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Equipment Leasing

A lease is a rental instrument.  When you lease equipment, you rent it rather than own it.

For example: an owner can allow another the use of a vehicle (such as vehicle leasing of a car, a truck or an airliner) or a computer either for a fixed period of time or at will. This can be a simple leasing transaction, or it can be a transaction intended to allow the user the right to buy the item at some future time.

Simple Lease

In a simple lease (rental) of a car, P pays O a rental for the use of the car during the agreed period which may be a few days (e.g. for a holiday trip) or longer.

Normally, only P will be allowed to use the vehicle and, in such a case, P has possession and control. But, P could be an employer who allows C the use of the car to visit clients, and thereby gives C control.

Lease Purchase

IIn a lease with the possibility of purchase, O could allow P to lease the car for a specified period of time. If all the rental payments are made in full, P will then be allowed to buy the car at the contractual purchase option price.

In a consumer lease subject to the federal Consumer Leasing Act and the Truth in Lending Act, the purchase option price can not be a "bargain" purchase, that is, it cannot be less than the originally estimated fair market value.

Typically, the vehicle dealer or other personal property seller offers the leasing terms and contract of a third party finance company. Hence, O leases the vehicle to P, and upon execution of the contract simultaneously sells ownership of the car to F and assigns the lease contract to F.

Note: It is standard for the contractual terms to prohibit P from parting with possession or control of the car to another (if P does part with possession, this can be a theft of the car from F).

Typical Lease Types

There are two principal types of leasing, depending upon the party taking the risk of the value of the vehicle (or other leased property) at lease end.   That is, an open end lease or a closed end lease. 

An open-end lease is a rental agreement that obliges the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement. Also called a "finance lease."

A closed-end lease is a rental agreement that puts no obligation on the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement. Also called a "true lease", "walk away lease" or "net lease".

Leasing is a common method by which airlines, for instance, acquire their aircraft, usually from companies specialized in the field of Commercial Aircraft Sales and Leasing. Aircraft leasing transactions are typically divided into finance leasing and operating leasing.

Businesses often choose to lease rather than buy office equipment, including computers. Since office equipment depreciates rapidly, leasing can be more cost-efficient than ownership.