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Unidroit Convention on International Financial Leasing

The states parties to this convention, recognizing the importance of removing certain legal impediments to the international financial leasing of equipment, while maintaining a fair balance of interests between the different parties to the transaction, aware of the need to make international financial leasing more available, conscious of the fact that the rules of law governing the traditional contract of hire need to be adapted to the distinctive triangular relationship created by the financial leasing transaction, recognizing therefore the desirability of formulating certain uniform rules relating primarily to the civil and commercial law aspects of international financial leasing, have agreed as follows: 

CHAPTER I - SPHERE OF APPLICATION AND GENERAL PROVISIONS 
Article 1 This convention governs a financial leasing transaction as described in paragraph 2 in which one party (the lessor), on the specifications of another party (the lessee), enters into an agreement (the supply agreement) with a third party (the supplier) under which the lessor acquires plants, capital goods or other equipment (the equipment) on terms approved by the lessee so far as they concern its interests, andenters into an agreement (the leasing agreement) with the lessee, granting to the lessee the right to use the equipment in return for payment of rentals.
The financial leasing transaction referred to the previous paragraph is a transaction which includes the following characteristics: the lessee specifies the equipment and selects the supplier without relying primarily on the skill and the judgment of the 
lessors;the equipment is acquired by the lessor in connection with a leasing agreement which, to the knowledge of the supplier, either has been made or is to be made between the lessor and the lessee; and the rentals payable under the leasing agreement are calculated so as to take into account in particular the amortization of whole or a substantial part of the cost of the equipment.
This Convention applies whether or not the lessee has or subsequently acquires the option to buy the equipment or to hold it on lease for a further period, and whether or not for a nominal price or rental.
This Convention applies to financial leasing transactions in relation to all equipment save that which is to be used primarily for the lessee personal, family or household 
purpose. 

Article 2 In the case of one or more sub-leasing transactions involving the same equipment, this Convention applies to each transaction which is a financial leasing transaction and is otherwise subject to this Convention as if the person from whom the first lessor (as defined in paragraph 1 of the previous article) acquired the equipment were the supplier and as if the agreement under which the equipment was so acquired 
were the supply agreement. 

Article 3 This Convention applies when the lessor and the lessee have their places of business in different States and:
Those States and the State in which the supplier has its place of business are Contracting States;Both the supply agreement and the leasing agreement are governed by the law of a Contracting State.
A reference in this Convention to a party's place of business shall, if it has more than one place of business, mean the place of business which has the closest relationship to the relevant agreement and its performance having regard to the circumstance known to or contemplated by the parties at any time before or at the conclusion of that agreement. 

Article 4 
The provisions of this Convention shall not cease to apply merely because the equipment has become a fixture to or incorporated to land.
Any question whether or not the equipment has become a fixture to or incorporated to land, and if so the effect on the rights inter se of the lessor and a person having real rights in the land, shall be determined by the law of the State where the land is situated. 

Article 5The application of this Convention may be exclude only if each of the parties of the supply agreement and each of the parties of the leasing agreement agree to exclude it.
Where the application of this Convention has not been excluded in accordance with the previous paragraph, the parties may in their relations with each other, derogete from or vary the effect of any of its provisions except as stated in Article 8(3) and 13(3)(b) and (4). 

Article 6 In the interpretation of this Convention, regard is to be had to its subject and purpose as set forth in the preamble, to its international character and to the need to promote uniformity to its application and the observance to the good faith in international trade.
Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in 
conformity with the general principle on which it is based or, 
in the absence of such principles, in conformity with the law 
applicable by virtue of the rules of private international 
law. 
CHAPTER II - RIGHTS AND DUTIES OF THE PARTIES 
Article 7 
The lessor's real right in the equipment shall be valid 
against the lessee's trustee in bankruptcy and creditors, 
including creditors who have obtained an attachment or 
execution.
For the purpose of this paragraph "trustee in 
bankruptcy"includes a liquidator, administrator or other 
person appointed to administer the lessee's estate for the 
benefit of the general body or creditors.
Where by the applicable law the lessor's real rights in the 
equipment are valid against a person referred to in the 
previous paragraph only on compliance with the rules as to 
public notice, those rights shall be valid against that person 
only if there has been compliance with such rules.
For the purpose of previous paragraph the applicable law is 
the law of the State which, at the time when a person referred 
to in paragraph 1 becomes entitled to invoke the rules 
referred to in the previous paragraph, is :
in the case of a registered ship, the State in which it is 
registered in the name of the owner (for the purpose of this 
sub-paragraph a bareboat charterer is deemed not to be the 
owner);
in the case of an aircraft which is registered pursuant to the 
Convention on International Civil Aviation done at Chicago on 
December 7,1944, the State in which it is so registered;
in the case of other equipment of a kind normally moved from 
one State to another, including an aircraft engine, the State 
in which the lessee has its principal place of business;
in the case of other equipment, the State in which the 
equipment is situated.
Paragraph 2 shall not affect the provisions of any other 
treaty under which the lessor's real rights in the equipment 
are required to be recognized.
This article shall not affect the priority of any creditor 
having:
a consensual or non-consensual lien or security interest in 
the equipment arising otherwise than by virtue of an 
attachment or execution, orany right of arrest, detention or 
deposition conferred specifically in relation to ship or 
aircraft under the law applicable by virtue of the rules of 
private international law. 
Article 8 
Except as otherwise provided by this Convention or stated in 
the leasing agreement, the lessor shall not incur any 
liability to the lessee in the respect of the equipment save 
to the extent that the lessee has suffered the loss as the 
result of its reliance on the lessor's skill and judgment and 
of the lessor's intervention in the selection of the supplier 
or the specifications of the equipment.
The lessor shall not, in its capacity of lessor, be liable to 
third parties for death, personal injury or damage to property 
caused by the equipment.
The above provision of this paragraph shall not govern any 
liability of the lessor in any other capacity, for example as 
owner.
The lessor warrants that the lessee's quiet possessions will 
not be disturbed by a person who has a superior title or 
right, or who claim a superior title or right and act under 
the authority of a court where such title, right or claim is 
not derived from an act or omission of the lessee.
The parties may not derogate from or vary the effect of the 
provisions of the previous paragraph in so far as the superior 
title, right or claim is from an intentional or grossly 
negligent act or omission of the lessor.
The provisions of paragraph 2 and 3 shall not affect any 
broader warranty of quiet possession by the lessor which is 
mandatory under the law applicable by virtue of the rules of 
private international law. 
Article 9 
The lessee shall take proper care of the equipment, uses it in 
a reasonable manner and keep it in the condition in which it 
was delivered, subject to fair wear and tear and to any 
modification of the equipment agreed by the lessor.
When the leasing agreement comes to an end the lessee, unless 
exercising a right to buy the equipment or to hold the 
equipment for lease for a further period, shall return the 
equipment to the lessor in the condition specified in the 
previous paragraph. 
Article 10 
The duties of the supplier under the supply agreement shall 
also be owed to the lessee as if it were a party of the 
agreement and the equipment were to be supplied directly to 
the lessee. However, the supplier shall not liable to both the 
lessor and the lessee in respect of the same damage.
Nothing in this article shall entitle the lessee to terminate 
or rescind the supply agreement without the consent of the 
lessor. 
Article 11 
The lessee's right derived form the supply agreement under 
this Convention shall not be affected by a variation of any 
term of the agreement previously approved by the lessee unless 
it consented to that variation. 
Article 12 
Where the equipment is not delivered or is delivered late or 
fails to conform to the supply agreement:
the lessee has the right as against the lessor to reject the 
equipment or to terminate the leasing agreement ;and
the lessor has the right to remedy its failure to tender 
equipment in conformity with the supply agreement, as if the 
lessee had agreed to buy the equipment from the lessor under 
the same terms as those as the supply agreement.
A right conferred by the previous paragraph shall be 
exercisable in the same manner and shall be lost in the same 
circumstances as if the lessee had agreed to buy the equipment 
from the lessor under the same terms as those of the supply 
agreement.
The lessee shall be entitled to withhold rental payable under 
the leasing agreement until the lessor has remedied its 
failure to tender equipment in conformity with the supply 
agreement or the lessee has lost the right to reject the 
equipment.
Where the lessee has exercised a right to terminate the 
leasing agreement , he lessee shall be entitled to recover the 
rentals and other sums paid in advance, less a reasonable sum 
for any benefits the lessee has derived from the equipment.
The lessee shall have no other claim against the lessor for 
non-delivery, delay in delivery or delivery of non-conforming 
equipment except to the extent to which this results from the 
act or omission of the lessor.
Nothing in this article shall affect the lessee's right 
against the supplier under Article 10. 

Article 13 
In the event of the default by the lessee, the lessor may 
recover accrued unpaid rentals, together with interest and 
damage.
Where the lessee's default is substantial, then subject to 
paragraph 5 the lessor may also require accelerated payment of 
the value of the future rentals, where the leasing agreement 
so provides, or may terminate the leasing agreement and after 
such termination:
recover possession of the equipment; and
recover such damages as will place the lessor in the position 
in which it would have been had the lessee performed the 
leasing agreement in accordance with its terms.
The leasing agreement may provide for the manner in which the 
damages recoverable under paragraph 2(b) are to be computed.
Such provision shall be enforceable between the parties unless 
it would result in damages substantially in excess of those 
provide for under paragraph 2(b). The parties may not derogate 
from or vary the effect of the provision of the present 
sub-paragraph.
Where the lessor has terminated the leasing agreement, it 
shall not be entitled to enforce a term of that agreement 
providing for acceleration of payment of future rentals, but 
the value of such rentals may be taking into account in 
computing damage under paragraph 2(b) and 3. The parties may 
not derogate from or vary the effect of the provision of the 
present paragraph.
The lessor shall not be entitled to exercise its right of 
acceleration or its right of termination under paragraph 2 
unless it has by notice given the lessee a reasonable 
opportunity of remedying the defaults so far as the same may 
be remedied.
The lessor shall not be entitled to recover damage to the 
extent that it has failed to take all reasonable steps to 
mitigate its loss. 

Article 14 
The lessor may transfer or otherwise deal with all or any of 
its rights in the equipment or under the leasing agreement. 
Such a transfer shall not be relieve the lessor of any of its 
duties under the leasing agreement or alter either the nature 
of the leasing agreement or its legal treatment as provided in 
this Convention.
The lessee may transfer the right to the use of the equipment 
or any other rights under the leasing agreement only with the 
consent of the lessor and subject to the rights to the third 
parties. 
CHAPTER III-FINAL PROVISIONS 
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Article 15 
This Convention is open for signature at the concluding 
meeting of the Diplomatic Conference for the adoption of the 
draft Unidroit Conventions on International Factoring and 
International Financial Leasing and remain open for signature 
by all States at Ottawa until December 31,1990.
This Convention is subject to ratification, acceptance or 
approval by States which has signed it.
This Convention is open for accession by all States which are 
not signatory States as from the date it is open for 
signature.
Ratification, acceptance, approval or accession is effected by 
the deposit of a formal instrument to that effect with the 
depositary. 
Article 16 
This Convention enters into force on the first day of the 
month following the expiration of six months after the date of 
deposit of the third instrument of ratification, acceptance, 
approval or accession.
For each State that ratifies, accepts, approves or accedes to 
this Convention after the deposit of the third instrument of 
ratification, acceptance, approval or accession, this 
Convention enters into force in respect of that State on the 
first day of the month following the expiration of six months 
after the date of deposit of its instrument of ratification, 
acceptance, approval or accession. 
Article 17 
This Convention dose not prevail over any treaty which has 
already been or may be entered into: in particular it shall 
not affect any liability imposed on any person by existing or 
future treaties. 
Article 18 
If a Contracting State has two or more territorial units in 
which different system of law are applicable in relation to 
the matters dealt with in this Convention, it may, at any time 
of signature, ratification, acceptance, approval or accession, 
declare that this Convention is to extend to all its 
territorial units or only to one or more of them, and may 
substitute its declaration by another declaration at any time.
These declarations are to be notified to the depositary and 
are to state expressly the territorial units to which the 
Convention extends.
If, by virtue a declaration of this article, this Convention 
extends to one or more but not all of the territorial units of 
a Contracting State, and if the place of the business of a 
party is located in that State, this place of business, for 
the purpose of this Convention, is considered not to be in a 
Contracting State, unless it is in a territorial unit to which 
the Convention extends.
If a Contracting State makes no declaration under paragraph 1, 
the Convention is to extend to all territorial units of that 
State. 
Article 19
Two or more Contracting States which have the same or closely 
related legal rules on matters governed by this Convention may 
at any time declare that the Convention is not to apply where 
the supplier, the lessor and the lessee have their place of 
business in those States. Such declarations may be made 
jointly or by reciprocal unilateral declarations.
A Contracting State which has the same or closely related 
legal rules on matters governed by this Convention as one or 
more non-Contracting States may at any time declare that the 
Convention is not to apply where the supplier, the lessor and 
the lessee have their place of business in those States.
If a State which is the subject of a declaration under the 
previous paragraph subsequently becomes a Contracting State, 
the declaration made will, as from the date on which the 
Convention enters into force in respect of the new Contracting 
State, have the effect of a declaration made under paragraph, 
provided that the new Contracting State joins in such 
declaration or makes a reciprocal unilateral declaration. 
Article 20 
A Contracting State may declare at the time of signature, 
ratification, acceptance, approval or accession that it will 
substitute its domestic law for Article 8(3) if its domestic 
law dose not permit the lessor to exclude its liability for 
its default or negligence. 
Article 21 
Declaration made under this Convention at the time of 
signature are subject to confirmation upon ratification, 
acceptance or approval.
Declarations and confirmations of declarations are to be in 
writing and to be formally notified to the depositary.
A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. 
However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral declarations under Article 19 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary.
Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to effect on the first day of the month following the expiration of six months after the receipt of the notification by the depositary.
A withdrawal of a declaration made under Article 19 renders inoperative in relation to the withdrawing State, as from the date on which the withdrawal takes effect, any joint or reciprocal unilateral declaration made by another State under that Article. 

Article 22 No reservations are permitted except those expressly authorized in this Convention. 

Article 23 This Convention applies to a financial leasing transaction when the leasing agreement and the supply agreement are both concluded on or after the date on which the Convention into force in respect of the Contracting States referred to in Article3(1)(a),or of the Contracting State or States referred to in paragraph 1(b)of that article. 

Article 24 This Convention may be denounced by any Contracting State at any time after the date on which it enters into force for that State. Denunciation is effected by the deposit of an instrument to that effect with the depositary.
A denunciation takes effect on the first day of the month following the expiration of six months after the deposit of the instrument of denunciation with the depositary. Where a longer period for the denunciation to take effect is specified in the instrument of denunciation it takes effect upon expiration of such longer period after its deposit with the depositary. 

Article 25 This Convention shall be deposited with the Government of Canada. 
The Government of Canada shall:
inform all States which has signed or acceded to this Convention and the President of the of the Institute for the Unification of Private Law (Unidroit) of: each new signature or deposit of an instrument of ratification, acceptance, approval or accession, together with the date thereof; each declaration made under Article 18, 19and 20.the withdrawal of any declaration made under Article 21(4);the date of entry into force of this Convention; the deposit of an instrument of denunciation of this Convention together with the date of its deposit and the date on which it takes effect; transmit certified true copies of this Convention to all signatory States, to all States acceding to the Convention and to the President of Unidroit. 

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