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Hire Purchase

What is a hire purchase?

A hire-purchase agreement is a tenancy agreement under which the landlord grants the tenant the right to purchase the let property after a certain period at a predetermined price, with the purchase price being calculated by deducting the rent already paid. Before the right to purchase is exercised, the contract is governed by tenancy law; thereafter, it becomes a contract of sale, to which the law of sale applies. In practice, it is more common for no option right to be agreed at all, but rather for the transfer of ownership to be agreed from the outset upon payment of the final instalment, without the need for a declaration of exercise.

What is the difference between hire purchase and leasing?

From a tax perspective, hire purchase is not necessarily the same as leasing, as in the case of hire purchase, economic ownership passes to the buyer immediately. It is therefore necessary to capitalise the asset under fixed assets. Legal ownership, on the other hand, is generally only transferred to the buyer once the final instalment has been paid. This makes hire purchase more comparable to an instalment payment agreement than to a traditional leasing contract.

 

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