Leasing and renting

LONG TERM CAR RENTAL & LEASING: confusion between the terms

1. People who are unfamiliar with "LEASING" often confuse this term with others such as "RENTING ON LONG TERM", "OPERATIONAL LEASING", "RENTING", "FULL OPERATIONAL LEASING" and many others !

So it seems useful to us to clarify a few terms before browsing our site. These clarifications are of course not intended to replace the applicable legal definitions. In case of doubt, the opinion of an expert should always be sought.

2. The simple "Distribution key" !

a. There is a very simple method to distinguish one from the other:

EITHER the contract provides for a purchase option for the buyer (client) representing a maximum of 15% of the capital that the giver (lessor) invested in the leased property : in this case it is LEASING, provided that all other legal conditions (see below) are complied with ;

OR the agreement does not provide for the possibility of repurchase (or provides for this option to exceed 15%) : in this case we do not speak of leasing but of renting.

b. Why is the distinction between LEASING and other terms so important?

Because a LEASING contract is subject to special legal rules, which do not necessarily also apply to rental agreements. In Belgium, the LEASING contract is initially governed by specific legislation: Royal Decree No. 55 of 10 November 1967. In addition, the legislation on accounting has specified certain concepts (Article 95 § 1, III, D, 2nd of the Royal Decree of 30 January 2001). However, the legal texts in Belgium do not use the term LEASING but the expression "Financing lease". Nevertheless, we will continue to use the term LEASING, since this term is used in everyday use.

In short, we can say that :

• a rental agreement is a lease agreement when, in addition to the ordinary contractual clauses, it also fulfils the conditions of R.D. no. 55 and the accounting law;
• a rental agreement remains a rental agreement if it does not meet one, more or all of the conditions laid down in this R.B. and in the Accounting Law.

c. What are the legal criteria that characterize a LEASING contract ?

According to the legal provisions, a lease must be considered as a leasing contract if the following five conditions are met:

• it concerns an asset that is exclusively used by the lessee for professional purposes;
• the asset has been acquired by the lessor at the direction of the lessee (i.e. it is not possible to lease an asset that has already been used, such as a used car);
• the duration of the contract is equal to the probable economic life of the asset leased;
• the price of the lease must be fixed in such a way that the value of the leased asset is paid off over the agreed duration;
• the agreement provides for a purchase option for the buyer that amounts to a maximum of 15% of the invested capital (invested capital: in principle = purchase price of the good).

3. Why did the legislator regulate this matter by law ?

Suppliers have always tried to protect themselves against the insolvency risks of their customers (bankruptcy). Various legal constructions have been developed in the past with this aim in mind, including the technique of hire-purchase. The supplier 'leased' the asset for a certain period of time and his customer then had the opportunity to acquire the asset. This legal construction, which was disputable in case of the customer's bankruptcy, was generally condemned by the courts. In order to put an end to these discussions, the legislator intervened in 1967 and specified the conditions which a contract must meet in order to be considered a perfectly valid 'finance lease', even in case of the insolvency of the lessor. Only those companies which have been officially recognized in this respect can validly enter into a financing (leasing) agreement.

Thanks to this legislation, leasing has become a financing technique that is no longer disputed, which has enabled the rapid development of this sector of activity.

4. And what about all the other terms used by the different companies ?

Either it is a leasing contract:

- such a contract is not issued by the members of RENTA

- This type of contract therefore comes from companies that are usually members of BLV (the Belgian Leasing Association) www.blv.be.

Either these are rental contracts drawn up by rental companies that are members of RENTA and can bear many different names for COMMERCIAL REASONS.

The general 'flag' long term rental covers various cargoes such as car leasing, renting, financing rental...

Financial leasing or financing rental

In this case, the lessor is merely a financier. He buys the car according to specific instructions from the lessee and rents the car to the lessee for its economic life. The lessee bears the economic risk and must therefore also take care of insurance, maintenance, repairs, etc.

Operational renting

in this case, the lessee does not want to buy a car, but to use it for a certain period of time. That period does not have to correspond to the economic lifetime of the car. In this case, the lessor bears the economic risk. In the case of operational renting, the lessee rarely has a purchase option at the end of the contract. Usually, the lessor provides additional services such as maintenance, repairs, replacement car, BA insurance, ... That is why this is also referred to as full-service renting.

History

Long term rental is the youngest, but by now most successful descendant of the vehicle rental sector.

- It was not until the economic 'boom' in the 1980s that it became more and more common for companies to no longer purchase the vehicle fleet themselves, but to entrust it to specialized leasing companies.

- By focusing as much as possible on the core business, the management of the company fleet is also increasingly being outsourced to specialists.

- The sector organized itself for the first time in 1984 in the Belgian Professional Association of Long Term Landlords, a forerunner of Renta.