Introduction

This draft seeks to analyze the Law governing finance lease operations in Rwanda.

The law defines a finance lease agreement as an agreement between the lessor and the lessee stating agreed rentals payable for an asset leased over a specified period.[1]

The Law

The Law specifically provides that it shall apply to finance lease operations of an asset where:

a.they are operated in Rwanda;

b.the lessee legally operates in Rwanda;

c.the finance lease agreement provides that such operations be governed by laws in force in Rwanda.

The Law recognizes that under the Finance Lease Agreement, the lessor agrees with the lessee on conditions to possession and use of an asset in return for an agreed rental payments over specific period.

The lessee may acquire the asset by paying for its residual value or return the asset to the lessor.

Both parties may also agree on renewal of the agreement as based on residual value. 

Registration of lease

Requirements for validity of a Finance Lease

A finance lease agreement is done in writing in accordance with the Finance Lease Law and the Law governing contracts. For an agreement to meet the validity test, it must contain the following details:

1. Identification of both parties to the finance lease agreement;
2. Type and description of the asset leased;
3. Party that selects the supplier;
4. Cost of the asset;
5. Domain of use of the asset;
6.  Location of the asset and destination of the transfer of the asset;
7. Duration of the  rent period;
8. Lease rental and payment terms;
9. Residual value of the asset;
10. Duration of the lease including the period of irrevocability;
11. Rights and obligations of both parties;
12. Terms and conditions applied in the event of agreement  termination;
13. Terms and conditions applied at the expiry of the agreement;
14. Mechanism of dispute settlement;
15. Any other terms agreed on by both parties without prejudice to laws. 

The agreement has to provide an irrevocable period, equal to or less than the period of the finance lease agreement, during which, neither the lessor nor the lessee may not terminate or revise the terms of the agreement.

Registration, amendment and termination of finance lease agreement

A finance lease agreement is registered in a registry designated for that purpose with the Registrar General. The lessor has an obligation to register the agreement and its amendments and is liable for consequences for failure to do so.

The legal registration of lease is final and opposable to parties to finance lease agreement and third parties from the date of registration. 

 The importance of registration is that it entitles the lessor to recover the leased asset in case the lessee fails to fulfil his/her obligations.

Both parties may terminate the finance lease agreement in case of breach of the agreement by either party or upon mutual agreement by both parties. In case one of the parties wishes to terminate the agreement, it shall inform the other party in writing by stating the reasons and give notice to the other party as agreed upon in the finance lease agreement.

Costs

The costs incurred in the maintenance or repair of the leased asset are not refundable to the lessee unless stated otherwise in the finance lease agreement.

However, if, upon the lessor’s written consent, the lessee has made changes to the condition of the leased asset thus adding value to it, the lessee  will then be entitled to the refund of any costs incurred taking into account normal wear and tear of the asset by the time when the asset is returned.

Restrictions on registration

No finance lease agreement shall be made for shares, investment securities, any financial instrument, government bonds and securities, or any other movable asset whose free transaction in the Republic of Rwanda is restricted.

Return, repossession and acquisition of the leased asset

The returned or repossessed asset must be in the same condition in which it was received taking into account normal wear and tear or as stipulated under the finance lease agreement. If in the contrary, the lessee has to pay damages to the lessor, taking into account normal wear and tear unless otherwise provided in the finance lease agreement. 

 The lessor has the right to claim for compensation in case the lessee fails to return the asset within the specified time limit.

In the event of repossession, the lessor, shall in prior inform the lessee in writing with a copy to the Registrar General. In the event the lessee refuses to return the asset, the lessor shall apply to the Registrar General for authorization to recover the asset. 

 The lessor shall be assisted by a court bailiff to implement the decision of the Registrar General.

The return and repossession of the asset is subject to a statement signed by both parties.

Opposition to repossession of the asset is lodged with the Registrar General lessee or any interested third party.

If the lessee had offered to acquire the asset at the end of the lease period agreement, he shall take possession of it.The lessor then applies to the Registrar General for the cancellation of the finance lease agreement and the transfer of the asset shall immediately be done as provided by law.

Transfer of the finance lease agreement to third party

Before transferring the finance lease agreement to a financial institution, a corporate entity or a cooperative society licensed to carry out finance leasing operations, the lessor is obligated to notify the lessee in writing. The assignee will thus become the lessor.

Similarly, the lessee may transfer the finance lease agreement to the third party subject to the lessor’s approval by the lessor, unless otherwise provided under the finance lease agreement. The assignee shall become the lessee. The assignee may, upon written approval by the lessee, transfer to the third party the right to use the asset.  

 The lessee will retain the rights and obligations as provided under the agreement.

Rights, obligations and duties

The lessor

The lessor has the rights to request for the lease rental payment due and compensation for late payment, to monitor the use of the asset under finance lease agreement, to terminate the agreement and recover ownership of the asset in case the lessee fails to abide by the terms of the agreement and to keep valid titles to the asset.

He is obligated to lease or purchase an asset selected by the lessee and make it available to the lessee in accordance with terms of the finance lease agreement, to notify the supplier at the time of purchase of the asset, that the asset shall be leased and communicate to him/her the name and address of lessee, to notify the supplier of the transfer of the possession of the asset to another lessee or notify the supplier of any other change to the finance lease agreement where necessary, to provide in the agreement  terms that  may enable the lessee to acquire the leased asset by stating the agreed price and taking into account the amount of lease rental paid, to sue the supplier before competent courts in case of breach of supply agreement be it in terms of specifications of the asset for rent or because of a delay in delivery deadlines and such other obligations as may be agreed on between both parties in accordance with laws.

The lessee

The lessee’s rights include to select the asset and the supplier, to enjoy full use of the leased asset during the entire period of the lease as provided for in the finance lease agreement, to get a notarized copy of the property title for the asset leased, to request compensation for losses incurred in case of default by the lessor in performing his/her contractual obligations, to sue the lessor in competent courts in case of his/her failure to comply with his/her rental obligations, either in terms of  alteration of specifications  or delay in delivering the asset and any other rights as may be agreed on between both parties in accordance with laws.

His obligations include to receive the asset in accordance with lease terms of delivery under finance lease agreement, to pay for maintenance fees and insurance premiums for the asset leased as agreed on by both parties through finance lease agreement, to pay the lease rental on time, to use the asset according to its function as provided in the agreement, take proper care of the asset leased and use it in a reasonable manner, except for normal wear or any modification of the asset agreed upon by both parties, to allow to the lessor rights to visit the asset and monitor its use, unless otherwise provided by agreement, not to move the leased asset out of Rwanda without a written consent of the lessor unless otherwise provided by the finance lease agreement, to return the asset at the expiry of finance lease contract, unless the contract is further renewed or the lessee agrees to its purchase and any other obligations as may be agreed on between both parties in accordance with laws.

Protection of leased asset

The leased asset is protected in the instance of bankruptcy proceedings as it not subject to seizure when the lessor goes bankrupt.

In addition, any person claiming the right to the leased asset has to inform the lessor in writing.

 Eligibility

No entity shall engage in the finance leasing operations unless licensed by the National Bank of Rwanda which is vested with the sole competence to license and supervise finance lease operations in the Republic of Rwanda.

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[1]Article 2, Law N° 41 bis/2014 of 17/01/2015 governing finance lease operations in Rwanda