Lease - definition
A lease is an agreement whereby the lessor conveys
to the lessee , in return for lease rent, the right to use
an asset for an agreed period of time.
A lessor is the owner of the asset where as lessee is
the user of the asset .
The lease period may be for 1 hour , day , month,
Characteristics of lease
The Lease Rentals
Importance of lease financing
Leasing industry plays a very important
role in the economic development of a
country by providing money incentives
The lessee does not have to pay the
cost of asset at the time of signing the
contract of lease
It is non-cancelable in nature.
The lessee is responsible for the
maintenance of the asset leased.
The lease generally provides for the
renewal of the lease on expiry of the
It is taken for an long period of time ie
25 yrs , 100 yrs etc
Types of assets included under such lease are :
Diesel Generating Sets etc
The lease is cancelable at short notice by
The lessee has the option of renewing
the lease after the expiry of the lease
Asset maintenance and insurance etc. is
the responsibility of the lessor and he
charges for the same.
It is a high risk lease to the lessor, as any
time it may be cancelled by the lessee.
Operating lease is generally given for :
Sale and Leaseback:
Owner of the asset sells it to the lessor, and
gets the asset back under the lease
Ownership transfer from the original owner to
the lessor, who again leases out the asset.
Immediate financing to the seller company,
whose funds are tied up in the asset.