Termination of Financial Lease Contract by Agreement

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2.2.2. Termination of financial leasing contract by agreement of the parties

Decree No. 39/2014/ND-CP stipulates cases in which contracts can be terminated.

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Financial leasing contract before the agreed term with the following conditions: The lessor and the lessee agree to let the lessee pay the entire remaining rent before the lease term specified in the financial leasing contract 9 (Article 21-Clause 1,d) .

The payment of the entire rental fee before the lease term as stipulated in the financial leasing contract is essentially the lessee's completion of its obligations under the financial leasing contract before the due date; however, the contract does not automatically terminate, but is only eligible for termination when the lessor agrees to this change. This is a provision that creates favorable conditions for both parties:

+ Lessee: when the lessee proactively arranges the payment capital, early payment helps the lessee save financial costs and proactively exploit the asset for more diverse profit-making purposes.

+ Lessor: because the arrangement of capital for financial leasing contracts is often long, usually 3-5 years, prepayment can cause loss of costs due to excess capital, therefore, to ensure the rights of the lessor, the law stipulates that termination can only be done when the lessor agrees.

In this case, the law on financial leasing stipulates that the lessee can agree (before or after signing the contract) to buy back the leased asset with the consent of the lessor; or the lessee returns the leased asset; or agrees to continue leasing. To minimize disputes that may arise at the end of the contract, the parties often agree in the contract on specific provisions and sanctions regarding the handling of the asset after the contract is terminated. If there is an agreement that the lessee will buy back the leased asset at the end of the lease, the specific provisions must be determined.

Related issues: purchase/transfer price; transfer time; other related obligations (if any). For most current financial leasing contracts, the purchase price of the financial leased asset is usually specifically fixed at the time of signing the financial leasing contract.

This provision is consistent with the requirements of modern law when ensuring the principle of respecting the right to freedom of agreement and freedom of contract and is consistent with the reality of life when the lessee has sufficient financial resources and does not need the lessor's support or the lessee needs to use the asset for a purpose other than the one agreed in the financial leasing contract. However, the law does not stipulate other cases of self-agreement to terminate but only allows the agreement on the principle of still ensuring the right to collect the full rent of the lessor (not allowing cancellation), which means there is still a limitation on the right to freedom of agreement of the parties.

2.2.3. Termination of financial leasing contract due to the entity entering into the financial leasing contract no longer existing

Decree No. 39/2014/ND-CP stipulates the case of early termination of a financial leasing contract due to one of the contracting parties no longer existing (Article 21-Clause 1,b): “…The lessee is declared bankrupt or dissolved…”. The lessee is the party directly using and exploiting the financial leasing asset, therefore, when the lessee ceases to exist, it is a condition for terminating the financial leasing contract when there is no longer a performing entity.

This provision is consistent with international practice and is consistent with current legal provisions. It has the same content as a termination case of the 2005 Civil Code 20 (Article 424 - Clause 3): Termination of contract due to the death of the individual entering into the contract, legal entity or other subject.

termination of the contract must be performed by that individual, legal entity or subject.

However, Decree No. 39/2014/ND-CP does not stipulate the case of termination of a financial leasing contract due to the lessor no longer existing (dissolution, bankruptcy). The reason may be due to two reasons:

+ The lessor is the entity that must meet many conditions (according to the analysis of the financial leasing contract subject above), at the same time, the state also stipulates criteria to control the activities of the lessor, so the possibility of the lessor being dissolved and bankrupt is very low.

+ The implementation of a financial leasing contract for the lessor is usually not specific, organizations providing this service can do it and have the ability to replace it, with the characteristic that the lessor only has rights during the lease term (after purchasing the asset), so if the lessor no longer exists during the contract implementation process, it is feasible to replace it with another entity to continue implementation. At the same time, Decree No. 39/2014/ND-CP has a provision allowing the lessor to transfer its rights and obligations to a third party without the lessee's consent, only needing to send prior notice to the lessee 9 (Article 17, Clause 6). Therefore, the financial leasing contract does not necessarily have to terminate when the lessor no longer exists.

This also shows the State's intervention in the economy through the control of lessors - organizations with a wide range of operations accompanied by the potential for large-scale risks in case of dissolution or bankruptcy: this is an intervention that is not in line with the orientation of the market economy, however, State control over lessors is necessary to ensure macroeconomic stability.

2.2.4. Termination of financial leasing contract due to cancellation or unilateral termination of contract performance

Termination of the financial lease contract in this case includes only two

type:

+ Unilateral termination of financial leasing contract by

Lessor:

According to the provisions of Decree 39/2014/ND-CP: The lessor has the right to terminate the lease contract before the term and request the lessee to pay in full the remaining rent and expenses arising from the early termination of the financial leasing contract due to the lessee's violation of the terms and conditions that are grounds for termination of the contract as stipulated in the financial leasing contract . 9(Article 17, clause 8); The financial leasing contract may be terminated before the term when the lessee fails to pay the rent or violates one of the other terms and conditions that are grounds for termination of the financial leasing contract, as stipulated in the financial leasing contract. CP 9(Article 21, clause 1,a).

According to these contents, the lessor has the right to unilaterally terminate the financial leasing contract before the due date when one of the following cases occurs:

(1) The lessee fails to pay the rent on time and in full as stipulated in the financial leasing contract (violation of payment obligation)

(2) The Lessee's guarantor goes bankrupt or is dissolved and the Lessor does not accept the Lessee's request to terminate the guarantee or request another guarantor to replace it (breach of guarantee obligation).

(3) The lessee violates other terms of the financial leasing contract (other violations);

The unilateral termination provisions for financial leasing contracts in this case are mainly aimed at ensuring the lessor's rental income.

+ Unilateral termination of financial leasing contract by the lessee:

The lessee has the right to unilaterally terminate the financial leasing contract according to Decree 39/2014/ND-CP: The lessor violates one of the terms and conditions that are grounds for terminating the financial leasing contract, as stipulated in the financial leasing contract. 9 (Article 21, Clause 1c)

Possible breaches by the lessor include:

(1) The lessor fails to deliver the leased property on time due to the lessor's fault;

(2) The lessor violates the terms of the financial lease contract (this provision is rarely used because the lessor's main obligation is to purchase the asset according to the lessee's requirements).

When negotiating the contract, the lessor and the lessee may include conditions leading to the unilateral termination of the financial leasing contract according to the signs specifically stated in the financial leasing contract. This provision is also consistent with the provision on unilateral termination of the contract in the provisions of the 2005 Civil Code (Article 491) and is feasible in practical application, in accordance with international practice.

As analyzed in the theoretical part, because the financial leasing contract is irrevocable, the law on termination of financial leasing contracts does not mention termination due to cancellation of the contract.

2.2.5. Termination of financial leasing contract due to the subject of the contract no longer existing

Decree 39/2014/ND-CP stipulates the case of early termination of a financial leasing contract due to the fact that the subject of the financial leasing contract no longer exists: A financial leasing contract may be terminated early when the leased asset is lost or damaged beyond repair. 9 (Article 21, Clause 1,d)

Due to the nature of the financial leasing contract, all risks of the asset belong to the lessee, therefore, when this situation occurs, the lessee is the damaged party, the lessee is not affected by the provisions of the law but will face risks due to the lessee's reduced ability to pay, especially in cases where the exploitation and use of the financial leasing asset brings the main source of income to the lessee. The relationship between the two parties is based on the financial leasing asset, when the asset no longer exists, the termination of the contract is appropriate. This provision is also consistent with the provisions of the current Civil Code: The asset lease contract terminates when the leased asset no longer exists. 23 (Article 491)

2.2.6 Other cases of termination of financial leasing contracts

Current legal regulations do not have specific provisions for the application of termination of financial leasing contracts due to fundamental changes in circumstances. This is consistent with the practice and characteristics of financial leasing contracts. The purpose of concluding a financial leasing contract is to serve the capital needs of the lessee, the lessee is the party that bears all the risks due to the decision to choose the asset and perform the contract, therefore, the lessor is exempted from responsibility for risks in all cases where adverse situations arise.

Current legal regulations do not have specific provisions for the application of termination of financial leasing contracts in cases other than those specified above. This is consistent with international practice and the principle of respecting freedom of agreement and contract conclusion of the modern law-making perspective.

The current legal regulations on cases of termination of financial leasing contracts in Vietnam have basically outlined most of the basic cases of contract termination. These regulations, although still having certain limitations, have demonstrated conformity with international practices and consistency with other current documents, are feasible and suitable for social life.

2.3. Legal status of legal consequences of termination of financial leasing contract

Current legal regulations do not stipulate the legal consequences of contract termination in cases of contract termination due to contract completion due to no actual consequences arising. At the same time, current legal regulations also do not stipulate the consequences for cases of termination that have not been stipulated (or have not occurred) for financial leasing contracts: contract cancellation, termination due to fundamental change of circumstances, termination due to other cases stipulated by law.

Current legal regulations also fully respect the right to freedom of agreement in two cases of termination of financial leasing contracts:

(1) In case the lessor and the lessee agree that the lessee shall pay the entire remaining rent before the lease term specified in the financial leasing contract, the provisions of the financial leasing contract shall apply. 9(Article 22, Clause 2)

(2) In case the lessor violates one of the terms and conditions that are the basis for terminating the financial leasing contract, as stipulated in the financial leasing contract, it shall be implemented according to the provisions of the financial leasing contract 9 (Article 22, Clause 2). When the lessor violates the contract, leading to the lessee unilaterally terminating the financial leasing contract (usually in the case of failure to form the leased asset according to the lessee's request due to the fault or violation of the lessor), in fact, the lessee's obligations have not arisen, only the obligation to perform the penalty or compensation of the lessor arises. These consequences are often beyond the expectations of the legislators, therefore, priority is given to applying the agreement agreed upon by the parties, which is consistent with the reality and needs of the parties.

For the remaining cases of termination of financial leasing contracts, current legal regulations mainly focus on regulating the legal consequences for the lessee (because the lessee bears all risks related to the financial leasing assets):

(1) In case the Lessee is declared bankrupt or dissolved:

The lessee must immediately pay the entire remaining rent. If the lessee fails to pay the rent, the property must be returned to the lessor. 9(Article 22, Clause 1).

The legal consequences of this termination are clear: the legal consequences are borne by the lessee - a consequence consistent with the specific nature of financial leasing activities.

However, in cases where the lessee no longer exists, demanding payment often does not yield the desired result: no

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