New Rules On Financial Leases Provide Clarity

In Short

The Situation: The Italian Parliament has enacted new rules on financial leases.

The Result: A statutory definition of "financial lease" and rules in the case of breach by the lessee have been introduced.

Looking Ahead: The new rules provide more clarity, and the market for leasing portfolios acquisitions will benefit.

Law no. 124 of August 4, 2017 ("Law 124") provides important new rules on financial leases in Italy. It introduces a statutory definition of "financial lease" and deals with the event of serious breach (grave inadempimento) by the lessee.

Definition of "Financial Lease"

Italian law already had various provisions governing financial leases (for regulatory, accounting, tax, and bankruptcy purposes), but it did not contain a general definition of "financial lease." Law 124 defines "financial lease" as:

the agreement whereby [a] registered bank or [b] financial intermediary enrolled with the register set forth by Article 106 of [the Italian Banking Law] undertakes [as Lessor] with the Lessee to buy or build an asset according to the Lessee's choice and instructions and, while the Lessee takes the risks relating to the loss/deterioration of the asset, [the Lessor] makes the asset available to the Lessee for a given period of time for consideration which takes into account the purchase or construction price and duration of the agreement. Upon expiry of the lease agreement, the Lessee has the option to purchase the asset at a pre-determined price; or, in case of not exercise of such option, must return the asset to the Lessor. This definition basically reproduces the one typically used in the market and in the statutes in relation to financial leases of first-dwelling/abode real estate properties.

The reference to a bank or intermediary registered pursuant to Italian Banking Law raises the question whether Law 124 restricts the possibility to act as lessor under a financial lease only to banks and financial intermediaries, thereby excluding other intermediaries (funds and insurance companies) that are otherwise permitted to carry out a lending activity in Italy.

Serious Breach by the Lessee

In the case of a serious breach by the lessee, the lessor is entitled to terminate the lease. A serious breach occurs if the lessee fails to pay six monthly rentals or two quarterly rentals for real estate assets, or four monthly rentals for other assets.

In the case of termination of the agreement, the lessor is entitled to have the...