Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
The Expiry of the Financial Leasing Contract: A Comparative Study
between the Jordanian Legislation and the Egyptian Legislation
Mohammad Ali Helalat
Leasing activity has proved its importance as a competitive tool of financing, especially with the growing
awareness of a lot of legislations of the benefits provided by leasing as a source of funding, as well as
the increasing size of projects and their need for more flexible funding sources that are more liable to
respond to the requirements of profitability required by these projects.
Since the financial leasing contract is in progressive development just like any other aspect of the
economy through which it grows, I preferred that the subject of this research shall be on the expiry of
the financial leasing contact in the Jordanian Legislation compared with the Egyptian Legislation. It is
clear that a financial lease contract is similar to any other contract in terms that expires on appointed
date. However, and because of the particular nature of the financial leasing contract, It differs from what
is provided in the General Provisions regarding the end of the leasing contract since it is distinguished
by the fact that it gives the tenant at the end of the term three choices: The tenant buys the leased
assets, or extends the leasing contract or returns the leased asset.
A common reason for ending the financial leasing contract is the termination of the contract by revoking
it. If any party breaches the obligations rendered on them, the second party may terminate the contract
and will be free from any obligations since the financial leasing contract is a binding contract for both
parties.
1 Introduction
1.1 Definition of the Subject Matter
Financial Leasing is basically a kind of a commercial arrangement in which the lessor buys
machinery and productive equipment previously chosen by the tenant. The lessor rents these
machinery to the tenant in a way that enables the tenant to benefit from these machinery and
equipment for a certain period of time during which the tenant pays regular installments to the
lessor in return of benefiting from this equipment. At the end of the contract duration, the tenant
has three options: to own the leased assets, or renew the contract, or return rented assets.
It is clear through this transaction that both parties of the contract are liable to certain
commitments in return for having certain rights imposed by the contract to the other party and
clarified by the contract's items.
The contract ends when its duration comes to an end. However, the contract is generally
dissolved for many reasons; it expires when obligations are executed by both parties)1(, so it
expires when it is implemented as agreed. The contract expires not through expiration (since
expiration requires the execution of the obligations arising from
____________________________________________________________________________
Dr. Mohammad Ali Helalat, Assistant Professor of Commercial Law, the Hashemite Kingdom of Jordan, AL Hussein
Bin Talal University, College of Business Administration and Economy, Department of Business Administration, Email: Moh_helalat@yahoo.com
)1( Abdul-Razeq Al-Sanhouri, Al-Waseet in Civil Law Elaboration, Commitment Sources, revised by Consultant Ahmed Medhat Al-Maraghi, Al- Maaref
Establishment, Alexandria2007, P.565.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
the contract) but through dissolution which often takes place before the implementation of the contract either by
both parties' agreement or for reasons specified by the law)2(.
The contract expires and is considered as if it has not been signed if it was ruled invalid for a defect in one of its
terms when it was signed.
The contract may end as well by an individual will of one of the parties based on a provision of the law or explicitly
provided in the contract )3( .
Finally, the contract may elapse as a result of its dissolution in binding contracts for both parties, and if one of the
parties doesn’t have a commitment for implementation, the second party may require either execution or
termination of the contract)4(.
A financial lease contract is no exception to any other contract in terms of what causes it to be terminated
regarding the General Provisions terminate, except in certain issues that will be demonstrated duly. Nevertheless,
the contract ends at the end of its specified duration which is the natural END specified for it, knowing that this
duration varies according to the nature of the asset so that it be identical with the life span of this asset.
The contract may end before reaching its term, either as a result of annulment as its being invalid for a defect in
one of its components or conditions or because of the contract termination at the request of the lessor or the
tenant if any of them breached any of the contract’s fundamental obligations, where the other party may request
termination of the contract to be relieved of its corresponding obligations)5(.
1.2 The Research Problem
The research problem is represented in the fact that although the legislation of Jordan has enacted a modern law
for the financial leasing contract but this contract was not organized in a detailed and accurate way that enables us
being acquainted with some of the important aspects of this contract including the cases of ending the financial
leasing contract. Since such this regulation did not address these cases but left them to be handled through the
General Provisions, this study aims to grope these provisions and to compare them with the Egyptian legislation.
1.3 The Research Importance
The importance of this research is represented in answering the following question:
“Did the Jordanian Legislation benefit from the General Provisions when formulating the financial leasing law
regarding the cases of ending the financial leasing contracts; and thus is this reflected on the relationship between
the two parties of the contract in a way that made this relationship balanced once again.
)2( Anwar Sultan, Commitment Sources in Jordanian Civil Law, Dar Athaqafah for Publication and Distribution, 1 ST edition.P.250; Ramadan Abu Al-Soud,
Commitment Sources, Dar Al-Jame'h Al-Jadidah, 2007 P.274.
)4( Article (246) of the Civil Jordanian Law states that "1. In the binding contract of the two parties, if a party doesn't fulfill what is required from him, the
other party is authorized to either execute the contract or terminate it after executing the debtor. 2. The court is authorized to oblige the debtor to
implement at once or to be left for a time appointed, or it is authorized to terminate the contract and compensation”. This article corresponds to Article
(157) in the Egyptian Law.
)5( Abdel-Rahman Al-Sayyed Qarman, The Financial Leasing Contract in accordance with Act, No. 95 for the year 1995, Darul – Nahdha Al-Arabeyyah,p.150.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
1.4 Research Approach
Analytical and Comparative approach is used. The researcher compared the legislative provisions through
explanation and analysis in order to get acquainted with the negative aspects and avoid them. The descriptive
approach is used to observe and balance the legislative provisions. The analytical approach is employed to
demonstrate these provisions. Afterwards the comparative approach is adopted as a means through which a
decision can be made regarding what is appropriate for the operation on the one hand and what is justice fulfilling
on the other hand.
1.5 The Research Plan
As mentioned in the introduction, the research plan consists of two major subjects:
1) END of the financial leasing contract duration.
2) Termination of the financial leasing contract.
THE FIRST SECTION
END of the financial leasing contract
Since the financial leasing contract is a duration contract it expires once its duration comes to an end. This is the
natural end of contract as each party is committed to perform what is required from them to do.
What distinguish the financial leasing contract is that it gives the tenant three options at the end of the duration:
the tenant may purchase the leased asset which means ownership of this asset with the price of the remaining
value, or the tenant may renew the leasing contract on completely new conditions, and finally the tenant may
return the leased assets to the financial lessor )6(.
We are going next to illustrate these three options:
1. The tenant’s right of purchasing the leased assets.
In reality, this option occurs most frequently. It is mostly considered the purpose for which people resort to
financial leasing as a means of investment funding required by the financial tenant, especially if these assets are
real estate or equipment that slowly wears out technically. This means that it does not become old faster than the
average perishing period of the leased capital through the financial leasing contract duration)7(.
This also allows the tenant to avoid what he may run into if he did not choose to purchase the leased assets which
results in his inability to buy new assets, or unwillingness to do so because of its high costs or because it is
inappropriate to his productive, economical and financial project's policy)8(.
In addition, the price which the financial tenant pays in return of owning the leased assets is mostly cheap
compared with the market prices, since it takes into consideration the amounts which the tenant paid all through
the contract duration)9(.
)6(
)7(
This called Triple Option, See Jaques coillot ,initiation au leasing ou credit bail, editions j.delmas, Paris,p.180.
Abdel-Rahman Al-Sayyed Qarman, Ibid p.152.
)8(
Dr.Elyas Nasif, International Contracts – leasing Contracts in Comparative law, Al-Halabi Legal Publications, Lebanon, 1st edition, 2008, p.363.
)9(
Hussam-Eddin Abdel-Ghani Al-Saghir, Financial Leasing, Dar Al N ahdha Al-Arabeyya, Cairo1994, p.51.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Therefore, the Egyptian legislator gives the financial tenant the right to purchase the leased assets at the end of the
contract period.
Article (5/1) of Act No.95 for the year 1995, amended by Act No.16 for the year 2001 states that "The tenant has
the right to buy the leased assets all of it or some of it at the date and price specified by the contract, on the
condition that the money paid as a rent be taken into consideration"
Meanwhile the Jordanian legislator doesn't put the purchase option as a condition when considering the contract a
financial leasing contract. This can be shown clearly through the provision of Article (3/a) of the Financial Leasing
Law No. (45) for the year 2008 which states "
A contract is considered a financial leasing contract if it contains these two terms regardless of its containing the
purchase option or not:
1. That the lessor's ownership of the leased assets from the supplier with the aim of leasing it according to the
leasing contract.
2. That the lessor is committed to empower the tenant to benefit from the leased property in return for paying
the rent".
However, Jordanian Legislator gave permission to the tenant according to Article (6/b) to possess the leased asset
in return for paying all the remaining payments before the end of the leasing contract duration.
The Tenant's Announcement to Purchase the Leased Assets
Since the transition of the leased assets to the tenant depends on the tenant's announcement of his desire to
purchase these assets at the end of the contract duration, the leasing contract should specify the date during which
the tenant announces his/her desire to employ his/her option of purchase.
This date should be clear in the contract as the two parties agree on the necessity of announcing the desire to
purchase within the last two months before the end of the contract, or the two parties agree that the
announcement shall be a day before the end of the contract; this will be considered waving from his side against
this option.
In case of not agreeing on a specific date to announce the tenant’s desire to purchase, the latter has to inform the
lessor in the proper time: this means a sufficient time before the end of the contract. This allows the lessor to take
the necessary precautions regarding the leased assets. The lessor may require the tenant to decide upon his right
of the purchase option through a notification sent to the tenant. This notification does not cancel in any way the
tenant’s right to employ the purchase option till the end of the contract)11(.
The effect of the Tenant’s Practicing of his Purchase Option.
The Jordanian financial leasing law is distinguished from other laws in that it enacted provisions specialized for the
effect of the financial tenant’s practicing the option of purchase. Article (12) of the law includes some items and
)11(
Elyas Nasif, Ibid, p 365.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
articles that illustrate these effects which are, as a whole, considered commitments of the lessor towards the
tenant.
If the tenant practices his option of purchase agreed upon in the contract, and if the leased assets is a real state
property or private movables, the lessor is committed to waiver this money at the relevant departments within a
period of 15 days from the date of notification in writing that the tenant desires to purchase. In order to fulfill this
effect and as an initial guarantee to the tenant. Law has granted him the right to submit a request for the
Jurisdiction judge to pronounce a Judgment to transfer property of the leased assets to him. This is applied in case
of the lessor refrains to waiver the leased assets)11(.
If the tenant practices his option of purchase agreed upon in the financial lease contract, and the leased assets was
not assets or private movables the legislation has organized a senior ruling which considers the tenant as owner of
this asset once he notifies the lessor in writing of his desire to buy)12(.
2 : Renewal of the Financial Leasing Contract
The tenant may continue using the leased asset based on a request to renew the contract submitted to the lessor
before the end of the original lease duration. This renewal is not considered an extension of the first leasing
contract since its terms differ from the first contract’s terms especially the leasing payments which are often low
compared with the original leasing contract payments)13(
The reason for this reduction is that the tenant through implementing the first contract has submitted to the
financial lessor all the transaction costs; therefore the lease allowances will be reduced)14(. In addition to the fact
that the life span of the leased assets will be near the end of life span when the new contract begins.
It is also better that the financial leasing contract includes what indicates that the contract is renewed or at least, to
illustrate the conditions on which the renewed contract is based. The absence of such provision may lead to
disagreement between the parties especially if the lessor states that the tenant does not have the right to renew
the lease. This leads to reducing the options of the tenant of either to purchase the leased assets or to return the
leased assets to its owner.
A Comparison Between Egyptian Legislation Attitude and Jordanian Legislation Attitude concerning the renewal:
Referring to the provisions of Article (5/1) of the Egyptian Legislation which states "In case of not choosing to buy
the leased assets the tenant has the option of returning the leased asset to the lessor or renewal of the contract
upon conditions agreed on by both parties." It is clear that the Egyptian legislation estimated that if the tenant
concludes that he needs to benefit from the leased asset once again he may; in this case, employ the second option
which is contract renewal.
)11(
)12(
)13(
)14(
Article 12\c\1 of the Jordanian Financial Leasing Law
Article (12\d) of the Jordanian Legislation
Dr,Fayez Na'em Radwan, The Financial Leasing Contract, publisher 2nd edition 1997, p236.
Hussam – eddin Abdel-ghani Al-Saghir, Ibid, p.26.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Contract renewal should be explicit according to the Egyptian legislation. Hence, the contract should not be
implicitly renewed. This is stated in Article (5/2), which states that "In any case, a contract may not be implicitly
renewed or extended whether the tenant is warned when the contract ends or not".
As for the Jordanian legislation attitude, we notice that this option is not mentioned since there is no provision in
the Jordanian Financial Leasing Law giving the tenant the right to renew the contract.
Although we prefer that the Jordanian legislation includes a provision which states that the tenant has the right to
renew the leasing contract exactly like the Egyptian legislation, we think that the parties of the contract may decide
on this option in their contract, and so there is nothing to prevent providing this term especially that it is related to
the General Provisions and both parties can agree explicitly to renew the contract or not.
3: Returning the Leased Assets
The tenant is committed in the financial leasing contract to return the leased assets to the lessor if he didn't renew
the contract or he did not announce his wish to purchase. If the period of the contract expired and the tenant
doesn't wish to employ any of the two hither mentioned options, he has to return the money to the tenant since he
has lost the legal support of benefiting from the leased assets)15(, on the appointed date of the contract END the
tenant has to return the leased thing in good condition and so he is not responsible for the defects enacted on the
leased thing because of everyday use)16(.
The Jordanian legislation has adopted this option in the Financial Leasing Law and emphasized it as one of the
options that the tenant can employ at the end of the contract. While counting the tenant's commitments in the
financial leasing contract, Article (10/ b/ 6) of the Legislation pointed out that the tenant is obliged to return the
leased assets as it states "returning the leased assets to the lessor in accordance with the provisions of the leasing
contract, or in cases specified in this law."
The Second Section
Termination of the financial Leasing Contract
Prelude and Division
In the first section of this research we addressed the END of the financial leasing contract by the end of the agreed
upon duration .In this way, the contract ends in a natural and expected way. In this section, we address the
termination of the financial leasing contract before it's agreed upon duration.
It is generally known that any contract is considered a binding contract for both parties. If one party violates in
performing the obligations placed upon him, the second party has the right to terminate the contract and in this
way is considered exempt of his obligations
Since we are keen to remain within the study boundaries, which is the termination of the financial leasing contract
we find that the Jordanian legislation and the Egyptian legislation resort to specify a special provision for the cases
of termination which came in response to the particular nature of the financial leasing contract. When viewing
many cases related to the leasing contract as a means of funding projects which practice certain productive and
)15(
)16(
Abdel- Rahman Al-Sayyed Qarman, Ibid, p186.
Jaques Coillot,op,cit.p.179
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
service activities that are supposed to be performed by professionals and that professionals proceeded to launch
such operations after a thorough study. Therefore, such cases will be the subject of our study away from the
General Provisions we discussed earlier and said that they can be applied on the financial leasing contract.
Therefore, this section will be divided into two requirements:The First Requirement: The Legal Termination Cases.
The Second Requirement: The Termination of the Financial Leasing Contract by Force of Law.
The First Requirement: The Legal Termination Cases
Both Jordanian and Egyptian legislations of the financial leasing law enacted some of the special reasons for the
annulment of the financial leasing contract which collectively form exemplification cases. This doesn't mean that
these are the only cases that may cause a reason for terminating the contract, since there are other reasons that
allow both parties to terminate the financial leasing contract.
A Balance Between the Attitude of the Jordanian Legislation and Egyptian Legislation
In order to balance between the attitudes of the two legislations, we have to introduce some observations on the
legal provisions of the Jordanian Financial Leasing Legislation:
The first observation is related to Article (19/a) of the Jordanian Law which states that the judicial termination of
the financial leasing contract can be upon the request of one of the parties, when the other party breaches his
obligations. This means that this termination becomes valid only when a court judgment is issued. It can also be
conventional depending on a contract term allowing one of the parties to terminate the contract by his own will. In
this way, we can see that the provision was a repetition of what is mentioned in the General Provisions provided in
Article (246) of the Jordanian Civil Law which authorizes one of the contractors in the binding contracts of the
parties for one of the parties to demand the other party, if he did not fulfill his obligations, either to execute the
contract or to terminate it after notification. It is also a repetition of the General Provisions provided in Article
(245) of the Civil Law which authorizes agreement to consider the contract annulled by itself and without a need of
a court action in case of not fulfilling the obligations rising from it.
The second observation is related to the fact that the Jordanian legislator intended to distinguish between the
termination cases which the lessor can adhere to and the termination cases which the tenant can adhere to.
Article (19/a) of the Jordanian Legislation provides some of the cases in which the lessor can adhere to when
facing the financial tenant such as:
1. Using the leased assets for a purpose other than that mentioned in the leasing contract.
2. Not paying the agreed upon leasing allowances.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
3. The tenant's not making the necessary maintenance for the leased assets.
4. Severe damage of the leased assets.
5. Any other violation of the leasing contract on the condition that this violation is crucial.
Article (20) of the same legislation also provides the tenant in a financial leasing contract with the right to ask
for the termination of the contract in the following cases:
12-
3-
The lessor does not empower the tenant to benefit from the leased assets.
The lessor is not making the necessary maintenance and repair especially in the cases that the lessor is
committed to do so.
Any other violation to the leasing contract on condition that this is a crucial violation.
Thus, we see that the provisions of the Jordanian legislation talked about the cases of the lessor or the tenant's
defaulting any of the commitments imposed on them by the financial leasing contract. In this way, although the
Jordanian Legislation specified some of the reasons for terminating the financial leasing contract, this specification
is not understood as exclusive reasons, especially that Article (19/a/5) and Article (20/c) indicated that such
commitments may differ according to the different terms in the leasing contract, and so any crucial violation to the
contract terms or the effective legislation can make a reason to require for the contract termination whether by the
lessor or by the tenant.
What is mentioned here cannot be applied on the Egyptian Legislator attitude. Article (19) mentioned some the
cases of financial leasing contract termination. But these cases were exclusive which means that they are the only
cases in which the contract may be terminated.
The third observation is that the Jordanian Legislation was clear in that a notification shall be sent to the tenant
before resort to convention termination or judicial termination. This means that the lessor shall not terminate the
financial leasing contract directly or through the court without warning the tenant that he breached the obligations
imposed on him which entails the contract termination as provided by Article (19/b) of the Jordanian law.
The wisdom of legislatures’ requirement to warning whether it was conventional or judicial termination is that
warning benefits in proving the tenants’ default in fulfilling his obligations which makes the court hasten to respond
to the termination demand and to rule for compensation along with termination judgment)17(.
Even the Jordanian Legislator was clear in requiring the tenant’s sending a judicial ultimatum to the lessor when
authorizing the tenant to terminate the financial leasing contract, the legislator did not specify any period during
which a warning is sent; the provision was general.
Egyptian legislator does not require a warning for the financial leasing contract termination. Instead, Article (19/a)
requires a period of thirty days in one case which is not paying the rent allowances.
In conclusion, the Jordanian legislation expanded in giving the right to terminate for both the lessor and the tenant,
but the Egyptian legislation, give this right only to the lessor in accordance with the text of the previous article (19);
)17(
See:.Abdel-Razaq AL-Sanhouri,Al-Waseet in Civil Law Elaboration, Commitment Sources, p576.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
thus we can say that the Egyptian legislation takes the term of the "explicit termination term" in which it is agreed
that contract rescinds by itself without resort to court or excuse when the tenant breaches any of his
commitments.
The wisdom in that the Egyptian legislation does not provide explicitly in the financial leasing law authorizing the
tenant the right of termination is that the lessor rarely defaults any of his contract obligations towards the tenant
since the nature of this contracts throws most of the obligations on the tenant as being the weaker party in the
funding transaction. Considering his funding profession, the lessor only aims to gain profits and thus he is free from
commitments that being not fulfilled leads to the tenant’s right to require the contract termination. On this basis,
the lessor is not obliged to carry out maintenance works or to guarantee inherent defects and will not be
responsible of the receipt and delivery operations which are excluded to the contractor or the financial tenant.
We proceed now to address some of the termination cases provided by the relevant legislations through which a
financial lessor is authorized to terminate the leasing contract. We shall exceed some of these cases to concentrate
on the cases that raise argument. At the same time, we shall not address the cases in which the tenant is
authorized by the Jordanian Legislator to the financial tenant to terminate the contract since they as we mentioned
before, rarely take place.
The First Case: Termination Because of not paying the Leasing Allowances:
The tenant's refrain of executing his basic commitment of the financial leasing contract is considered a reason to
terminate the contract. If the tenant refrains from paying the leasing allowances agreed upon in the contract, the
lessor has the right to demand dissolving the contract. Article (19/a) of the Jordanian Legislation provides that,
"with accordance to the provisions of item (b) of this Article, a leasing contract may be terminated by a jurisdiction
Judicial ruling or by a notification from the lessor (if authorized by the contract) in any of the following cases:
1. The failure of the tenant to pay the leasing allowances agreed upon in the financial leasing contract”.
Article (19) of the Egyptian law also provides that “A contract is dissolved by itself without the need of excuse or
judicial action at any of the following cases:
a.
The failure of the tenant to pay the renting allowances in appointment and in accordance with terms
agreed upon in the lease after a period of 30 days, if not otherwise a longer period is mentioned in the
contract."
The termination of the financial leasing contract is determined once the financing lessor announces his wish to
terminate, but he has first to excuse the financing tenant of the termination. Hence the financial leasing contract is
not considered terminated unless the tenant goes on breaching the commitments in spite of excuses. Financial
leasing contracts specify the duration within which the tenant has to pay the rents after excuse; otherwise the
contract shall be terminated. This duration varies in contracts but it is usually not less than 8 days )18(.
The Egyptian law did not require excuses for termination. In this case termination becomes valid once the financing
lessor announces his wish to terminate the contract without the need to resort to court. However, announcement
is not considered from the General Provision since both parties may agree that termination doesn’t become valid
unless the tenant is excused for his default of not paying the rent.
)18(
Hani Dweidar, The Legal System of the Financial Leasing – A Critical Study in the French Law, Al- Isha'a Library 1998, p482.
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Proceedings of 11th International Business and Social Science Research Conference
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Therefore we see that the financing lessor may not seek to terminate the contract just because the tenant failed to
pay the rent for a short period of time. However, we may wonder whether the financial lessor can terminate the
contract in case of the tenant’s failure to pay part of the rent? We can say that Article (19) of the Jordanian law,
and Article (19) of the Egyptian law were absolute, and so the financial tenant has to fulfill his whole commitment
without any shortage; and has to pay the rent at the time and place specified in the contract. However, they should
not be strict in following the law provision specially if the shortage is trivial, since a trivial amount of money is not
considered a crucial violation of the purpose intended by the legislation. The judge may decide whether the
amount of money is trivial or of crucial value)19(.
The Second Case: Bankruptcy or Insolvency of the Tenant
Bankruptcy means the transmission of the debtor from convenience into hardship which indicates that he is
financially broke. Legally speaking, it is a way provided by the law to lay execution on the debtor’s money as a
result of his failure to pay his debts with the aim of liquidating his funds a collective liquidation for the benefit of his
creditors, so that what results from this liquidation is divided as adversaries division among the creditors )21(.
Bankruptcy is considered one of the cases for terminating the financial leasing contract regulated by the Egyptian
legislation in the Financing Leasing Law. Article (19) provides that “A contract is dissolved by itself without the need
of excuse or judicial action at any of the following cases:
a. Bankruptcy of the tenant or to be declared insolvent. In this case the leased assets do not enter in the
bankruptcy funds and not in the general guarantee of creditors. The bankruptcy trustee may notify the lessor by
a registered letter within 30 days from the date of judgment of bankruptcy of his desire to continue the
contract. In this case the contract shall continue in place provided the payment of the rent at the time”.
It is clear that the lessor has the right, with regards to the Egyptian law to terminate the financial leasing contract
without the need of sending a warning or notification or any judicial action in the case of bankruptcy or declaration
of insolvency. In such case the contract terminates by itself.
It is noticed that the Egyptian legislator based this ruling on considering that the financial leasing contract is based
on the personal consideration. The lessor doesn't implement a contract without the tenant's submitting the entire
guarantee to be trusted. The lessor funds the required money within the agreed upon duration on the condition
that he gets back his money plus the profits. Thus, Personal consideration and trust in the tenant is the term of
beginning and ending from the point of view of the lessor)21(, The tenant’s bankruptcy may undermine this
confidence and may influence the continuation of the contract.
It is clear from the item provision that the leased assets are not included in the bankruptcy money or the general
guarantee of creditors. We support what others see in that what the legislation provides in this item is extra and
with no benefit at all. It is only an emphasis of what is provided in the General Provisions which provides that the
leased assets is not included in the bankruptcy money or the general guarantee of the creditors.
)19(
)21(
Amman,2009, p350.
Samiha Al-Qalyoubi ,A Synopsis of Bankruptcy Regulations, Dar Al-Nahdha Al-Arabeyya, 2003, p.5; See also: Dr. Ahmed Muhammed Mehrez,
Bassam Helal Al Qallab, Financial Leasing, Dar Al-Raya for Publication and Distribution,
Commercial Leases-Bankruptcy,2003, p274.
)21(
Abdel- Rahman Al-Sayyed Qarman, Ibid, P184.
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Proceedings of 11th International Business and Social Science Research Conference
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The leased assets is not the property of the tenant especially if the financial leasing contract is registered where it
is not allowed to object to any right that contradicts with the register information including lessor property of the
leased assets )22(.
The Jordanian Legislation Attitude
Bankruptcy or insolvency is not included in the cases provided by the Jordanian Legislation in Article (19) which
directly addresses some of the termination cases of the financial leasing contract.
However, Article (18) of the same law distinguishes between the lessor liquidation decision and the tenant
liquidation or bankruptcy decision. Article 18 provides that:
"A:- The tenant has the right in case of the lessor liquidation to do one of the following:
1- Carry on executing the leasing contract with the rest of the creditors in collecting the money which he paid for
the lessor after deducting the renting allowances.
2- New owner of leased things as a result of liquidation should continue working according to contract of lease if
tenant wished.
B:- The new owner of the leased asset has to carry on executing the leasing contract if the tenant declares his
desire to do so.
C:- In case of a decision of bankruptcy or insolvency of the tenant, the leased asset is not included in the general
guarantee of creditors, and is not considered a part of the bankruptcy and the bankruptcy trustee has to
return the leased asset to the lesser unless the liquidator or the bankruptcy trustee decides to carry on
executing the leasing contract within 3 months of the liquidation decision or bankruptcy announcement".
Going back to Article (18/c) of the Jordanian law, we find that the legislator was clear in giving the lessor the right
to terminate the financial leasing contract in case of the tenant's bankruptcy. The legislator also states in the same
article that in the case of such decision is taken, the leased assets is not included in the general guarantee of
creditors or in the bankruptcy funds.
We see that both Jordanian and Egyptian resolutions are similar in giving the funding lesser the right to terminate
the contract in case of the tenant’s bankruptcy. Both of them order the same effect regarding not including the
leased assets into the general guarantee of creditors or in the bankruptcy funds. This is an unnecessary increase
since the leased assets are originally owned by the lessor and we can’t conceive its being included in the
bankruptcy funds.
The Third Case: Liquidation of the Tenant in Case he is a legal person:
Article (19) of the Egyptian law provides that “contract is terminated by itself without the need of excuse or legal
action in any of the following cases:
c) Take the liquidation proceedings of the tenant if a legal person, whether a mandatory or optional liquidation,
unless it was due to merge, providing not breaching the lessor’s rights mentioned in the contract."
Taking the liquidation proceedings means executing all the procedures to determine the company’s right, the
partners, and the others to claim them, and the company’s debts in order to determine the net assets and change
)22(
Abdel-Rahman Al-Sayyed Qarman, Ibid, p.184; Dr.Elyas Nasif, Ibid, p391.
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them into cash money to be divided among partners)23(. These procedures can be carried through only by a
liquidator assigned for this purpose)24(.
In this respect we point out that the Egyptian Legislator did not give the liquidator the right to ask for the
continuation of the financing leasing contract as they did in the case of the tenant’s bankruptcy where they
authorized the bankruptcy trustee to demand to continue the leasing contract. In this case the legislator didn't
balance between what a liquidator who bears the responsibility of managing the legal persons business can achieve
and the bankruptcy trustee who manages the tenant’s money after the bankruptcy resolution.
The Jordanian Legislator Attitude
First we would like to point out that Article 19 of the Jordanian Financial Leasing law which addressed the cases of
the leasing contract termination did not include the tenant liquidation case.
It is clear that Article (18) of the same law that the Jordanian Legislator gave both the tenant and the lessor the
right to terminate the financial leasing contract. Item (a) of this article provides the case of the lessor liquidation,
while item(c) provides the case of the tenant liquidation or bankruptcy.
Although the legislator did not state explicitly the lessor liquidation case as one of the cases for terminating the
financial leasing contract provided in Article (19), we find that this case causes a contract termination which the
tenant can employ in the case of the tenant liquidation resolution.
On this basis, if the tenant chooses to deliver the leased assets to the liquidator and to enter with the rest of the
creditors in collecting the money he paid to the lessor, this means that he chooses to terminate the financial leasing
contract.
In case of tenant liquidation, it is clear that Article 18 provides giving the lessor the right to terminate the leasing
contract in the case of tenant liquidation. Item (c) of Article (18) provides that, in case of tenant's liquidation or
bankruptcy, the leased asset is not included in the general guarantee creditors and is not considered a part of the
liquidation assets. The Liquidator or the bankruptcy trustee is to return the leased assets to the lessor unless they
decide within 3 months from the date of the liquidation resolution to continue with the execution of the contract."
The Fourth Case: Death of Tenant or the Solidarity Partner in the leased Persons Company:
In accordance with the General Provisions of the civil law, the death of the tenant does not entail the expiration of
the leasing contract)25(. However, if the tenant dies, his heirs have the right to demand the end of the contract if
they proved that the burden of the contract is heavier than their supplies could bear)26(.
The Egyptian legislator adopted the case of the tenant’s death in the financial leasing contract and made it one of
the cases in which the financial lessor may terminate the contract. Article (19) provides that “The contract is
considered terminated by itself without a need for excuse or legal action in any of the following cases:- (d) the
)23(
Samiha Al Qayloubi, Commercial Companies, The General Theory of Companies, Dar Al-Nahdha Al-Arabeyya, 4th edition, 2008, p220.
)24(
Mohammed Farid AL-Arini ,The Commercial Law, Companies of persons and money, Dar Al-Matbouat AlJam'eyyah,2001,p.101
)25(
Article (601/1) Egyptian Civil Law.
)26(
Article (601/2) Egyptian Civil Law.
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Proceedings of 11th International Business and Social Science Research Conference
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death of the tenant or the solidarity partner in a leased company of persons, unless the heirs or the new solidarity
partner ask to continue the execution of the contract within 30 days from the death date".
The termination of the financial leasing contract by the death of the tenant is justified by the entity of the tenants’
personality.
The funding lessor depends on executing the contract on the personal elements of the tenant and his ability to bear
the financial burdens arising from the contract. Therefore no one is authorized to take the place of another one in
executing the leasing commitments)27(.
The termination of the financial leasing contract by the death of the solidarity partner in the company of persons is
justified by fact that the partner’s personality in this kind of companies is considered in place of other partners.
Hence any cause leads to the demise of this consideration such as the death of one of the partners, leads to the
expiration of this company. The continuation of the financial leasing contract is connected with the existence of this
company. If it is ended, the lessor has the right, without warning, to terminate the financial leasing contract
although the case of death in itself is not a reason for the leasing contract termination; it is a reason for expiration.
It is clear from the provisions of this item aforementioned that although the Egyptian Legislator gave the lessor the
right to terminate the financial leasing contract in the case of the death the tenant or the solidarity partner, it, in
return, gave the right to the heirs to ask to continue the execution of the contract provided that it is carried out
within thirty days from the death date. In this case the heirs take the place of the inherited in all the rights and
liabilities he was committed to.
The Jordanian Legislation Attitude
The Jordanian Leasing Law does not provide any provision regarding the death of the tenant or the solidarity
partner in the financial leasing contract.
Nevertheless, we can conceive these presumptions)28(:
In case of the financial leasing contract includes a term that gives the tenant the right to terminate the contract in
case of death of the tenant or solidarity partner, the contract shall be apt to termination by the lessor once death is
realized.
In case of not including such term, we have to resort to the General Provisions applied on leasing contracts.
According to Article (709/1) of the Jordanian Civil Law, a leasing contract does not end by the death of either of the
contractors. If the tenant dies the renting contract does not expire. Applying this rule on the financial leasing
contract, we can see that the lessor cannot terminate the contract.
This conception is emphasized by referring to the General Provisions which govern the companies of persons. If the
rule states that the death of a partner entails dissolving the company by force of law, which means the expiration
of the company for the remaining partners on the basis that the partner personality is in place of consideration in
this kind of companies which means that other partners are not liable to continue with the heirs of the dead
)27(
)28(
Hani Dweidar, Ibid, p.485.
Sakher Khasawneh, Financial Leasing Contract, A Comparative Study in Jordanian Law with indication to Islamic Fiqih Regulations, Dar Wael for
Publication,Amman,1st edition, 2005, p254.
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partner whom they don’t know or trust)29(. The Jordan Legislation came out of the rule and decided that the death
of a partner in a solidarity company is not considered a reason for dissolving the company by force of law, unless
the articles of incorporations state other than that)31(.
Therefore, we agree with the view which says that the death of one partner does not necessarily mean that the
company dissolves especially if the incorporation article does not state otherwise. In this case, if the financial
leasing contract does not include a provision that authorizes the lesser to terminate the contract, the lessor can't
terminate the contract since the company continues and the heirs took the place of the inherited regarding what is
committed towards the lessor)31(.
The Second Requirement: Termination of the Financial Leasing Contract by the Force of Law
The Egyptian legislator ruled in Article (21/1) of the Act No 95 for the year 1995 that," The contract is terminated by
force of the law if the assets were completely damaged".
It is clear from the abovementioned provision that the Egyptian legislator arranges for the contract termination by
force of law in case of the complete destruction of the leased assets. This ruling is considered an application of the
General Provisions provided for renting contracts which state that the complete destruction of the leased property
during rented period entails the termination of the contract by force of law)32(.
The financial leasing contract termination as a result of a complete destruction of the leased assets whether this
destruction is materialistic like burning or sinking or a building collapse or a legal destruction as a result of a fault
enacted by the tenant or the lessor or others)33(, or any other case which entails not benefiting from the thing
mentioned in the contract because of a forcemajeure)34(.
Since the financial leasing contract is a binding contract for both parties, the leased assets liability lies on the
debtor. The debtor in the financial leasing contract is the lessor who is committed to guarantee the availability of
the leased assets to the tenant and empower him to benefit from it as agreed upon in the contract, provided that
the tenant has nothing to do with this destruction)35(.
This is the provision of Article (10/2) of the Egyptian Act No. 95 for the year 1995, which was amended by Act No.16
for the year 2001 by providing that "The lessor bears the liability of the destruction of the leased assets if the cause
has nothing to do with the tenant. Both parties may agree that the tenant bears the liability of the leased assets
destruction. The lessor may require insurance on the leased assets in a way that guarantees getting the rental value
of the remaining period of the contract and the specified price for it.”
Personally, I believe that the Egyptian Legislation is right in making the financial Lessor bear the Liability of the
complete destruction of the leased assets. This ruling quite agrees with the General Provision which states that the
owner of the leased thing bears the liability of destruction if the tenant is not the direct cause of the defect. The
lessor is committed to empower the tenant to benefit from the leased assets. If this money is destroyed, he can’t
)29(
Samiha Al-Qayloubi, Commercial Companies, Dar Al-Nahdha Al-Arabeyya,4th edition p.296;Aziz Al-Aqili ,AlWasit in Commercial Companies ,Dar Al thaqafa
for Publication and Distribution, 2008, p140.
)31(
The Article (30\a\1) of the Jordanian Companies Law states that "Unless provided by the company's contract or signed by all Partners before the death of
one of its partners, the consolidate companies continue to exist.
)13(
Sakher Al-Khasawneh, Ibid, p257.
)13(
Article (569) of the Egyptian Civil Law.
)11(
Abdel-Rahman Al-Sayyed Qarman, Ibid, p199.
)13(
Samiha Al-Qalyoubi, Al-Wasit in Elaborating the Egyptian Commercial Law,VOL.1.P.595.
)13(
Abdel-Rahman Al-Sayyed Qarman, ibid, p200.
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carry on with his obligations to empower the tenant to benefit from the leased assets and so the tenant has the
right to refrain from executing his commitments in return. This explains the termination of the financial leasing
contract by force of law.
The Jordanian Legislation Attitude
The Jordanian Legislation did not consider the complete destruction of the leased assets a case for the termination
by the force of law as did the Egyptian Legislator in Article (21) aforementioned.
The Jordanian Legislator considered the case of complete destruction of the leased assets one of the cases in which
the funding lessor may terminate the contract through sending a notification to the tenant or by a court judgment.
This is provided in article (19/a/4).
The reason behind that is that the Jordanian Act makes a private resolution in the case of the destruction of the
leased assets which goes against the General Provisions of the rental lease in which the liability lies on the lessor. It
is noticed that the financial tenant, in accordance with the Jordanian Act, bears the liability of the destruction of
the leased assets from the very time he actually receives it. This is provided in Article (14/a) of the Jordanian Act:
“The tenant bears the liability of the leased integrity and any risks related to its destruction or damage or misuse or
any other risks from the moment he actually receives it unless agreed upon otherwise".
The financing tenant bears the liability of destruction or damage even if it happened because of compelling
circumstances or because of an external factor. This is provided by Article (14/b) by stating that: " The destruction
of the leased asset or the impossibility of using it in accordance with the purposes designed for it after receipt, even
if this was because of the Force Majeure, or because of an external factor, doesn't exempt the tenant from his
commitments according to the leasing contract and doesn't entail him to demand termination unless agreed upon
otherwise."
Thus we see that these provisions don’t lay the liability of leased assets destruction on the lessor except in the case
that destruction refers to the lessor himself although it is supposed that the financial lessor bears this liability since
he is the original owner of the leased asset. The financial leasing contract is a binding contract for both parties,
Consequently, the liability for loss is supposed to lie on the debtor by commitment and the debtor here is the
financial lessor since he is committed to guarantee the remaining of the money subject of the contract, and to
empower the tenant to benefit from this money as agreed upon. If the money is seriously perished, the contract
shall dissolve because it is impossible to be executed. This means that the contract terminates by law force.
I personally believe that the Jordanian Legislation failed in this particular point. They had better provide an item
that agrees with the Egyptian provision which allows the termination of the financial leasing contract by force of
law in case of complete destruction of the leased assets or the serious damage that affects it directly specially that
the Jordanian Legislation, and in many occasions, tried to balance between the interests of both parties.
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CONCLUSION
This research tried to shed light on the cases in which the financial leasing contract ends in the provisions of the
Jordanian Legislation and comparing it with Egyptian Legislation. The researcher has reached the following
conclusions:
1- Both the Jordanian legislation and the Egyptian legislation have regulated the financial leasing contract with
special rules that bear various benefits in that they acknowledge the financial tenant's right to choose the
purchase of the leased assets; moreover, the Egyptian legislation provided details of how to purchase the
leased assets whether all of it or part of it provided that when deciding the price the amounts paid for the rent
shall be taken into consideration. This provision is overlooked by the Jordanian Legislation.
2- The Egyptian Legislation acknowledges the financial tenant to renew the contract by announcing this explicitly
to the lessor before the end of the contract's duration, while the Jordanian Legislation does not point to this
option at all.
3- The Jordanian Legislation adopts the financial tenant's option of returning the leased asset. While recounting
the tenant's obligations in the financial leasing contract, he pointed to the necessity of the tenant's
commitment of returning the leased asset; this option is even emphasized when recounting the lessor rights.
This is specially provided in Article (12/a/3).
4- The Jordanian Legislation has extended in giving the right to terminate the contract since both the lesser and
the tenant is given this right. Meanwhile, the Egyptian Legislation excluded this right to the lesser only.
5- The Jordanian Legislation did not regulate the bankruptcy of the financial tenant as a case of financial leasing
contract termination, while the Egyptian Legislation regulated this case and even authorized the lessor to
terminate the financial leasing contract without the need to warning or notification in case of the tenant's
bankruptcy or insolvency.
6- In addition the Jordanian Legislation doesn't adopt the case of liquidation or the death of the financial tenant,
while the Egyptian Legislation adopted both cases and included them in the cases that entail contract
termination.
References
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Abdul-Razeq Al-Sanhouri, Al-Waseet in Civil Law Elaboration, Commitment Sources, revised by Consultant
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Abdel-Rahman Al-Sayyed Qarman,The Financial Leasing Contract in accordance with Act, No. 95 for the year
1995, Darul –Nadha Al-Arabeyyah.
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Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
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-
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17
Law,
Al-Halabi
Legal