Leasing
Lease <ul><li>Defines the relationship between the owner and tenant </li></ul><ul><li>A document giving the right to use o...
Types of Lease <ul><li>Type of Commercial Lease </li></ul><ul><ul><ul><li>Gross lease:  The tenant pays a set amount of re...
<ul><li>Other Types of Leases </li></ul><ul><ul><ul><li>Flat or Fixed Leases - A single rent is set for a definite period ...
Essential Elements of Lease <ul><li>Transaction </li></ul><ul><ul><li>Asset renting agreement </li></ul></ul><ul><ul><li>D...
<ul><ul><li>Human resources cannot be leased </li></ul></ul><ul><ul><li>Tangible items can be leased </li></ul></ul><ul><u...
<ul><li>Lease consideration </li></ul><ul><ul><li>Lease rentals-lessee pays to lessor </li></ul></ul><ul><ul><li>Rent or p...
<ul><ul><li>In financial lease lessor cannot grant a buyout option to the lessee </li></ul></ul><ul><ul><li>For the lessor...
<ul><ul><ul><li>Option to buy at a fair market value or fixed, but substantial value  </li></ul></ul></ul><ul><ul><ul><li>...
<ul><li>Upfront payments </li></ul><ul><ul><li>Lessor  may require one or more of the following upfront, that is, instant ...
Laws governing Lease <ul><li>The Indian Contract Act, 1872 </li></ul><ul><li>Transfer of Property Act, 1882 </li></ul><ul>...
Clauses in Lease <ul><li>Example : Lease Deed of CIDCO between CIDCO & M/s. Roshan House Co-operative Housing Society Ltd....
<ul><li>Recovery of rent </li></ul><ul><li>Re-Entry </li></ul><ul><li>Eviction of unauthorized occupancy </li></ul><ul><li...
Leasing strategies in Retail <ul><li>Tenant Mix </li></ul><ul><li>Types of leases in retail </li></ul><ul><ul><li>Percenta...
Other Agreements in Retail leasing <ul><li>Reciprocal easement agreement (REA) : The signed agreement between common land ...
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Itm.leasing

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Itm.leasing

  1. 1. Leasing
  2. 2. Lease <ul><li>Defines the relationship between the owner and tenant </li></ul><ul><li>A document giving the right to use or occupy personal or real property </li></ul><ul><li>Specific time period which can be very short and extendable </li></ul><ul><li>Protects both the parties </li></ul><ul><li>No guarantee of smooth sailing between parties </li></ul><ul><li>Transfer of property act defines a lease of immovable property </li></ul>
  3. 3. Types of Lease <ul><li>Type of Commercial Lease </li></ul><ul><ul><ul><li>Gross lease: The tenant pays a set amount of rent and the landlord is responsible for payment of taxes, insurance and other costs associated with owning the property </li></ul></ul></ul><ul><ul><ul><li>Net lease: The tenant pays the rent plus a portion of the maintenance fees, insurance premiums and other operating expenses. </li></ul></ul></ul><ul><ul><ul><li>Net-Net Leases: The tenant pays the base rental amount, real estate taxes, and insurance premiums. The insurance and real estate taxes are allocated among the tenants based on the proportion of space occupied </li></ul></ul></ul><ul><ul><ul><li>Triple-net lease: Typically, for a freestanding facility, this type of lease has the tenant paying for all fees and operating expenses associated with the space. </li></ul></ul></ul><ul><ul><ul><li>Shopping center leases </li></ul></ul></ul><ul><ul><ul><li>Land or ground lease: The tenant leases the grounds and builds on the property. </li></ul></ul></ul>
  4. 4. <ul><li>Other Types of Leases </li></ul><ul><ul><ul><li>Flat or Fixed Leases - A single rent is set for a definite period of time </li></ul></ul></ul><ul><ul><ul><li>Step Leases: The rent is increased at a set amount on an annual basis during the life of the agreement </li></ul></ul></ul><ul><ul><ul><li>Cost-of-Living Leases : The rent is tied to rises in the cost of living. The rent goes up with general inflation </li></ul></ul></ul><ul><ul><ul><li>Percentage Leases : The tenant pays either a base amount or a percentage of gross income or, depending on which is higher, pays a base amount or a percentage of the business's gross income. </li></ul></ul></ul><ul><ul><ul><li>Open-end Lease : An open-end lease is a lease agreement in which the amount one owes at the end of the lease term is based on the difference between the residual value of the leased property and its realized value. </li></ul></ul></ul><ul><ul><ul><li>Single-payment : A single-payment lease is a lease agreement that requires a single large payment made in advance rather than periodic payments made over the term of the lease </li></ul></ul></ul><ul><ul><ul><li>Multiple-payment : A multiple-payment lease is a lease agreement in which one makes payments periodically, usually monthly. Most leases are multiple-payment leases. </li></ul></ul></ul>
  5. 5. Essential Elements of Lease <ul><li>Transaction </li></ul><ul><ul><li>Asset renting agreement </li></ul></ul><ul><ul><li>Different from loan </li></ul></ul><ul><li>Parties to a lease </li></ul><ul><ul><li>Lessor: who lends the assets </li></ul></ul><ul><ul><li>Also called landlord, owner, etc </li></ul></ul><ul><ul><li>Lessee: who takes the assets for use </li></ul></ul><ul><ul><li>Also called tenant, etc </li></ul></ul><ul><ul><li>Anyone can be either party </li></ul></ul><ul><li>Leased asset </li></ul><ul><ul><li>Subject of agreement </li></ul></ul><ul><ul><li>Immoveable property </li></ul></ul>
  6. 6. <ul><ul><li>Human resources cannot be leased </li></ul></ul><ul><ul><li>Tangible items can be leased </li></ul></ul><ul><ul><li>Land for farming, mining, fishing can be leased </li></ul></ul><ul><ul><li>Rental for the leased period </li></ul></ul><ul><li>Lease period </li></ul><ul><ul><li>Term or period of agreement for which it is operational </li></ul></ul><ul><ul><li>Fixed period of time </li></ul></ul><ul><ul><li>Should not amount to sale </li></ul></ul><ul><ul><li>Primary lease period, where lessor intends recovering his investment </li></ul></ul><ul><ul><li>Secondary lease period, exhaust a substantial part of remaining asset value </li></ul></ul><ul><ul><li>Primary period is non cancellable and secondary is cancellable </li></ul></ul><ul><ul><li>Agreement expires </li></ul></ul><ul><ul><li>Interest does not pass to lessee before execution </li></ul></ul>
  7. 7. <ul><li>Lease consideration </li></ul><ul><ul><li>Lease rentals-lessee pays to lessor </li></ul></ul><ul><ul><li>Rent or premium </li></ul></ul><ul><ul><li>If it is a operating lease transaction ,rentals will include; </li></ul></ul><ul><ul><ul><li>Interest on the lessor's investment. </li></ul></ul></ul><ul><ul><ul><li>If the lessor is bearing any repairs, insurance, maintenance or operation costs, them charges for such cost. </li></ul></ul></ul><ul><ul><ul><li>Depreciation in the asset. </li></ul></ul></ul><ul><ul><ul><li>Servicing charges, or packaging charges for providing a package. </li></ul></ul></ul><ul><ul><li>If it is a financial lease transaction </li></ul></ul><ul><ul><ul><li>rentals will simply be the recovery of the lessor's principal </li></ul></ul></ul><ul><ul><ul><li>Recovery of certain rate of return on outstanding principal </li></ul></ul></ul><ul><li>Residual value </li></ul><ul><ul><li>Value of leased equipment at the end of the lease term </li></ul></ul><ul><ul><li>Residual value also mean the value that the lessor assures to pay-back to the lessee in case the lessee returns the asset to the lessor </li></ul></ul><ul><ul><li>Buy out option-the value at which a lessee will be allowed to buy the equipment. </li></ul></ul>
  8. 8. <ul><ul><li>In financial lease lessor cannot grant a buyout option to the lessee </li></ul></ul><ul><ul><li>For the lessor to protect himself against asset-based risks, he would take an assured residual value commitment either from the lessee himself or from a third party, typically an insurance company. </li></ul></ul><ul><ul><li>In operating lease the lessor is taking a risk on asset values, is a full payout lease, but the lessor agrees to refund the guaranteed value on the lessee returning the equipment at the end of the lease term </li></ul></ul><ul><li>End-of-term option </li></ul><ul><ul><li>The options allowed to the lessee at the end of the primary lease period are called end-of-term options </li></ul></ul><ul><ul><li>Options given to the lessee at the end of the lease term are: </li></ul></ul><ul><ul><ul><li>Option to buy (buyout option) at a bargain price or nominal value (typical in a hire-purchase transaction), called bargain buyout option </li></ul></ul></ul>
  9. 9. <ul><ul><ul><li>Option to buy at a fair market value or fixed, but substantial value </li></ul></ul></ul><ul><ul><ul><li>Option to renew the lease at nominal rentals, called bargain renewal option </li></ul></ul></ul><ul><ul><ul><li>Option to renew the lease at fair market rentals or substantial rentals </li></ul></ul></ul><ul><ul><ul><li>Option to return the equipment </li></ul></ul></ul><ul><ul><li>In any lease, which option will be suitable depends on the nature of the lease transaction, as also the applicable regulations </li></ul></ul><ul><ul><li>In full payout financial lease, the lessor would have recovered the whole or substantially the whole of his investment during the primary lease period </li></ul></ul><ul><ul><li>The lessor provide the lessee a bargain purchase option to allow the lessee to complete the purchase of the equipment </li></ul></ul>
  10. 10. <ul><li>Upfront payments </li></ul><ul><ul><li>Lessor may require one or more of the following upfront, that is, instant payments from a lessee: </li></ul></ul><ul><ul><ul><li>Initial lease rental or initial hire or down payment </li></ul></ul></ul><ul><ul><ul><li>Advance lease rental </li></ul></ul></ul><ul><ul><ul><li>Security deposit </li></ul></ul></ul><ul><ul><ul><li>Initial fees </li></ul></ul></ul>
  11. 11. Laws governing Lease <ul><li>The Indian Contract Act, 1872 </li></ul><ul><li>Transfer of Property Act, 1882 </li></ul><ul><li>Registration Act , 1908 </li></ul><ul><li>Stamp Duty Act , 1899 </li></ul><ul><li>Bombay Stamp Act , 1958 </li></ul><ul><li>Specific Relief Act </li></ul><ul><li>Maharashtra Rent Control Act </li></ul><ul><li>Arbitration Act </li></ul>
  12. 12. Clauses in Lease <ul><li>Example : Lease Deed of CIDCO between CIDCO & M/s. Roshan House Co-operative Housing Society Ltd. </li></ul><ul><li>Description of parties </li></ul><ul><li>Description of Land </li></ul><ul><li>Covenants of parties </li></ul><ul><ul><li>To pay rent </li></ul></ul><ul><ul><li>Not to excavate </li></ul></ul><ul><ul><li>Not to build except with the permission of the lessor </li></ul></ul><ul><ul><li>No Alteration </li></ul></ul><ul><ul><li>To enter & inspect </li></ul></ul><ul><ul><li>Nuisance </li></ul></ul><ul><ul><li>User </li></ul></ul><ul><ul><li>Indemnify </li></ul></ul><ul><ul><li>Payment of Service Charge </li></ul></ul><ul><ul><li>Not to Assign </li></ul></ul><ul><ul><li>No change in status of the lessee </li></ul></ul><ul><ul><li>Notice in case of death </li></ul></ul>
  13. 13. <ul><li>Recovery of rent </li></ul><ul><li>Re-Entry </li></ul><ul><li>Eviction of unauthorized occupancy </li></ul><ul><li>Notice & Demands </li></ul>
  14. 14. Leasing strategies in Retail <ul><li>Tenant Mix </li></ul><ul><li>Types of leases in retail </li></ul><ul><ul><li>Percentage lease </li></ul></ul><ul><ul><li>Fixed Rate lease </li></ul></ul><ul><ul><li>Maintenance-increase recoupment lease </li></ul></ul><ul><ul><li>Net lease </li></ul></ul>
  15. 15. Other Agreements in Retail leasing <ul><li>Reciprocal easement agreement (REA) : The signed agreement between common land owner parties in a project that establishes the relationships, rights and duties that apply to those parties </li></ul><ul><li>Separate agreement: The signed agreement supporting the base document like a REA wherein specific responsibilities and rights between two parties to that base document are called out </li></ul><ul><li>Specialty Licensing agreement: The signed agreement between a licensor and licensee in which rights duties and standards are outlined for application in the short term activities such as cart, kiosk etc. </li></ul><ul><li>Temporary occupancy agreement: The signed agreement between a short-term occupant licensee in an in-line space similar to a specialty licensing agreement </li></ul>
  16. 16. THANK YOU

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