Financial leasing insurance and methods of risk control

By Harry Wu, Wintell & Co
0
2044

A financial leasing contract refers to the contract under which the lessor, based on the selection of the seller and the leased property by the lessee, purchases the leased property from the seller for the lessee to use, and the lessee pays the rent. Different risk control methods of the projects must be applied to different leased properties involved in financial leasing. Vessels, aircraft and other property financial leasing projects mainly focus on the safety of the leased property itself, so the projects often involve property, all risk, machinery damage, operational interruption, and theft insurance.

HARRY WU Associate Wintell & Co
HARRY WU
Associate
Wintell & Co

Financial lease projects involving movable property mainly focus on the liability for breach of contract of the transaction subjects, and the risk is generally avoided by property guarantee, enterprise or personal guarantee. Commercial credit insurance and lessee liability insurance may serve as financial instruments to enhance credit for such projects, and substitute traditional means of security to some extent.

BUSINESS MODEL

Framework agreement plus multiple implementation agreement. In practice, the lessor (the financing party), the seller of the product and the insurance company always enter into a tripartite framework agreement before the launch of a financial leasing project, and specify the overall objectives of the project and its implementation methods. Then each party will execute a purchase and sale contract, financial leasing contract and insurance contract etc., respectively. It’s common that the lessor purchases products from the seller, and finances and leases the products to the lessee; sometimes, it’s permissible for the seller to sell products to the lessor and finance the products and lease back, and then the seller will sublet to the actual lessee.

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Harry Wu is an associate at Wintell & Co

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