Financial lease: what the lessor owes, what the lessee owes

They are Articles 1356 to 1358 of the Civil Code of 2020: the financial lessor’s duties, the lessee’s, and the rule on the warranty for eviction and defects.

Parties to a financial lease governed by the Puerto Rico Civil Code, over movable or immovable property.

• For the duty to sell to arise: to have paid at least three quarters of the price of the thing and to communicate the exercise of the option to the lessor.Verified against the official source
• From the lessor: to obtain and pay an insurance policy covering the ordinary civil-liability risks the thing may cause.Verified against the official source
• From the lessee: to pay the canon and the ordinary and extraordinary expenses of conservation and use, including insurance, taxes and levies on the thing.Verified against the official source
• From the lessee: to use the thing according to its nature, in the agreed place, and to request the lessor’s authorisation to move it.Verified against the official source

• The communication to the lessor of the exercise of the option: Article 1356(b) requires it together with the three-quarters payment.
• A record of what has been paid, to show three quarters of the thing’s price was reached.
• The lessor’s authorisation if the thing is to be used in a place other than the agreed one.

1. 1

   Step 1: The lessor’s first duty: let you use the thing

   Article 1356(a): allow the lessee to use and enjoy the thing according to the agreed purpose. The agreed purpose is the measure, not any use whatever.

2. 2

   Step 2: The duty to sell you the thing

   Subsection (b) is the contract’s practical heart: sell the leased thing to the lessee, save agreement to the contrary, once the lessee has paid at least three quarters of the price of the thing and communicates the exercise of the option.

3. 3

   Step 3: Two conditions, and a "save agreement to the contrary"

   Both must be met: having paid at least three quarters of the price of the thing, and communicating the exercise of the option. And the subsection itself admits agreement to the contrary, so read the contract before relying on this duty.

4. 4

   Step 4: Careful: three quarters of what?

   Article 1356(b) speaks of three quarters of the price of the thing. Later, the breach article measures in quarters of the cánones. They are two different yardsticks in the same chapter, and this guide quotes each where it is written, without treating them as the same figure.

5. 5

   Step 5: The lessor pays the policy

   Subsection (c): obtain and pay for an insurance policy covering the ordinary civil-liability risks the thing that is the object of the contract may cause. The article does not say how much coverage, and this guide publishes no figure.

6. 6

   Step 6: What the lessee pays

   Article 1357: the canon; the ordinary and extraordinary expenses of conservation and use, including insurance, taxes and levies falling on the leased thing; and the sanctions caused by the use and enjoyment of the thing. Yes, the lessee pays insurance even though the lessor must obtain and pay the civil-liability policy of Article 1356(c): they are two distinct subsections and this guide reports them as written.

7. 7

   Step 7: What the lessee may not do

   Subsection (d): not sell, encumber or otherwise dispose of the thing during the lease. The prohibition covers all three.

8. 8

   Step 8: Where and how the thing is used

   Subsections (e) and (f): use the thing according to its nature; and use it in the agreed place, requesting the lessor’s authorisation to move it elsewhere. The article does not say in what form that authorisation is requested or what happens if it is refused.

9. 9

   Step 9: And when returning it

   Subsection (g): remove the thing from the place it is attached to when it must be restored to the lessor. It is the lessee’s obligation, not the lessor’s.

10. 10

    Step 10: The warranty may be waived, with one limit

    Article 1358: the lessee may release the lessor from the warranty for eviction or redhibitory defects, except where the lessor is the manufacturer, the distributor or the seller of the thing given in lease. If the lessor also made, distributed or sold the thing, that release does not lie.

All of this runs between the parties: the Code names no agency. The communication of the exercise of the option is made to the lessor. If the duty to sell must be enforced, the Court of First Instance decides. The policy of Article 1356(c) is further governed by insurance legislation, which we did not read here.

• Expecting the lessor to sell without having communicated the exercise of the option.
• Counting the three quarters against the cánones rather than the price of the thing, which is what subsection (b) says.
• Forgetting that same subsection’s "save agreement to the contrary".
• As the lessee, assuming the lessor pays all insurance: only the civil-liability policy of subsection (c).
• As the lessee, not paying the taxes and levies falling on the thing.
• Selling, encumbering or disposing of the thing during the lease.
• Moving the thing elsewhere without requesting the lessor’s authorisation.
• Returning the thing without removing it from the place it is attached to.
• Signing the Article 1358 release without noting whether the lessor is the manufacturer, distributor or seller, in which case it does not lie.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

  bvirtualogp.pr.gov