Leasing and renting
Here you will find some explanations about the terminology used in our sectors and specific information about the long and short-term vehicle rental sector.
LONG TERM CAR RENTAL & LEASING: confusion between the terms
1. People who are unfamiliar with "LEASING" often confuse this term with others such as "RENTING ON LONG TERM", "OPERATIONAL LEASING", "RENTING", "FULL OPERATIONAL LEASING" and many others !
So it seems useful to us to clarify a few terms before browsing our site. These clarifications are of course not intended to replace the applicable legal definitions. In case of doubt, the opinion of an expert should always be sought.
2. The simple "Distribution key" !
a. There is a very simple method to distinguish one from the other:
EITHER the contract provides for a purchase option for the buyer (client) representing a maximum of 15% of the capital that the giver (lessor) invested in the leased property : in this case it is LEASING, provided that all other legal conditions (see below) are complied with ;
OR the agreement does not provide for the possibility of repurchase (or provides for this option to exceed 15%) : in this case we do not speak of leasing but of renting.
b. Why is the distinction between LEASING and other terms so important?
Because a LEASING contract is subject to special legal rules, which do not necessarily also apply to rental agreements. In Belgium, the LEASING contract is initially governed by specific legislation: Royal Decree No. 55 of 10 November 1967. In addition, the legislation on accounting has specified certain concepts (Article 95 § 1, III, D, 2nd of the Royal Decree of 30 January 2001). However, the legal texts in Belgium do not use the term LEASING but the expression "Financing lease". Nevertheless, we will continue to use the term LEASING, since this term is used in everyday use.
In short, we can say that :
- a rental agreement is a lease agreement when, in addition to the ordinary contractual clauses, it also fulfils the conditions of R.D. no. 55 and the accounting law;
- a rental agreement remains a rental agreement if it does not meet one, more or all of the conditions laid down in this R.B. and in the Accounting Law.
c. What are the legal criteria that characterize a LEASING contract ?
According to the legal provisions, a lease must be considered as a leasing contract if the following five conditions are met:
- it concerns an asset that is exclusively used by the lessee for professional purposes;
- the asset has been acquired by the lessor at the direction of the lessee (i.e. it is not possible to lease an asset that has already been used, such as a used car);
- the duration of the contract is equal to the probable economic life of the asset leased;
- the price of the lease must be fixed in such a way that the value of the leased asset is paid off over the agreed duration;
- the agreement provides for a purchase option for the buyer that amounts to a maximum of 15% of the invested capital (invested capital: in principle = purchase price of the good).
3. Why did the legislator regulate this matter by law ?
Suppliers have always tried to protect themselves against the insolvency risks of their customers (bankruptcy). Various legal constructions have been developed in the past with this aim in mind, including the technique of hire-purchase. The supplier 'leased' the asset for a certain period of time and his customer then had the opportunity to acquire the asset. This legal construction, which was disputable in case of the customer's bankruptcy, was generally condemned by the courts. In order to put an end to these discussions, the legislator intervened in 1967 and specified the conditions which a contract must meet in order to be considered a perfectly valid 'finance lease', even in case of the insolvency of the lessor. Only those companies which have been officially recognized in this respect can validly enter into a financing (leasing) agreement.
Thanks to this legislation, leasing has become a financing technique that is no longer disputed, which has enabled the rapid development of this sector of activity.
4. And what about all the other terms used by the different companies ?
Either it is a leasing contract:
- such a contract is not issued by the members of RENTA
- This type of contract therefore comes from companies that are usually members of BLV (the Belgian Leasing Association) www.blv.be.
Either these are rental contracts drawn up by rental companies that are members of RENTA and can bear many different names for COMMERCIAL REASONS.
Long term rentals
The general 'flag' long term rental covers various cargoes such as car leasing, renting, financing rental...
Financial leasing or financing rental
In this case, the lessor is merely a financier. He buys the car according to specific instructions from the lessee and rents the car to the lessee for its economic life. The lessee bears the economic risk and must therefore also take care of insurance, maintenance, repairs, etc.
in this case, the lessee does not want to buy a car, but to use it for a certain period of time. That period does not have to correspond to the economic lifetime of the car. In this case, the lessor bears the economic risk. In the case of operational renting, the lessee rarely has a purchase option at the end of the contract. Usually, the lessor provides additional services such as maintenance, repairs, replacement car, BA insurance, ... That is why this is also referred to as full-service renting.
Long term rental is the youngest, but by now most successful descendant of the vehicle rental sector.
- It was not until the economic 'boom' in the 1980s that it became more and more common for companies to no longer purchase the vehicle fleet themselves, but to entrust it to specialized leasing companies.
- By focusing as much as possible on the core business, the management of the company fleet is also increasingly being outsourced to specialists.
- The sector organized itself for the first time in 1984 in the Belgian Professional Association of Long Term Landlords, a forerunner of Renta.
Short term rental
Concept of short term rental
Traditionally, short term rental is understood to mean the hiring of cars, vans or trucks for a period of one day up to a maximum one year.
Usually this is an 'all-in' formula that includes not only the compensation for the rental period, but also, among other things, assistance in the event of an accident or breakdown, maintenance and tire wear, compulsory BA insurance or other repurchase options for the hirer's responsibility. Other 'made-to-measure' services are also available.
Contracts of less than one month usually include an unlimited number of kilometers, while those of more than one month often include a limited number of kilometers.
As in other European countries, short term rental is the oldest form of vehicle rental in our country.
Under the influence of specialized American companies, the phenomenon is established in Belgium after World War II through the airport(s), where mainly American businessmen and tourists make use of this service.
At the end of the 1950s - at the request of American companies - European investors jump on the bandwagon via the franchise system. One of the first examples in Belgium is D'Ieteren's Avis-franchise. Some other international rental companies entered our market directly as a 'corporate' organisation during that period, such as Hertz.
Historically, short term rental is the first form of rental in our country. However, after a reluctant introduction from the 1970s onwards, long term rentals outstripped short term rentals from the 1980s onwards.
- Airports, especially Zaventem. The original short term market aimed at foreign businessmen and tourists who need a car for a few days in Belgium, usually a middle class car with a petrol engine. This market segment is very cyclical and sensitive to the general economic situation. The rental companies in this segment are mostly international companies with a very wide network in Europe or even worldwide and are known as 'rent a car'.
- Home market or 'Downtown'. A strongly growing segment with rental companies that meet the temporary and local mobility needs of Belgians. In addition to the international companies mentioned above, a large number of national companies are also active here. Some of them have a truly national network, others operate purely locally.
- Rentals linked to leasing companies. Almost all long term leasing contracts provide for a replacement car in the event of a standstill of the long term rented car. Short term rentals in this market segment are therefore usually for replacement cars (a few days in the event of maintenance or breakdown) or cars for take-off (a few months pending delivery of the long-term car).
- Rentals linked to insurance companies. Also car insurance contracts increasingly include a replacement car clause. This market segment grew particularly from the mid-1990s onwards.
- Rental of trucks and delivery vans. Both specialized vehicles for professional use (e.g. refrigerated vehicles) and for private individuals (usually at weekends, e.g. for moving house). Given the specific vehicles, the rental companies in this market segment are often specialized companies. Moreover, this segment is very region-specific, which explains the often regional and smaller network structures of the rental companies operating here.