LEASINGLEASING

Poonam G. NaikPoonam G. Naik

Roll no.: 25-2009Roll no.: 25-2009

Definition of LeasingDefinition of Leasing Leasing is defined as “A contract that allows

the use or occupation of property for a specific period of time, with a specified amount of rent”.

Meaning of LeasingMeaning of Leasing A contract by which the owner of land or a

building agrees to let another (lessee) the use of it for a certain time on rent.

Parties involve in LeasingParties involve in Leasing

Lessor

Lessee

Financier

• lease is a legal document containing language that spell out all responsibilities of the lessor.

• Leases are used for the rental of homes and apartment dwellings, as well as automobiles and other mechanical equipment.

• The purpose of the lease is to spell out the lease costs.

Why Leasing is Important?

Steps of Leasing processSteps of Leasing processSelection of Equipment

Lessor is approached by Lessee

Lease Agreement

Placement of order

Delivery of Equipment

Letter of Acceptance

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steps of Leasing processsteps of Leasing process

Contract signed by parties

Payment of rent

After sale service

Return back of Equipment

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How are lease and loan payments different?

Lease payments are made up of two parts

depreciation charge finance charge

Depreciation part of each monthly payment compensates the leasing

Company.

Finance part is interest on the money the lease company

has tied up.

How are lease and loan payments different ?

Loan payments have two parts

a principal charge finance charge

The principal pays off the full vehicle purchase price.

The finance charge loan interest.

Types of LeasingTypes of Leasing

Operating Lease

Financial Lease

Conveyance Lease

Other types of Leases

Leases on AssetsLeases on Assets

Leases on Real Estate

Leases on Automobiles

Commercial Leases

Office Equipment leases

Leases on AutomobilesLeases on Automobiles

• Automobile leasing can be done by keeping the lease payment lower than an actual payment.

• Automobile leases are considered to be closed-end leases.

Leases on Real EstateLeases on Real Estate• Leases are used in the rental of residential properties.

• A lease spell out dates that rental fees are due, costs, late charges and upfront deposits.

• The lease may cover the issue of the number of

people in the household and people who may visit from time to time.

Office Equipment leasesOffice Equipment leases

• Leasing office or business equipment has its advantages.

• Leasing is an option to obtain needed equipment but avoid going into debt with a loan.

• There is usually a clause to buy out the equipment at

the end of the lease.

Commercial LeasesCommercial Leases

• Leases are used for tenants who rent commercial properties.

• Space may be rented by the square foot.

• The tenant may be offered one of three different types of lease, they are gross lease , net lease , triple net lease.

Types of tenanciesTypes of tenancies • Fixed-term tenancy or tenancy for years

• Periodic tenancy

• Tenancy at will

• Tenancy at sufferance

Process of Leasing a CarProcess of Leasing a Car Negotiating Lease

Length of Lease

Signing Leasing Contract

Cost of Leasing

Options After Lease

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Benefits of LeasingBenefits of Leasing

100 % Financing

Fixed Payments

Tax Advantages

Lower Payments

Balance Sheet Considerations

100 % Financing

• leasing allows 100% finance of the equipment cost.

• It include installation and setup, compared with more traditional forms of equipment financing.

• leasing allows you to retain needed working capital for operations.

Fixed PaymentsFixed Payments• Leasing provides fixed periodic payments equipment

acquisitions.

• Payments are usually made on a monthly basis but can be structured as quarterly, semi-annual or annual.

• A fixed payment amount enhances your ability to forecast cash flow requirements.

Tax AdvantagesTax Advantages

• By converting a depreciable asset expense to a rent expense the full payment can be expensed for tax purposes.

• The Primex professionals are well versed in the tax code.  

Lower PaymentsLower Payments

• Through experience and relationships, Primex can maximize the resale value of off-lease equipment.

• This capability allows to structure leases with lower monthly payments for clients.

Balance Sheet ConsiderationsBalance Sheet Considerations

• Leasing offers companies the ability to better manage their balance sheets and improve financial ratios.

• The leasing professionals at Primex will work to develop a structure allowing to maximize objectives.

Disadvantages of LeasingDisadvantages of Leasing

No Ownership

Long Term Expense

Maintenance

No OwnershipNo Ownership • Leasing is never own the product. It remains the

property of the leasing company during and after the lease.

• The only exception being if it is sold to another

company or person, the leasing company would receive the money and a percentage would be passed back to you.

Long Term ExpenseLong Term Expense

• Leasing allows to avoid paying a large lump sum, over a long period of time.

• Over the course of a standard lease, pay the cost of the equipment as well as the leasing companies charges.

MaintenanceMaintenance

• Leasing companies will allow to cover the maintenance and repair costs for an extra sum.

• This will increase monthly payments, but may save money in the long run.

CONCLUSIONCONCLUSION

• In leasing only tangible assets can be leased out.

• Transaction in which a party owning an asset provides the assets for use over a certain period of time to another party.

LessorLessor

• It is the person who ownes the asset and gives on lease.

LesseeLessee

• One who takes the asset on lease and uses it for the period of lease.

FinancierFinancier

• Financier is a third party who provides whole or part of the finance needed for acquiring the asset for a lease.

Operating LeaseOperating Lease

• An operating lease is attractive to companies that continually update or replace equipment and want to use equipment without ownership.

• It typically qualifies for off-balance sheet treatment

and can result in improved Return On Asset (ROA).

Finance LeaseFinance Lease • A finance lease is a full-payout, noncancellable

agreement.

• The lessee purchases the equipment upon lease termination at a pre-agreed amount.

• The term finance lease tends to be longer, nearly covering the useful life of the equipment.

Conveyance LeaseConveyance Lease

• Conveyance lease is long term tenure lease.

• Conveyance lease is common in immovable properties where leases are 99 to 999 years.

Other types of Leases• Capital Lease• Direct Financing Lease (Direct Lease) • First Amendment Lease • Full Payout Lease• Leveraged Lease• Net Lease• Open-end Lease• Sales-type Lease• Tax Lease• Synthetic Lease

Fixed-term tenancy or tenancy for yearsFixed-term tenancy or tenancy for years

• A fixed-term tenancy or tenancy for years lasts for some fixed period of time.

• It has a definite beginning date and a definite ending date.

• It comes to an end automatically when the fixed term runs out or, in the case of a tenancy that ends on the happening of an event.

Periodic tenancyPeriodic tenancy

• A periodic tenancy also known as a tenancy from year to year, month to month, or week to week, is an estate that exists for some period of time.

• An oral lease for a tenancy of years that violates the

Statute of Frauds may actually create a periodic tenancy, depending on the laws of the jurisdiction.

Tenancy at willTenancy at will• A tenancy at will is a tenancy which either the

landlord or the tenant may terminate at any time by giving reasonable notice.

• The parties may also agree if the parties fail to enter into a new lease within a reasonable period, then the tenant must vacate the premises.

Tenancy at sufferanceTenancy at sufferance

• A tenancy at sufferance exists when a tenant remains in possession of a property after the expiration of a lease.

• The landlord may also impose a new lease on the holdover tenant.

Negotiating Lease

• A person looking to lease a vehicle enters a car dealership and converses.

• Then the dealer discusses any deals or plans offered to the consumer.

Length of Lease

• A consumer may choose a one-year, two-year or three-year lease.

• The monthly lease payment is smaller for longer-term leases.

Signing Leasing Contract

• Consumer signs a contract with a leasing company.

• The leasing company is the automotive company of the vehicle, a bank or credit union.

Cost of Leasing

• The monthly payment for a lease is usually less expensive than a bought vehicle.

• The length of the lease also determines the monthly

payment.

Options After Lease

• A consumer can return the vehicle or purchase the leased vehicle after the lease ends.