Lessors’ claims in finance lease lawsuits

A finance lease, with its dual nature of leasing funds and assets, involves the lessor, lessee (buyer) and seller. When any dispute arises, it is especially important for the lessor to know how to identify the claims to be submitted in order to protect its legitimate rights and interests, ensure the smooth progress of the proceedings and recover losses in a timely manner.

Claims must be based on legal provisions. As finance leases are concerned, the main legal basis involves Chapter 14 of the Contract Law “Finance Lease Contract” and the Interpretation of the Supreme People’s Court Concerning Application of Laws in the Trial of Finance Lease Contract Disputes (the interpretation). Promulgated and enacted in 2014, the interpretation provides effective judicial guidelines for the growing number of finance lease cases and clarifies direction for business activities of finance lease companies.

Pursuant to article 21 of the interpretation, “where the lessor submits claims demanding the lessee pay all outstanding rent under the contract and seeking termination of the finance lease contract, the court shall advise it to make a choice from the claims in accordance with Article 248 of the Contract Law. If the lessor decides to claim only for payment of all outstanding rent under the contract, but the lessee fails to fulfil the court rulings that support such a claim, any subsequent litigation the lessor initiates to seek termination of the finance lease contract and return of the leased asset shall be accepted by the court.”

Xu Bangwei is a partner, and Xiao Jian is a paralegal at Jingtian & Gongcheng