A financial leasing facility allows businesses to lease and eventually acquire capital assets without having large capital or no capital at all. As a result, it is an arrangement where one party, normally referred as a Lessee (borrower), utilizes another party’s property, normally referred as a Lessor (lender), for a determined lease period of time with a fixed monthly rental consideration, but with the Lessor remaining the legal owner and title holder of the capital asset during the lease period.
Typically, these kinds of leasing facilities deliberately target those businesses that are in the construction, tourism and hospitality, aviation, transport, agricultural, oil and gas sectors to acquire capital assets that are financed by a Lessor. In financing terms, this is a facility that provides alternative source of credit geared towards acquisition of factors of production, with a view of maximizing the cashflow of the Lessee and realizing optimal output.
A financial leasing agreement contains promises or undertakings by the Lessee to pay the investment amount and interest of the utilized asset of the lease to the Lessor for the lease period. In such agreements, the Lessor is a creditor of the Lessee, and consequently, recovers the investment amount (through rentals) and interest by way of a fixed monthly rental consideration.
Where a Lessee breaches the terms of the financial leasing agreement, either by not making periodical rental payments or generally by breaching any of the terms or conditions of the said agreement, within 30 days from the date the Lessor sends a notice of default to the Lessee, the Lessor shall have the right to out rightly repossess the leased asset. The Lessor may also apply, if it elects, for an order of repossession or recovery of the leased asset in the court or bring an action of debt or for breach of agreement against the Lessee, whatever works for it at the point such an action is considered and based on the environment or peculiarity of the circumstances.
It should be clearly noted that the right of the Lessor to repossess shall not prejudice other remedies available to the Lessor under any other law, including but not limited to, the right to recover damages for loss caused by non-compliance with the terms of the financial leasing agreement by the Lessee. However, the Lessor shall not be entitled to recover damages to the extent that it failed to take reasonable steps to mitigate the loss.
The Financial Leasing Act, No. 5 of 2008, Chapter 417, Revised Edition 2002 of the laws of Tanzania (“the Financial Leasing Act”), which is the primary legislation regulating financial leasing transaction in Tanzania, protects the Lessor from incurring any liability in respect of defects in or unfitness of the leased assets for any particular purpose except as provided in the Financial Leasing Act.
The assets that are the subject of a financial leasing agreement, shall be registered with the Registrar of financial leasing agreements. The registered asset under a financial leasing agreement shall serve as a notice to third party purchasers (caveat emptor) of any leased assets a subject thereof.
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
