What is leasing?

Leasing is a financial instrument based on two legal agreements (sales and lease) and three participants (Lessor, Lessee and Supplier). The leasing company acts as Lessor, the Lessee is a corporation or sole proprietor applying to obtain property, plant or equipment for use in its business activity and the Supplier may be either a manufacturer or dealer. Generally speaking, the Lessor purchases property, plant or equipment from a Supplier selected by the Lessee and according to the terms of a sales agreement. Following purchase, the Lessor executes a lease agreement with the Lessee and transfers the property, plant or equipment to the Lessee for its use throughout the agreement’s term.

Globally, most leasing activity is comprised of either finance or operational leases. Under finance leases, equipment is paid for, in-full, over the term of lease agreements. Operational leases involve simple rent relationships that confer a right to operate, without resulting in the acquisition of leased assets over the term of lease agreements. No such distinction exists under Russian legislation and references to leasing activity usually entail finance leases. Currently, the majority of leasing companies offer only finance leases, which are considered preferable in terms of market demand and Lessor risk.

Normative documents.

Russian leasing operations are currently regulated by three normative documents that include (only russian versions are availible):

• A specific chapter of the Russian Civil Code
• The Federal Law on Leasing
• The UNIDROIT Convention on International Financial Leasing.