|Elias Neocleous||Maria Kyriacou|
The Leasing Law, law 72(I) of 2016, entered into force on April 28 2016. The purpose of this new legislation is to regulate the provision of financial leasing services to the public and ensure the regulation of financial leasing services providers' activities. The aim of the law is to provide consumers and businesses with alternative ways of financing. It is hoped that this will contribute to the growth of the leasing services sector and, in turn, the financial sector and the economy as a whole.
The new law states that the following may provide financial leasing services to the public:
- authorised credit institutions in Cyprus or other member states of the European Economic Area (EEA) that are licensed to provide financial leasing services, and that provide these services through a branch or on a cross-border basis;
- financial leasing companies that are subsidiaries of credit institutions established in EEA member states, and that provide these services in Cyprus through a branch or on a cross-border basis; and,
- a new category of regulated entity, namely financial leasing companies registered in Cyprus, licensed by the Central Bank of Cyprus to provide these services under the new law.
The new law sets out the types of activities to be performed by those entities and defines the supervisory powers of the Central Bank of Cyprus with respect to financial leasing companies, including the power to take enforcement measures and impose sanctions. The law establishes a comprehensive legal framework to regulate financial leasing service providers and the provision of financial leasing services.
The Leasing Law prescribes the procedures for simple financial leasing, sale and lease-back, hire purchase and finance and operating leases in respect of domestic industrial and commercial premises, plants, machinery and movables. It excludes ships as these are covered by the Shipping Law.
The Leasing Law sets out minimum disclosure standards for leasing documents, including: a description of the leased property; its value; the start and end date of the lease; the total lease price; the amount and frequency of the rent and any grace period; the nominal and the effective interest rate and any provisions for variation; and, any arrangements for early termination, renewal or purchase of the leased asset in the event of the lessee's insolvency. Leases must clearly stipulate who is responsible for and who bears the cost of installation, maintenance or insurance of the leased property and the risks related to it.
One of the new law's intended benefits is to facilitate private debt restructuring by allowing mortgage loans to be converted into real estate leases through sale and lease-back transactions, so assisting in the resolution of non-performing loans. Financial leasing contracts established as a result of the settlement or restructuring of credit facilities are subject to terms and conditions determined by the Central Bank of Cyprus. In this respect, in relation to any leasehold described in the contract, the nominal and effective interest rate included in the rent, their calculation method and provisions for variation must be fully disclosed.
More generally, by providing for transparency in leases and effective regulation, the Leasing Law should be a positive step in developing the leasing sector in Cyprus.
Elias Neocleous and Maria Kyriacou