Prior to this ruling, whenever a lessee went bankrupt, the question often arose in cases where the value of the recovered leased property was higher than the lessor’s outstanding claim, whether the lessor was obliged to reimburse the ‘surplus value’ to the bankruptcy estate.
This so-called ‘enrichment prohibition’ is embedded in the Belgian Pledge Act and effectively applies to traditional security rights, such as a pledge or a retention of title clause, and basically means that when exercising a security right, a secured creditor cannot gain more than the amount of its outstanding claim.
The Court of Cassation has recently made it clear that this enrichment prohibition does not apply to leasing: as long as the contractual option to purchase the leased good has not been exercised, a lessor is not to be regarded as a creditor with a security right, but as the full legal owner of the leased property.
1. What does this mean for lessors?
This case law has significant consequences for the rights of lessors, namely:
- Absolute right of ownership: Upon termination of the lease agreement due to a breach of contract or bankruptcy, full ownership of the leased property still resides with the lessor who is fully entitled to recover it.
- No application of the ‘enrichment prohibition’: as lessor, you are not required to surrender the additional value or ‘surplus value’ (i.e., the amount by which the value of your recovered property exceeds your outstanding claim) to the bankruptcy estate or bankruptcy receiver.
- The lessor’s position is stronger in cases of bankruptcy or insolvency: your claims are those of a legal owner, not of a (secured) creditor.
2. How can Monard Law assist?
We help leasing companies and financial institutions with, among other things:
- Drafting and revising lease agreements to safeguard full ownership of leased property and effective recovery clauses;
- Assisting in cases of insolvency (registering a debt claim, communicating with bankruptcy receivers, exercising rights to recover leased property);
- Providing strategic advice about how this case law is to be applied and how to safeguard your legal rights.
Would you like to know what this ruling specifically means for your leasing portfolio or your existing lease agreements?
If so, please get in touch with us. We will be happy to provide our expertise to help you safeguard your rights as a lessor.
