Insolvency and Equipment Leases in Nigeria

Abstract

An equipment lease agreement is a contract for the use of equipment for a specified period and involves the payment of rentals for the use of the equipment by the user (lessee) to the owner (lessor). The Equipment Leasing Act, 2015 (ELA) is the primary legislation governing equipment leasing transactions in Nigeria: section 1 of ELA. The analysis in this write-up is limited to registered equipment leases pursuant to sections 13 and 16 of ELA. Equipment leasing is an effective mechanism for financing acquisition of capital assets. It is an efficient alternative to borrowing money. For lessors, equipment leasing yields a higher return on investment than lending. Lessors’ interests are secured by reservation of title enabling lessors to repossess the equipment if lessees default in rental payments. For lessees, they can use equipment without having to purchase them. Capital saved from leasing (rather than acquisition) can be invested in other pressing needs. Equipment leasing thus provides lessees with full financing for equipment and flexible payment schedules which may be done with capital generated from the leased equipment.