2. a) to enforce performance of the obligation
b) to withhold performance of the reciprocal obligation
c) to terminate the lease
d) to claim damages and interest
INTRODUCTION Cont’d
Lessor Rights
1. If the lessee fails to perform an obligation under the contract, the lessor is
entitled, according to Book III, Chapter 3 and the provisions of this
Chapter
3. a) Enforced Specific Performance of Non-monetary Obligations
• Some of the lessee’s obligations are non-monetary, for example the
obligation to maintain the goods and the obligation to return the goods
at the end of the lease period. The lessor is entitled to enforce specific
performance of such obligations. In some exceptions, specific
performance cannot be enforced if performance is unreasonable,
impossible or unlawful.
b) Enforced Specific Performance of Monetary Obligations
• The creditor is entitled to enforce performance of monetary
obligations. In some exceptions such as if other party is unwilling to
receive performance.
Lessor Rights
1. Right to Enforce Performance
4. a) Goods Are Not Made Available
(Right to withhold performance of reciprocal obligation). If it is
clear that there will be non-performance by the other party, a creditor who
is to perform first may withhold performance. Withholding of performance
serves two purposes, namely to protect the withholding party from
granting credit and to give the other party an incentive to perform.
Example:
• If the lessee is to pay rent before or at the start of the lease period, the lessor
may withhold the goods in the sense that they are not made available to the
lessee. In some cases the lessee may have other obligations that are to be
performed before the goods are made available, for instance to make
specifications or to provide necessary certificates for use of the goods
Lessor Rights
2. Withholding Performance
5. b) Goods Have Been Made Available
The lessor’s obligation to keep the goods available for the lessee’s use
is a continuous obligation. The lease contract implies that the lessee is
given physical control of the goods, and to take the goods back would
be to reverse a part of the performance, not to withhold it. The
performance of this obligation cannot be withheld after the goods have
been made available to the lessee. If goods have made available, the
lessor is entitled to withhold performance of other obligations, for
example the lessor’s obligation to repair the goods, as a remedy to the
lessee’s non-performance.
Lessor Rights
2. Withholding Performance
6. • The lessor is entitled to terminate the obligations of both parties under the
contract if the lessee’s non-performance is fundamental. Fundamental non-
performance may relate both to monetary obligations (typically late
payment of rent) and non-monetary obligations (typically the obligation to
handle the goods with care).
Effect of Termination:
• Termination implies that the lessor no longer wants performance by the
lessee and that the lessor is no longer obliged to perform the corresponding
obligations. As the lessor’s obligation to ensure that the goods remain
available for the lessee’s use is also terminated, the lessor is entitled to have
the goods returned. In this connection, lessor is entitled to charge the
cancellation fee or damages if lessor have already made the goods available
Lessor Rights
3. Termination
7. • The lessor is entitled to damages for loss caused by the lessee’s non-
performance, unless the non-performance is excused. Non-
performance of the obligation to pay rent will in most cases not be
excused, but exceptions may occur, e. g. payment delayed due to a
bank strike. Regarding non-monetary obligations, such as the
obligation to handle the goods with care or the obligation to return
the goods at the end of the lease period, excuses may be more
relevant in practice.
Lessor Rights
4. Damages and Interest
8. • Damages may be claimed for actual loss as well as for future loss, and for
both economic and non-economic loss. If the lease is terminated the lessor is
normally entitled to the rent for the remaining lease period, or put more
precisely: the rent for the remaining time of a fixed leased period or for the
time until the lessee could have terminated the lease by giving notice in the
case of an indefinite lease period. The lessor must reduce the loss by taking
reasonable steps (Reduction of loss), typically by entering into a new lease
contract. Further, the lessor may suffer loss because the goods are damaged or
reduced in value for other reasons as a result of non-performance of the
lessee’s obligations to handle the goods with care or to maintain the goods.
Lessor Rights
5. Measure of damages
9. The termination may in some cases mean that the lessor is left with a benefit
that must be taken into consideration when recoverable loss is calculated. As
already mentioned, the lessor must take reasonable steps to reduce the loss,
typically by leasing the goods to another lessee. If the lessor chooses to use the
goods for the lessor’s own purposes instead of entering into a new lease, the
value of this benefit should be seen as a reduction of the loss. Unless otherwise
agreed, the lessee is not entitled to compensation for improvements made to the
goods
Example:
• Lessee X has leased a horse for a four-week holiday. After one week X falls ill and
cannot use the horse or look after it. Lessor Y, whose business is to lease horses,
must agree to take the horse back and to claim damages instead of the weekly rent.
Lessor Rights
6. Benefits to Lessor
10. Some contracts give the lessee an option to buy the goods at the end of the
lease period or even earlier. If the option to buy is lost because the lease is
terminated as a result of the lessee’s non-performance, the lessor may be left
with a benefit that the lessor would not have possessed had the option been
exercised?
Example:
• The lessee has leased a machine for three years with an option to purchase at a
nominal price on the expiry of the lease period. After two and a half years, the
lessee cannot pay the rent any more, and the lessor terminates the lease. It turns
out that the goods have a much higher value than the option price at the end of the
original lease period. The lessor’s loss is reduced by the possibility of leasing or
using the goods for the remaining half-year, but not by the difference between the
value of the goods and the option price.
Lessor Rights
6. Option to Buy the Goods
11. • The lessor is entitled to interest on any sum of money that is paid late, and the lessee
cannot invoke excuses. The relevant interest rate is “the average commercial bank
short-term lending rate to prime borrowers prevailing for the contractual currency of
payment at the place where payment is due. Enforced Specific Performance of
Monetary Obligations
Lessor Rights
7. Interest:
