The leasing contract under the Bulgarian Commerce Act

The leasing contract is governed by Bulgarian legislation in Art. 342-347 CA and is a form for granting temporary use of goods for consideration. It is usually concluded in writing as a contract under general conditions. It is among those transactions laid down in Art. 1 (1) CA, whose conclusion by occupation gives commercial capacity of the natural or legal person who concludes it. The rules relevant to lease contracts apply mutatis mutandis to leasing contracts, however, the legislature has explicitly excluded the application of certain provisions (Art. 347 (2) CA).

The Bulgarian legislature has provided for two types of leasing in view of their economic objective - operational and financial leasing:

1. Operational (commodity) leasing (Art. 342 (1) CA)

Under a leasing contract the lessor undertakes to provide an item for use for consideration.

The obligations of the lessor include providing the property subject to the lease, and ensuring its free use. Further obligations binding the lessor can be additionally negotiated in the lease contract (e.g. to ensure that the use of the object of leasing does not violate the intellectual property rights of third parties, to perform the installation thereof, to ensure the maintenance of the property during the term of the contract).

The obligations of the lessee include paying the remuneration of the lessor for the use of the property in the form of leasing installments (their amount, duration and method of payment should be determined in the contract), storage and maintenance in good condition of the subject of leasing, return the property of the lessor upon expiry of the term of the contract, informing the lessor of any actions by third parties that could harm the property or any claims brought by third parties in respect of the subject of leasing. The costs of maintaining the property are borne by the lessee. Common in practice is an obligation incumbent on the lessee to provide the lessor with regular access to the subject of leasing, so that they could be able to verify the status of the leased property, as well as the obligation to insure the leased property.

2. Financial leasing

According to Art. 342 (2) CA, under a financial leasing contract, the lessor undertakes to acquire property from a third party under conditions determined by the lessee, and to make it available thereto for consideration. The financial leasing is a bank transaction in which the lessor is a credit or financial institution as per the Credit Institutions Act. The risk of accidental loss or damage to the property in a financial leasing is borne by the lessee.

The obligations of the lessor cover the obligation to acquire certain property according to the specifications and conditions given by the lessee, to ensure the free use of property, to deliver the subject of leasing to the lessee.

It is recommended that the leasing contract include provisions on the liability of the lessor regarding their performance of the guidance given by the lessee on the selection of the subject of leasing, its compliance with the qualitative criteria specified by the lessee, as well as how the lessee can lodge any claims upon finding defects of the subject of leasing in the respective warranty period.

The lessee's obligations include payment of leasing installments, the return of the property after the termination of the contract.

Art. 346 CA provides for the grant of use of the property subject to leasing to a third party by the lessee, or the so-called subleasing. In this case the consent of the lessor is required.

For both types of leasing the lessee may acquire the property during the contract or after its term expires, if the parties have agreed thereto.

Termination of the leasing contract

The leasing contract is terminated at the end of its term.

It is permissible in the contract to provide for it to be terminated unilaterally by the lessee. In the latter case it is generally agreed that they owe all leasing installments at the time of termination, together with certain additional amount of money as stipulated in the contract. Normally this amount of money covers the estimated profit of the lessee for the entire term of the lease.

Upon default the contract may be repudiated. Normally this happens in cases of non-payment of leasing installments.