Newly Introduced Definition Of Financial Lease Under Italian Law

1 Foreword

According to law no. 124/2017 (published in the Official Gazette on 14 August 2017 and entered into force on 29 August 2017) (the "Law"), the Italian legislator has introduced into the Italian legal system an express definition for financial lease agreement (locazione finanziaria). The Law also introduces provisions on termination of financial leases.

While the Law aims at creating a more certain legal framework for such financing technique commonly used in the Italian practice (in particular, in the real estate and transportation sectors), it is worth underlying that the Law itself gives rise to legal uncertainties, some of which are dealt with in this memorandum.

2 Historical background

Although financial lease has been a popular financing technique in the Italian market for many years (starting from the 1980s and growing exponentially, especially in the real estate and transportation sector) and Italian law already had various provisions regulating financial lease (for accounting, tax and bankruptcy purposes), Italian law did not provide so far an express definition of financial lease.

In practical terms, this means that, so far, financial lease qualified as an "atypical contract", i.e. a contract worth of being acknowledged but not expressly provided for as a specific contract in the legal system. This involves that an atypical contract is construed by scholars and the case law by applying - by way of analogy - those provisions set forth for other types of agreements. In the case of financial lease, subject to the matter at issue, the case law used to apply those provisions dictated for (i) sale with retention of title, (ii) rental agreement, (iii) lease agreement, etc. This gave rise to different views of the Italian courts on certain aspects of financial lease regulation.

3 Definition of financial lease under the Law

According to the Law financial leases are defined as follows:

"the agreement whereby a bank or a financial intermediary registered with the register held by the Bank of Italy under Article 106 of the Italian Banking Law undertakes vis-à-vis the lessee to buy or let build an asset at the choice and upon the instructions of the lessee, which shall bear all the risks relating to the asset, including risk of loss, and the lessor makes the asset available to the lessee for a given period of time in consideration of an amount which takes into account the purchase or construction price and the duration of the...