In the world of real estate and property management, various types of agreements and contracts facilitate the use and transfer of assets. One of these agreements, although often overlooked, is the lending contract.
What is a lending contract?
The lending contract, as stipulated in the Civil Code, is a unique type of contract in which one party (the lender) hands over an asset, movable or immovable, to another party (the lessee) for use, with the obligation to return it in the same condition. What sets this contract apart is that it is free of charge - no payment is required for the use of the asset.
Main characteristics of a lending contract
- Duration and cancellation: Normally, the duration of a lending contract is agreed by both parties. If no specific duration is set, the contract remains valid until one of the parties decides to terminate it. The lessee must then return the asset as soon as it is requested.
- Condition of return: The lessee is obliged to maintain and care for the asset, ensuring that it is returned in the same condition in which it was received. This includes allowing the lender to inspect the asset if requested.
- Purpose of use: The lessee must use the asset exclusively for the purpose agreed in the contract. If no specific purpose is stated, the asset may be used for any legal purpose.
Lender's responsibilities
- Maintenance and care: The lessee must take care of the asset, avoiding any imprudent use and ensuring that it remains in good condition.
- Inspection and reporting: The borrower must allow the lender to inspect the asset upon request and must report any defects, threats or third-party complaints about the asset.
- Purpose: The asset must be used strictly for the agreed purpose. Unauthorised use may lead to termination of the contract.
Can the lessee rent the property?
Yes, under certain conditions. Although the loan agreement does not transfer ownership, the lender can authorise the lessee to use the property for various purposes, including renting it out. However, this process involves specific procedures.
Tax implications and procedures
Unlike conventional property leases, lending contracts are not subject to stamp duty. However, if the lessee rents the property, they must fill in the Stamp Duty Model 2 manually, attaching it to both the lending contract and the rental contract. This ensures compliance and confirms the borrower's legitimacy as the owner.
Conclusion
Lending agreements offer a flexible and economical way to utilise assets without transferring ownership. Whether lending or borrowing, understanding the intricacies of these agreements can help you use property transactions more effectively.
At Invest 351, we are available to provide guidance on all aspects of property management and investment. If you have any questions or need support with lending contracts or any other property matter, don't hesitate to get in touch with our team of experts.
