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Government Ordinance 51/1997 on leasing operations and leasing companies was amended in July this year (by Law 287/2006) to provide a more stable framework for leasing operations in Romania and to ensure, on one hand, the harmonization of the leasing market with the banking market and, on the other hand, the harmonization of the Romanian leasing legislation with the EU acquis.

The new law provides more clarity on basic leasing concepts such as financial and operational leasing, and the difference between leasing instalments in financial leasing and in operational leasing. It also defines terms such as sublease, sale and leaseback, and cross-border leasing, which is perceived as essential legal support for leasing companies trying to meet demand in a more sophisticated market. The law also outlines clear rights and obligations of parties in their relationships with suppliers of assets.

Leasing companies

According to the amendments brought by Law 287/2006, the minimum share capital of a leasing company, subscribed and fully paid in cash, must be equal to the Romanian lei equivalent of €200,000, compared with ROL500 million (about €15,000) under GO 51/1997. Pursuant to Law 287/2006, leasing companies that have already been incorporated but do not meet these requirements must increase their share capital by December 31 2006.

To ensure more efficient supervision of leasing activities, new legal requirements have been established, such as:

  • the annual financial statements of all leasing companies must be audited by external accredited auditors – natural or legal persons;
  • leasing companies must periodically report to, and have the right to check with, the banking-risk database of the National Bank of Romania, in accordance with the norms of the National Bank of Romania, which have not yet been issued.

If the lessor is subject to bankruptcy and/or reorganization procedures, all the lessee's rights over the leased asset deriving from the leasing agreement will be opposable to the syndic judge and to the creditors.

Leasing agreements

Law 287/2006 states that a leasing agreement should contain a clause to define the contract as financial or operational leasing, to avoid any confusion.

It also defines a financial leasing instalment as a quota of the asset's entry value plus the leasing interest set by the parties' agreement, while for operational leasing the instalment is established by mutual agreement of the parties, but not mandatorily as a quota of the asset's entry value.

If both parties agree, the law entitles the lessee to purchase the goods before the end of the leasing period, but no earlier than 12 months, provided that all the contractual obligations are executed.

The sublease is defined as being the lessee's possibility to conclude another leasing agreement with the same object with another person acting as a final lessee/user, with the lessor's prior written approval. Sublease contracts could be concluded only if the lessee is observing the requirements imposed on leasing companies.

Other modifications refer to:

  • the fact that intangibles are allowed to form the object of a leasing agreement;
  • the fact that, even if a leasing contract ends before one year due to the lessee's default or because the object of the agreement ceases to exist, the contract will continue to be treated as a leasing contract and the asset, from fiscal and accounting point of view, as the object of the lease;
  • the extension of the enforceability of leasing agreements to all personal and real securities used to guarantee the fulfilment of the obligations derived from the leasing agreement;
  • the costs related to insurance of the leased asset will be incurred by the lessee if not otherwise provided by the leasing agreement; and
  • for assets that are the object of leasing agreements concluded between a Romanian lessor and a foreign lessee and are treated under the customs regime of temporary export, the term within which they are returned to the lessor or assigned new custom destination must not exceed seven years.

Other amendments

Before Law 287/2006 came into force, the leasing legislation was amended by the regulations governing non-banking financial institutions, which include financial leasing among the credit activities that can be performed by such institutions.

Also, amendments to the Fiscal Code brought a clearer definition of operational and financial leasing to comply with International Accounting Standards and recognized the financial leasing as a financial service in relation to profit deductibility.

Carmen Anghelie

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