Leasing Contracts in Germany | Legal Advice and Support

Leasing – not unlike renting – involves making an asset available for use in return for the payment of a monthly sum. Legally, the leasing contract is not explicitly mentioned, but only indirectly, Section 506 (2) of the German Civil Code, BGB.  

The legal nature of a leasing contract in Germany, based on which, among other things, the contractual obligations are defined and legally interpreted, represents the first legal challenge. Since there is no legal standardisation in Germany and the leasing contract is similar to other types of contracts but also has considerable differences, the legal nature needs to be uniformly classified in legal circles in Germany. The different assessments of the legal nature result in other areas of application or differently applicable standards. Due to the similarity in content to the rental agreement, the provisions of tenancy law are usually, but not exclusively, applied by analogy.  

Regarding the form of the respective leasing contract in Germany, a distinction is made between finance leasing and operating leasing. While finance leasing – which is most likely the best-known form for private individuals in particular – is characterised by medium to long-term lease terms, operating leasing is short-term, offering significantly more flexibility for both parties. The ‘classic’ finance lease is often aimed at buying the leased asset for a residual amount at the end of the leasing period. In this context, we speak of full amortisation, i.e. the full purchase price, including financing costs, is covered by the leasing instalment or the leasing instalment and the additional payment of a residual amount.

Operating leasing is aimed at the temporary use of capital goods without the intention of a subsequent change of ownership. Responsibility for the leased asset remains with the lessor. This form is particularly suitable for companies that have flexible and short-term requirements for certain capital goods without wanting to make a long-term financial commitment.

The key difference between renting and leasing is the distribution of obligations. While the owner continues to bear responsibility for maintenance and any necessary repairs in a traditional rental agreement, the lessee bears these obligations in a leasing agreement. In other words, the lessee acts like an owner. In addition, rental contracts generally do not provide the option of acquiring ownership. Finally, considerable differences are possible in the context of cancellation. Leasing contracts in Germany are usually linked to a fixed, non-cancellable term. This provides both parties with increased security and predictability compared to rental agreements.

In contrast to a purchase agreement, the lessee can use an expensive asset without raising the purchase capital. Instead of a one-off high purchase price, the lessee can conveniently pay agreed monthly instalments but is still not obliged to purchase the asset at the end of the term. There is flexibility regarding replacing the leased item. The possibility of replacing the leased asset means that it can be modernised quickly without any significant effort on the part of the lessee. Particularly for companies as lessees, leasing offers considerable scope for liquidity and increases flexibility in acquiring production and work materials. Leasing instalments are also immediately and fully tax-deductible as operating expenses.

The lessor has several advantages compared to a purchase or rental agreement. The lessor can claim the leasing instalment for tax purposes, resulting in different tax rates than when receiving a one-off purchase price. In contrast to rental income, the leasing instalment is a long-term, predictable income due to the fixed term, which can be used to make further investments. The general offer of leasing contracts in Germany can also generate an expanded customer base, as private individuals or small and medium-sized enterprises are excluded as potential customers – due to a lack of capital – if the only option is to purchase the assets on offer.

Due to the advantages for both parties, leasing has established itself as a popular contract model in numerous sectors and industries over the years. The type of asset available for leasing depends on the realisability of the asset at the end of the leasing period. This is because the lessor can only make the asset available for leasing again if it can still be utilised. The most common leased assets include vehicles (vehicle leasing, but ships or aeroplanes can also be leased), machinery for production companies and real estate (usually commercial property).

Vehicle leasing contracts are classic and widely used. These are very popular in private and commercial contexts. Depending on how the leasing agreement is structured, vehicles can be leased entirely without a down payment, and it is also possible to agree to a mileage lease.

Property leasing is less well-known compared to vehicle leasing, although it has been possible and attractive for several years. This is also structured according to the ‘classic’ finance lease according to § 506 (2) BGB and offers an alternative to construction financing, primarily in commercial tenancy law. Our German contract lawyers can provide details of the three different property leasing models in a personal consultation. We will determine the most suitable and advantageous arrangement for you between the following three models:

• New build leasing,
• Buy and Lease,
• Sale and Lease.

Our team of lawyers will also examine the possibility of buying a rental property for you, analyse the existing contract, or draw up a leasing contract according to your requirements.

Animals can also be leased in Germany due to their legal categorisation as similar to property. In agriculture, leasing farm animals instead of purchasing them can make economic sense. Works of art usually have a considerable economic value and can also be leased, e.g., to make your business premises more attractive. Our German art lawyers are available to advise you on matters of leasing works of art in Germany. They will ensure that you are aware of the precise requirements that can make leasing artworks different from other forms of property.

In addition to physical assets, intangible assets such as patents, licences, brand names, and copyrights can also be leased. A standard method is the sale-and-lease-back method, in which a company sells its patents or licences to a leasing company and then leases them back. This method offers attractive financing options and can increase the company’s liquidity.