Various Types of Lease, After Providing a Comprehensive Discussion on LeaseHere we are providing complete details for Various Types of Lease. A lease agreement or a rental agreement is a vital legal document that should be completed prior to a landlord renting property to a tenant.
If you like this article then please like us on Facebook so that you can get our updates in the future ……….and subscribe to our mailing list ” freely “
Quick Links
Various Types of Lease
(1) Finance lease :
A lease in which all risks and rewards related to asset ownership are transferred to the Lessee for the leased asset is called a finance lease. It is one of the long-term leases and cannot be cancelable before the expiry of the agreement.
If any one of the following conditions is satisfied then it is a finance lease:
(a) Lease transfers ownership to the lessee at the end of the lease term whether in main or by a separate agreement
(b) Lessee has the option to purchase the leased asset at a price sufficiently lower than the fair value of the asset at the date when the option becomes exercisable.
(C) Lease term covers a major part of the life of the asset leased.
(d) Lease term covers the major part of the life of the asset.
(e) At the inception of the lease Present Value of minimum lease payments (receivable over the non-cancellable lease period amounts to at least substantially all the fair value of the leased asset.
(f) A Leased asset is special in nature which only the lessee can use.
Example: Hiring a factory, or building for a long period.
(2) Operating lease :
An operating lease is one of the short-term and cancelable leases. In an Operating lease the owner, called the Lessor, permits the user, called the Lesse, to use an asset for a particular period which is shorter than the economic life of the asset without any transfer of ownership rights. Must Check Classification of Errors.
Example: Hiring a building for an event for 7 days.
(3) Sale and leaseback :
A sale and leaseback is a type of lease where the Lessee sells one of his assets to a prospective Lessor and then immediately leases it back for a guaranteed minimum time period for a specified amount of Rental payments. It may be in the form of operating leasing or financial leasing. This type of lease is popular in Real estate matters.
(4) Direct lease :
It is a contract in which a lessor purchases a new asset from the manufacturer and leases it to the lessee. It may involve 3 or 2 parties.
(5) Single investor lease :
It is a lease in which the lessor funds the entire investment with an appropriate mix of debt and equity funds. The debts raised by the lessor to finance the asset are without recourse to the lessee, that is, in the case of default in servicing the debt by the leasing company, the lender is not entitled to payment from the lessee.
(6) Leveraged lease :
Under this lease, there are three parties involved; the Lessor, the lender, and the lessee. Under the leverage lease, the Lessor acts as an equity participant supplying a small portion of the total cost of the assets while the lender supplies the major part. In this, the lessor has no risk on the finance the lender gave. The lessee’s payments go to the lender who takes the leased asset on default and the lender holds the title of asset. You may also like Deferred Revenue Expenditure.
(7) Domestic Lease :
If all the parties in the lease i.e., Lessor, lessee, and lender belong to the same country then it is called a domestic lease.
(8) International lease :
A lease in which the parties are domiciled from different countries is called an international lease.
Recommended
