Leasing is a modern form of contract, widely used in many countries of the world, because it constitutes an extremely useful financing tool in the hands of businesses. Leasing in Greece is governed by Law 1665/1986, but the case of the abnormal development of the contract remained unregulated. Until recently, a lease could only be entered into by a company or a person practicing a relevant profession. The possibility of concluding a lease was recently extended (: art. 131 of Law 4887/2022 which amended Art. 1 of Law 1665/1986) to individuals as well. The utility, however, of this contract remains, without a doubt, of particular value; especially for businesses.
Benefits of the Leasing Agreement
The leasing contract provides the possibility to the entrepreneur, who needs for the exercise of their activity, either building facilities (incl: offices, warehouses, factories) or professional equipment (incl: vehicles, special machines depending on the business) while they are interested, at first at least, to use them by leasing them from the lessor (special purpose company) by paying the agreed rent. They succeed, thus, in meeting their relevant operational need without requiring them to disburse the amount (usually very high) or to take a loan with interest for the acquisition of ownership of the property.
Object
The object of the lease can be any movable thing (including aircraft and private or commercial pleasure boats) or immovable property.
Landlord And Tenant
A lessor can only be a limited liability company or a financial/credit institution with the sole purpose of entering into leasing contracts (: art. 2 § 1 of the aforementioned law). On the other hand, a tenant can be any natural or legal person, either a business or an individual (according to the above-mentioned change brought about by Law 4887/2022).
The Involvement of the Leasing Company
The leasing company often acquires the ownership of the thing to be leased, following a suggestion from the prospective lessee, who determines its specific characteristics. In some cases, the prospective lessee undertakes the negotiations with the seller-supplier, who will sell to the leasing company the object of the leasing contract.
The Rent
The rent is calculated in such a way that the amount to be paid in total by the lessee throughout the duration of the leasing contract covers: (a) The capital for the acquisition of the thing (in whole or in most part), (b) The interest, (c) The lessor’s operating expenses and (d) The lessor’s profit.
At the same time, the rent is determined in an amount, which the entrepreneur will – in the normal course of things – be able to pay throughout the duration of the leasing contract.
Basic Terms
Basic (usual) terms contained in the leasing contract (: article 1 of Law 1665/1986) provide that at the end of the lease the lessee has the following options:
(a) unilaterally renew the lease for a certain period by paying a certain (and greatly reduced in relation to the originally contractually agreed) rent
(b) to purchase with their declaration to the lessor the object of the leasing contract (even before the end of the contract) by paying a much reduced – in relation to the commercial value of the thing – price, which is specified in the leasing contract
(c) to return the object of the contract to the lessor
The above (under a and b) possibilities constitute the so-called ” right of choice” of the lessee.
The duration of the lease is always fixed and in fact a minimum duration of three years is provided for movables, five years for aircraft and ten years for real estate (: no. 3 § 1 of Law 1665/1986).
Drafting
Finally, the leasing contract must be drawn up in writing. In case it concerns a movable thing, the private document is sufficient, while in the case of renting a property, the notarial form is required. All leasing contracts are registered in a special book at the Court of First Instance of Athens. When it concerns real estate, the contract is registered in the relevant transfer books of the region where the real estate is located. If it concerns an aircraft, in the respective aircraft registers.
The Financial Significance Of The Leasing Contract For The Business
The leasing contract is a flexible form of financing with significant benefits for small and medium-sized enterprises in particular. The economic advantages of this contract have led many companies to choose it. In particular, when there is a need to acquire or modernize their equipment. Also, in case the company seeks to expand or renew the premises of its business establishment.
Perhaps the most basic advantage of this contract is the fact that a company can acquire the use of the object it needs to carry out (and/or improve, increase performance, expand) its activity without the simultaneous allocation of equity capital (which would be required for the corresponding purchase) or resorting to bank lending. In this way they use the thing they need, generate income (also) from the exploitation of the thing which covers, even partially, the agreed rent. At the same time, the amount saved by concluding the lease can be allocated/invested for other business purposes.
Another important advantage is the fact that the object of the lease, since it does not belong to the lessee’s property, cannot be confiscated by their creditors. In the same context, the objects of leasing do not appear in the company’s balance sheets as assets.
Tax Benefits
Leasing is attractive not only to leasing companies, but to the businesses that will choose it as a means of financing as well, because the law (article 6, law 1665/1986) provides many tax benefits. Particularly:
A. They are exempt from any tax, fee, levy, right in favor of the State and generally third parties (excluding income tax and VAT):
(i) The contracts by which the leasing companies acquire (by ownership or possession) the movable things (excluding means of transport) that will be the subject of leasing
(ii) Leasing contracts
(iii) Contracts for the assignment of rights or the assumption of obligations from a lease
(iv) Rents from leasing contracts and their collection documents
(v) The price of the sale of the object of the lease from the leasing company to the entrepreneur – lessee.
B. Exempt from real estate transfer tax:
(i) The transfer of the leased property from the lessor to the lessee at the end of the leasing contract
(ii) The acquisition of the leased property by the lessee before the end of the finance lease
(iii) Real estate purchase contracts from leasing companies for the purpose of leasing the property to the seller, who acquires the status of lessee (this is the reverse leasing that will be discussed in the next article).
C. The rents paid by the lessee company are considered its operating expenses and are deducted from its gross income
D. The rights of the notaries before whom the leasing contracts are drawn up are limited to the minimum limits of their rights that apply to loan or credit contracts from investment banks for productive investments
E. In the case of setting up real collateral for the leasing company’s claims arising from the lease, as well as for the elimination of the related encumbrances, the payment of reduced fees for their registration is foreseen.
F. Loan and credit contracts to leasing companies from banks as well as leasing contracts between them and all operations related to them (inc: loan repayment, rent payment) are exempt from any tax, fee or charge in favor of the State.
It is clarified, however, that in the event that the lessee company buys the leased property before the expiration of three years from the beginning of the lease, or the lessee transfers the rights and obligations arising from the leasing contract to a third party, or the property remains in the ownership of the leasing company due to non-payment of the agreed price or the latter transfers it to a third party, the exemption from the real estate transfer tax is revoked, which must be paid once.
The leasing contract comes with a series of advantages (tax and not only) for the company. The range and value of the specific advantages are undeniably a strong incentive to enter into lease contracts for a number of Greek businesses. In these, moreover, lies the success of the institution in our country. The leasing contract is presented in various forms and creates various legal (though of practical importance) concerns. About them see our next article.
Evdokia Kornilaki
Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 23rd, 2023).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.