LAW OF MONGOLIA

June 22, 2006              Ulaanbaatar city

(2022.09.23-ны өдрийн орчуулга) Unofficial translation

ON FINANCIAL RENT (LEASING)

CHAPTER ONE

CENERAL PROVISION

Article 1. Purpose of the law

1.1. The purpose of this law is to regulate relations in connection with the financial rent (leasing).

Article 2. Legislation on Financial Leasing

2.1. Legislation on financial leasing shall compose of the Civil Code, Bankruptcy Law, this law, and other legislative acts enacted in compliance with them.

2.2.If the provision of the International Treaties to which Mongolia is a party states otherwise than in this law, the provision of the International Treaties shall prevail.

Article 3. Financial leasing and other forms

3.1. Financial Leasing means a Lessor should produce the property by him/herself or produce by 3rd party in accordance with Lessee's order referred to Article 6.1. of this Law or purchase the object from the Lessor and transfer it to the Lessee's possession and utilization in certain period of time with a certain amount fee upon the Legislation, and Lessee should understand to pay the rental fee permanently which is named "First Lease".

3.2. Financial Leasing could be in below mentioned forms in addition to the Article 3.1 of this Law.

3.2.1. Lessee him/herself should bear the Lessee's rights and obligations and let he leasing asset rent by others in accordance with the Legislation upon the written agreement financial "Transferring Rent";

3.2.2. After the termination of financial leasing agreement Lessor shall withdraw the property from the first Lessee and let the leased asset rent by another Lessee, financial "Second Loan";

3.2.3. By the financial Loan Agreement after the leased asset transferring to the Lessee's ownership Lessee bears the rights and obligations and rent it back to the 3rd party "Returning Lease".

Article 4.Financial Transferring Lease

4.1. In accordance with procedures stated in this law, Lessor and Lessee of transferring lease should have the responsibility to establish an agreement, enjoy the rights and bear the obligations as stated in this Law.

4.2. If canceling and dismantling the first leasing agreement, transferring leasing agreement shall be cancelled at the same time.

4.3. According to Article 4.2 of this law, transferring Lessee has a right to establish agreement with first Lessor at first in occasion of ending, prior to the expiring date.

4.4. If court considers the first leasing agreement is not valid, transferring leasing agreement shall also be not valid which was established upon such agreement.

4.5. Term of transferring leasing agreement should not be longer than first leasing agreement.

Article 5.Requirements on financial leasing

5.1. A financial lease shall have one or several of the following requirements:

5.1.1. upon the termination of the leasing agreement, as leased asset may be transferred to the ownership of the Lessee;

5.1.2. The term of a leasing agreement shall constitute over three fourth of the economic life of a leased asset;

5.1.3. The total amount of leasing payments should not be less than 90 percent of the cost a leased asset indicated in the leasing agreement.

5.2. The term stated in the Article 5.1.2 of this Law shall be determined in accordance with the term specified in the Corporate Taxation Law.

Article 6.Subjects of Financial Leasing

6.1. Buildings, facilities, equipment and transportation means which haven't lost the qualities during the usage could be the asset (hereinafter referred to as the "leased asset") of financial leasing.

6.2. Below mentioned properties could not be leased assets:

6.2.1.natural wealth (land, land plot and its wealth, water, plant, animal and air);

6.2.2.State and Local owned properties;

6.2.3. Non-material properties (share, security and rights) referred to the Article 84.5 of Civil Code;

6.2.4. The objects restricted to produce, sell and use by the relevant legislation including fire arm, radio-active substance, and other chemical harmful substances.

6.3. Owner of the leased asset is a Lessor in a term of financial leasing agreement.

6.4. Lessor and Lessee shall decide mutually which party's registering the leased asset to the balance by the contract in a term of financial lease unless otherwise stated in the law.

Article 7. Total price and rental payments of financial leasing agreement

7.1. Total payments of financial leasing agreement consist of following price and payments:

7.1.1. Expenses and payments from lessor in an activity of purchasing, producing, ordering, receiving, transforming, installing, and testing of leased asset, and other similar activities;

7.1.2. Leasing interest.

CHAPTER TWO

ESTABLISH A FINANCIAL LEASING AFREEMENT, RIGHTS, OBLIGATIONS AND LIABILITIES OF THE PARTIES

Article 8.Form and content of a financial leasing agreement

8.1. Financial leasing agreement shall be established in a written form.

8.2. In addition to the items stated in the Article 313.2 of the Civil Code, the following items shall be specified in financial leasing agreement:

8.2.1. Official name and address of the Lessor, Lessee and third party, representing party's name, and position;

8.2.2. Term of the agreement;

8.2.3. Parties rights and obligations, and the liabilities to bear;

8.2.4. Name, producer, produced date, technical index, size, quality and other special features, components, and information on accompanying objects of the leased asset and the purpose to use it;

8.2.5. Selected party of leased asset and 3rd party;

8.2.6. Procedures to transfer of the leased asset to the Lessee (time to build, install and give into usage, party to handle and receive, date and place of transference, and condition and time to transfer partially if necessary);

  8.2.7. Repair and maintenance during warranty period and after thereof;

8.2.8. Procedure on acquainting with usage, repair and maintenance of the leased asset, names of lessee's financial and other documents negotiated to be acquainted with Lessor, and acquainting procedures;

8.2.9. Conditions and procedures to return back the leased asset;

8.2.10. Review the implementation of agreement, and procedures to settle the dispute;

8.2.11. Conditions to add amendments, terminate and cancel the agreement before the expiring date;

8.2.12. Conditions and procedures to transfer the leased asset to the Lessee's ownership if possible;

8.2.13. Amount of leasing fee, procedure to transfer it, and other things that parties considered as necessary.

8.3. If necessary, the documents contained the information stated in the Article 8.2 of this law shall be attached to the first agreement.

8.4. Non separable part of financial leasing contract which is established between Lessor and Lessee shall be a selling and purchasing agreement established by and between third party and Lessor.

8.5. In a case of producing the leased asset by Lessor him/herself, the Article 8.3 of this Law shall not be relevant.

8.6. If Lessor insure, pledge, or put the leased asset as the guarantee and warranty, the agreement thereof shall be attached to the financial leasing agreement.

Article 9. Rights and Obligations of the Lessor

9.1. Lessor of financial leasing agreement shall exercise the rights to lease property referred to the Article 288 of Civil Code and below mentioned rights:

9.1.1. Receive the leasing payments from Lessee within the time referred to the contract;

9.1.2. Compensate damages occurred to the Lessor due to failure of the obligations by the Lessee;

9.1.3. Require to compensate the expenses which were arisen from withdrawal of leased asset, cancellation of the agreement, and other related expenses by the Lessee upon the ground stipulated in the law and contract;

9.1.4. Receive a financial Lessee's documents which determined to the contract, and to get acquainted with the usage of leased asset, repair and maintenance at the field;

9.1.5. Other rights determined to the law and agreement.

9.2. Lessor of the financial leasing agreement shall be responsible for the obligations of Asset Lessor which referred to the Article 288 of Civil Code and below mentioned obligations:

9.2.1. Produce the leased asset by Lessor himself or produce it by 3rd party in accordance with the Lessee's request and order or purchase and transfer it to the Lessee in accordance with terms and conditions stipulated in the contract;

9.2.2. Notify to the third party that the object that produced or purchased by the third party will become a financial leasing agreement object;

9.2.3. Notify to the third party in case of transferring leased asset to the other's ownership before termination of the period on filing the complaints or switching the Lessee;

9.2.4. If transferring the leased asset to the Lessee's ownership is referred to the contract, leased asset shall be transferred to the Lessee's ownership without any obstacles after providing contract's condition suitably;

9.2.5. Other obligations referred to the contract and law.

Article 10. Rights and obligations of the Lessee

10.1. Lessee of the financial leasing agreement shall have the rights of the Property Lessee stated in the Article 289 of the Civil Code and below mentioned rights:

10.1.1. Receive the leased asset to his/her ownership, request to use it continuously with the financial leasing or return it to the Lessor in accordance with the terms and conditions set forth in the leasing agreement;

10.1.2. If an agreement referred to the Article 5.1.1 of this law was established, submit a request on receiving the leased asset to his/her ownership by paying the costs prior to the mutually agreed time;

10.1.3. Before the deadline on filing a complaint to the Lessor demand the damage caused by the 3rd party from such person unless otherwise stated in the agreement;

10.1.4. Start paying the leasing payments as soon as receiving the leased asset and, if the leased asset is the manufactory equipment, it shall be paid after starting the production;

10.1.5. Demand to return, repair and complete the leased equipment for free of charge and demand to discount the leasing fee by a certain percent if leased asset has a physical defect and certificate conflict when receiving it;

10.1.6. Check the assets either it is accurate leasing asset or not when receiving it and if it is not the accurate one, refuse to receive;

10.1.7. Leasing payment shall be stopped temporary if the Lessor didn't fulfill the obligation referred to the contract;

10.1.8. Other rights referred to the law and agreement.

10.2. Lessee of the financial leasing agreement shall be responsible for Lessee of assets referred to the Article 289 of the Civil Code and below mentioned obligations:

10.2.1. Receiving the leased asset, and paying the leasing payments on time;

10.2.2. Let the Lessee pass through the place without any obstacles which has the leasing object in a case of introducing the usage, repair and maintenance of the leased asset, to be acquainted with financial and other documents negotiated under the agreement;

10.2.3. Other obligations referred to the law and agreement.

10.3. Lessor shall give a written reply to the Lessee's request according to his/her right referred to Article 10.1.2 of this law.

Article 11.Rights and obligations of the third party

11.1. The third party who is participating to the financial leasing relation exercises the rights and bears the obligations which are referred to provision 243.2 and Article 246 /vendor's obligation about sending the property/, Article 253 /vendor's rights and obligations about defect of property/, Article 258 /storing the property/, and the Article 316 /third party's obligation on financial leasing agreement/ of Civil Code.

11.2. The third party has an obligation to give a documentary which is containing the technical index, direction for usage, and principle of security operation to the Lessee.

Article12.Parties transferring the rights and obligations to the others

12.1. Lessor could transfer the rights and obligations fully or partly to the others referred to the agreement after notifying it in the written form in advance to the Lessee.

12.2. If the Lessor is about to transfer the leased asset to the other's ownership during the term of agreement, Lessor should report about it to the Lessee in a written form in advance and party that transferred the ownership right has an obligation to continue the financial leasing agreement in accordance with conditions stipulated in this agreement.

12.3. Lessee could transfer the rights and obligations fully or partly to the others in a case of granting permissions in a written form from the Lessor previously.

12.4. Third party could transfer the obligations connected with the leased asset to the others under the written permission from Lessor and Lessee.

12.5. Lessor, Lessee and third party transferring the rights and obligations to the others according to the Articles 12.1, 12.3, and 12.4 of this law shall not become the ground to require changing this current contract.

Acticle13.Party's liabilities to bear

13.1. After receiving the leased asset Lessee shall be responsible for transferring the asset to the others without Lessor's permission, changing the style and construction of the asset, used the asset for the different purpose, and caused damages arisen from breaking down, harming, and loosing.

13.2. Arising conditions specified in Article 13.1 of this law shall not be the reason for requiring to cancel the leasing contract, not paying for the leasing fees and interest.

13.3. Lessor him/herself shall repair damages that are arisen from the failure to fulfill obligations or incomplete fulfillment of the obligations by the 3rd party under the agreement unless otherwise stated in the agreement, however, if Lessee him/herself selects the 3rd party, this provision shall not be applicable.

13.4. Expenses that arises from supplying different asset to the Lessee and if he needs to exchange, return or sell it, Lessor shall be responsible for the expenses unless otherwise stated in the agreement, however, if Lessee him/herself selected the third party, this provision shall not be applicable.

13.5. If the "Returning Lease" was established, a Lessee shall be responsible for exercising the rights and bearing the obligations and liabilities of the 3rd party.

13.6. If Lessor produced the financial leased asset by him/herself, he/she shall be responsible for exercising the rights and bearing the obligations and liabilities of the 3rd party.

13.7. In a case of establishing financial leasing agreement among the Lessor, Lessee, and the third party, Lessor shall not be responsible for the Lessee if the 3rd party is not fulfilling the obligation unless otherwise stated in the agreement.

13.8. Lessor shall be responsible for the caused damages to the 3rd party and Lessee arisen from not fulfilling the obligations stated in the Articles 9.2.2 and 9.2.3 of this law.

13.9. Transferring the lease of the leased asset does not mean to free the Lessee from the leasing fee, renew the contract and demand to renew the contract.

Article 14.Bankruptcy of the contract party

14.1. Bankruptcy of the Lessor and his rights and obligations transferred to the others shall not be the ground to demand to cancel and change the financial leasing contract.

14.2. If Lessee bankrupts, Lessor has a right to withdraw the leased asset or leave it to the  bankrupted Lessee's property, and has a right to demand the remained leasing payments under the procedures stated in the Law on Bankruptcy.

14.3. Unless Lessor decides to leave the leased asset in the bankrupted Lessee's property, it is prohibited to consider, register, forcefully separate or confiscate such asset as the bankrupted Lessee's property.

14.4. Relations other than those specified in this law related to the bankruptcy of a party to the contract shall be governed by the relevant law.

Article 15. Withdrawal of leased asset

15.1. On the basis of prior notification, Lessor has the right to temporarily withdraw the leased asset from Lessee in the following cases:

15.1.1.Lessee transferred the leased asset to the others without written permission of Lessor;

15.1.2.Lessee used the leased asset in a different purpose not referred to the contract;

15.1.3.Lessee did not grant an opportunity to the Lessor to get acquainted with the usage, repairs, and maintenance of the leased asset;

15.1.4.Lessee did not pay for the leasing payments in 3 times;

15.1.5.Other cases stated in the contract.

15.2.As soon as the conditions referred to Article 15.1 of this law are cleared, Lessor shall give back the leased asset to the Lessee and continue to fulfill the rights and obligations that referred to the contract.

15.3.Lessee has a right to demand the damages from Lessor arising from not granting the leased asset back as referred to Article 15.2 of this law.

Article 16. Termination of the financial leasing agreement and refusal from agreement

16.1.In order to terminate the financial leasing agreement, the Article 294 of Civil Code and financial leasing agreement shall be adhered.

16.2.If either of Lessor and Lessee wants to cancel the agreement, it should be reported to the other party, and relations connected with decision coming from refusal result shall be regulated by the Articles 204 and 205 of Civil Code.

16.3.If there is a dispute related to the leased asset ownership after Lessee paying 50 or more percent of total leasing agreement price, it shall be decided by the court and/or arbitration when either of Lessor and Lessee's refusing from the agreement or withdrawing the leasing asset unless otherwise stated in the agreement.

16.4.If financial leasing agreement is prematurely terminated prior to expiring date due to Lessee's fault, the amount of the Lessor's claim shall be determined by taking into account the depreciation of the leased asset.

CHAPTER THREE

MISCELLANEOUS

Article 17.Pledge on leasing asset

17.1.Lessor could use the leased asset as a pledge of the pledge agreement to be established with other parties upon the written permission granted by the Lessee.

17.2.If pawned leasing object referred to Article 17.1 of this law transferred to the other's ownership, received party shall be responsible to continue the financial leasing agreement.

17.3.It is prohibited for Lessee to use leased asset as a hostage object.

Article 18.Guarantee and Insurance of the financial lease

18.1.In order to fulfill the obligations that referred to the agreement, Lessor could get the pledge, guarantee and get the warranty from banker or other party.

18.2.If the parties mutually agreed on getting pledge, guarantee, and getting the proof from the banker and other party that is referred to the Article 18.1 of this law, an agreement shall be established upon the conditions and procedures of related articles of Civil Code.

18.3.Parties could insure the leased asset upon the mutual agreement.

Article 19.Leased asset and state registration of related rights thereof

19.1.Parties could register the leased asset and other related rights referred to financial leasing agreement to the state registration.

19.2.Relations connected with registering leased asset and other related rights to the state registration shall be regulated by Law on state registration of the property rights.

/This paragraph was amended by the law as of June 21, 2018/

Article 20.International financial leasing

20.1.Financail leasing agreement shall be considered to the international financial leasing if either of Lessor or Lessee is in below mentioned party:

20.1.1.Foreign legal entity; 

20.1.2.Foreign citizen not residing in this country, and permanent resident from Mongolia residing abroad.

CHAIRMAN OF THE STATE GREAT KHURAL OF MONGOLIA NYAMDORJ.Ts