The Presidium of the Russian Supreme Arbitration Court clarified the legal nature of the buy-out payment in a lease agreement

On 18 May 2010 the Presidium of the Russian Supreme Arbitration Court issued Resolution No. 1729/10 that clarifies the legal nature of the buy-out payment in a lease agreement, which stipulates that title to a leased item is transferred to the lessee on the expiry of the lease, and also explicitly specifies the procedure for determining the amount in cases where the buy-out value was not established by the parties to the lease agreement. The interpretation of the legal provisions contained in the aforementioned Resolution is compulsory and binding on arbitration courts considering similar cases.

In the past court practice was inconsistent and courts adopted different positions depending on the region where the case was heard. Some courts adopted judicial acts proceeding fr om the premises that effective legislation did not stipulate the return of a share of the buy-out value of the leased item. Other courts, however, stated that a lease agreement was a mixed agreement and contained aspects of a sale and purchase agreement in cases wh ere title to the leased item was transferred to the lessee. On this basis, if a lease agreement was terminated before the transfer of title to the leased item to the lessee, the courts awarded the buy-out value (or part thereof) paid by the lessee to the latter.

The Presidium of the Russian Supreme Arbitration Court has now clarified that if a lease agreement is terminated, the lessor’s obligation to transfer the leased item is also terminated, and that in such circumstances there are no grounds for withholding the share of funds paid by the lessee against the buy-out value of the leased item. Therefore, in the event of the early termination of the lease agreement, the paid proportion of the buy-out value of the leased item should be returned to the lessee.

The Presidium of the Russian Supreme Arbitration Court also noted that if the buy-out price is not specified in the lease agreement, it should be calculated pursuant to clause 3, article 424 of the Russian Civil Code as the price that would have been obtained for similar items in comparable circumstances (including items with a similar useful life).

For further information, please contact: 

in Moscow – Denis Bykov, Head of Dispute resolution and mediation practice, at: (495) 967-0007 or by d.bykov@pgplaw.ru

in St Petersburg - Sergey Spasennov, Partner, Head of St. Petersburg office, on tel.: (812) 333-07-17 or by s.spasennov@pgplaw.ru