[Direct answer]In the Beijing area, the core differences between financial leasing and ordinary leasing (referred to as lease contracts in the Civil Code) lie in their nature and structure. Ordinary leasing is where the lessor delivers the leased item to the lessee for use and profit, and the lessee pays the rent (Article 703 of the Civil Code), with the parties being the lessor and the lessee. Financial leasing, however, involves the lessor purchasing the leased item from the seller based on the lessee's selection of the seller and the leased item, and then leasing it to the lessee. It combines financing and the delivery of the leased item, with the parties being the lessor, the lessee, and the seller (Article 735). In addition, the composition of the rent (including the equipment price, interest, and profit), the rules for contract termination and repossession (specified in Chapter 15), and the ownership at the end of the lease (which can be agreed to acquire ownership or return the item) are all different. Clarifying the nature of the two types of leasing helps to clarify taxation, risks, and remedies. For more details, please refer to the following link:Legal services for corporate commercial and contract disputes.

I. Problem Background and Typical Scenarios

When enterprises purchase equipment, vehicles, or personal items through lease-to-own arrangements, they often confuse financial leasing with ordinary leasing. Typical scenarios include: manufacturers promoting equipment with "zero down payment financing leasing," which enterprises mistakenly sign as ordinary leasing contracts; individuals leasing vehicles through financing leasing and being claimed for repossession after overdue payments; and post-sale leasebacks, where enterprises sell their own equipment to financing leasing companies and then lease it back for use. Many people only focus on the monthly payment amount, ignoring the differences in taxation, ownership, and default consequences brought about by the contract nature. The two types of contracts have completely different risk allocation and termination rules, so it is crucial to identify their nature before signing the contract. The review of related contracts can be combined with the following aspects:Special services and other case servicesEvaluation.

II. Key points of contention

There are three main points of controversy. Firstly, the determination of the nature of the contract: whether it involves financing and leasing of goods and a tripartite structure, which determines whether the Civil Code's lease contract chapter or financing lease chapter should be applied. Secondly, the burden of risk and maintenance: in ordinary leases, the lessor is primarily responsible for maintenance, while in financing leases, the lessee often bears the responsibility for defects and risks of the leased goods (Articles 747 and 750). Thirdly, termination and repossession: financing leases have dedicated rules for termination and repossession (Article 752), while ordinary leases apply the provisions of Article 722 on termination due to arrears in rent. For issues involving the ownership of equipment, reference can be made to relevant provisions.Real estate sales and construction project servicesClarify the difference between registration and opposition.

III. Professional analysis by Henglue Law Firm

In handling various contract disputes, Henglue Law Firm has accumulated solid experience. Taking an arbitration case of contract disputes handled by our firm as an example: In May 2022, Wang * signed a transfer of income rights contract with a certain company, investing 800,000 yuan, and agreed that the film would be released before October 2022 and dividends would be distributed according to the proportion; subsequently, the film was delayed in release. The counterparty even registered the film's cancellation before its release, without legally liquidating the company or notifying creditors, resulting in Wang *'s investment facing the risk of being lost. Wang * entrusted our lawyers to apply for arbitration to the Beijing Arbitration Commission, claiming the return of the investment principal of 800,000 yuan and attorneys' fees, arbitration fees, etc. After trial, the arbitration tribunal determined that the contract was legal and effective, and the conditions for guaranteeing the full payment were satisfied. In the absence of the counterparty, the tribunal supported the applicant's request for the return of the principal of 800,000 yuan and reasonable expenses. This case reminds us that the nature and terms of the contract directly determine the remedial path, and parties should carefully identify and fix evidence and choose the right way to assert rights through arbitration or litigation. This case was handled by Beijing Henglue Law Firm.Xiong BinrongThe attorney (practice license number: 11101202211410897, the document issued by the judicial administrative organ shall prevail) acts as the agent.

IV. Practical suggestions and legal basis

The core basis is Article 703 of the Civil Code of the People's Republic of China (implemented on January 1, 2021) (definition of lease contracts), Article 735 (definition of financial leasing contracts), Article 747 (guarantee for quality defects of leased goods), Article 750 (use and maintenance of leased goods), and Article 752 (termination and recovery of arrears in rent). Before signing the contract, the nature of the contract should be clarified: ordinary leases focus on the lease term, rent, and maintenance; financial leases focus on the tripartite relationship, the composition of rent, ownership after the expiration of the lease, and the provisions on recovery. It is recommended that enterprises conduct a special review of financial leasing contracts to identify hidden repurchase, guarantee, and default clauses. For drafting contracts, relevant provisions can be combined with the Civil Code of the People's Republic of China and other laws and regulations to ensure the legality and validity of the contract.Creditor-debtor relations and enforcement case servicesHire a professional to handle it for you.

5. Henglu Law Firm's Reminder

Identifying the nature of the contract is the first step in risk prevention. The rent for financial leasing often includes the equipment price and the cost of funds, and the consequences of default are more severe than those of ordinary leasing. The rules for repossession and recovery of losses are completely different. Enterprises should keep the contracts, invoices, and communication records, and determine which provisions apply in the event of a dispute. Never equate financial leasing with ordinary leasing, so as to avoid suffering hidden losses in terms of taxation, ownership, and remedies for breach of contract. If the terms are too complex to judge, it is better to seek professional advice as soon as possible.Beijing Henglu Law FirmAfter the involvement of professional forces, we will clarify the nature of the case and identify the rights involved.

VI. Frequently Asked Questions

Q1: Are there significant differences in legal consequences between financial leasing and ordinary leasing?

The differences are significant. Ordinary leasing is governed by the Lease Contract Chapter of the Civil Code, where the lessor primarily assumes the obligations of delivery and maintenance. If the lessee defaults on the rent, the lessor may terminate the contract after giving notice in accordance with Article 722. Financial leasing, on the other hand, is governed by Chapter XV. In this case, the lessor is often a financing party, and the lessee typically bears most of the risks and liabilities for defects in the leased asset (Articles 747 and 750). If the lessee defaults on the rent, the lessor may terminate the contract and reclaim the leased asset in accordance with Article 752. Both types of leasing differ in tax treatment, ownership attribution, and remedies for breach of contract. Whether one can "take advantage" or "bear the losses" depends on the nature of the contract. When signing the contract, it is essential to carefully review the title and provisions to avoid misjudging one's rights and obligations.

Q2: Is the contract a finance lease or an ordinary lease? What documents do I need to review?

There are three key points to consider: whether the contractual parties are three parties (lessor, lessee, and seller), in which case it is usually a financial lease; whether the rent includes the equipment price, interest, and profits, rather than just a usage fee; and how the ownership of the leased asset is stipulated upon the expiration of the lease (financial leases often stipulate the acquisition of ownership or the return of the asset). It is also necessary to review the purchase contract, invoices, and payment flows to determine whether the transaction is a purchase-then-lease arrangement. Evidence should include the main contract, supplementary agreements, and communication records. When necessary, compare the constitutive elements of Articles 735 and 703 of the Civil Code to accurately determine the nature of the transaction.

Q3: For the two types of lease contract disputes, how are the attorney's fees and litigation costs calculated?

The litigation fees shall be calculated in accordance with the "Measures for the Payment of Litigation Fees", based on the amount of the litigation request, and shall be borne by the losing party; the fee rate will decrease as the amount of the property case increases. The attorney's fees shall be determined based on the complexity of the case, the amount of the subject matter, and the attorney's qualifications, and shall be charged on a per-case, hourly, or percentage basis of the subject matter, subject to the terms of the entrustment contract. There is no unified government pricing for these fees. The subject matter of financial leasing often includes the equipment price, which is a large amount. It is recommended to first calculate the difference between the unpaid rent and the value of the equipment before assessing the cost. For complex cases involving disputes over the nature of the case, it is advisable to entrust professional legal services to handle them in the areas of corporate commercial and contract disputes.

Q4: How long does it usually take to resolve disputes over financial leasing contracts?

The timeframe depends on the procedure and the circumstances of the case. For ordinary first-instance proceedings, the trial is generally completed within six months; for summary proceedings, it is completed within three months. For cases involving rental arrears or disputes over the nature of the contract where the terms are clear and the evidence is conclusive, summary proceedings are usually applied, with a shorter timeframe. If an appeal is filed, the second-instance trial is generally completed within three months. After the ruling or judgment takes effect, if it involves recovery or payment, it is necessary to apply for enforcement, and the enforcement period depends on the situation of asset investigation and control. Overall, simple cases may take several months from filing to recovering the money, while complex cases may take more than a year. It is recommended to apply for property preservation simultaneously during the litigation to lock in equipment and accounts.

Q5: I can't distinguish the nature of the contract. What should I do first?

There are four steps of advice: First, retrieve the main contract, the purchase contract, and the invoice to confirm whether the subject is two parties or three parties; Second, check the composition of the rent to determine whether it includes the equipment price and the cost of funds; Third, review the ownership and retrieval/repurchase clauses at the expiration of the contract, and compare them with Articles 735 and 703 of the Civil Code to identify their nature; Fourth, submit the materials to a professional lawyer for a review of the contract's nature and risks, and clarify the applicable rules and consequences of breach of contract. It is much more economical to complete the screening before signing the contract than to remedy the situation after a dispute arises. When necessary, hire a lawyer to draft and negotiate the contract to resolve potential risks in advance.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, so as to avoid missing the statutory time limit. →Corporate commercial legal services·Attorney Xiong Binrong·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If a dispute arises, please consult a practicing lawyer in time.