lessor breaches the contract;

+ Prematurely terminate the contract under agreed conditions;

+ Modify or upgrade the leased asset, if agreed;

+ Exercise other rights under the law and the contract.

- Under Article 17, the lessee must:

+ Take responsibility for selecting the asset and supplier, including technical specifications, pricing, and warranties;

+ Use the asset as intended and refrain from transferring or pledging it without consent;

+ Provide honest information regarding financial activities and asset usage;

+ Make full and timely lease payments and related costs;

+ Take all risks related to the asset, including loss, damage, or repairs;

+ Not remove or damage the lessor’s ownership markings;

+ Not pledge, mortgage, or use the asset to secure other obligations;

+ Comply with other obligations under the law and the contract.

In summary, the financial leasing contract clearly defines the rights and responsibilities of both parties, ensuring legal certainty and balance during the lease term.

III. Questions regarding financial leasing contracts

1. Under what circumstances may a party unilaterally terminate the financial leasing contract?

According to Article 20 of Circular No. 26/2024/TT-NHNN, early termination may occur under the following conditions:

- The lessee provides false information or breaches the contract;

- The leased asset is lost or damaged beyond repair and cannot be replaced;

- The lessor violates main contractual provisions;

- Other cases as stipulated by law or the contract.

Thus, both the lessor and lessee may unilaterally terminate the contract in certain scenarios, subject to contractual and legal provisions.

2. What are the formal requirements for a financial leasing contract?

Pursuant to Article 18 of the Circular No. 26/2024/TT-NHNN, financial leasing contracts must be made in writing and comply with the provisions of the law on civil contracts, and meet the following requirements:

- It must include party names and addresses, asset details, intended use, lease payments, interest rates, lease term, payment conditions, rights and obligations, security measures, and dispute resolution mechanisms;

- It must be an irrevocable contract, unless otherwise agreed or provided by law (Clause 5, Article 3 of this Circular).

Hence, the financial leasing contract must be in writing, fully detailed, and legally binding unless otherwise agreed or prescribed by applicable regulations.

3. Is there a maximum lease term for financial leasing contracts?

Currently, Circular No. 26/2024/TT-NHNN does not prescribe a minimum or maximum lease duration. The lease term is determined by mutual agreement based on asset characteristics and user needs.

Thus, the law does not impose a maximum lease period, allowing the parties flexibility to negotiate based on asset value, financial capacity, and usage requirements.

4. What clauses should be carefully reviewed when entering a financial leasing contract?

Before signing a financial lease agreement, parties should:

- Verify legal identity and address details of both the lessor and the lessee;

- Clearly specify the name, technical characteristics, type, value, delivery time, warranty and other conditions related to the leased asset in the contract. It is necessary to pay attention to the provisions on the purpose of using the leased asset, ensuring that the asset is used in accordance with the purpose agreed in the contract;

- Clearly define the financial lease currency, debt repayment currency, payment method and time in the contract. If the contract has a clause applying an adjustable interest rate, it is necessary to clarify the interest calculation method, adjustment time and influencing factors to avoid financial risks for the lessee;

- Clearly define the financial lease term, principal and interest repayment period, as well as the mechanism for extending or re-signing the contract if there is a need to continue leasing the asset;

- The contract should clearly stipulate the rights and obligations of the lessor and the lessee, including ownership of the leased assets, maintenance obligations, and responsibilities when the assets are damaged or lost.

- The parties should note the provisions on cases where the contract may be terminated early, such as the lessee breaching payment obligations, using the assets for the wrong purpose, or the assets being lost or damaged beyond repair.

- In some financial leasing contracts, the lessor may require the lessee to provide collateral or take other security measures.

- The contract should clearly stipulate the method of dispute resolution when disagreements arise, which can be through negotiation, mediation, or filing a lawsuit at the Court or Commercial Arbitration;

- In addition to the above provisions, the parties may add other contents according to the agreement, as long as they are in accordance with legal regulations. A clear agreement from the start helps avoid disputes and ensures the contract is implemented effectively.

Additional terms may be added as agreed, provided they comply with applicable law. A clearly drafted contract helps prevent disputes and ensures effective performance.

IV. Legal consultancy and support services for financial leasing contracts

The above article is provided by NPLaw as an overview of financial leasing contracts. With a team of experienced legal professionals and attorneys, NPLaw is committed to accompanying and supporting clients on all legal matters related to financial leasing agreements.

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