Glossary
Sam Fallenbaum from Alliance Commercial Capital has been so kind to provide the leasing terminology for this glossary. Thanks again Sam!
A lease whereby the lessee is committed to paying only monthly rentals and has no commitment at the termination of the lease.
A transaction for purchase of an asset in which the user, for federal income tax purposes, is treated as the owner of the asset at the outset of the transaction.
The price for which property could be sold in an arm's-length transaction between unrelated parties.
A financing device whereby a user can acquire use of an asset for most of its useful life. Rentals are net to the lessor and the user is responsible for maintenance, taxes, and insurance. A finance lease may be either a true lease or a conditional sale.
Lease in which the cash flow will return to the lessor the acquisition cost of the asset, the cost of financing overhead, and an acceptable return on the investment. Under a non-payout lease, the lessor depends on an unguaranteed portion of the residual value of the asset to recover the asset cost plus return-on-investment.
An individual, company, or business firm contracting for the use of property that is owned by the lessor and paying for that use in the form of rentals.
The legal owner of property which is being leased to a lessee in return for rental payments.
An open-end or blanket-type arrangement under which a lessee obtains the use of assets, and can also acquire later, at its discretion, other equipment at a predetermined rate and under the same basic terms without negotiating a new contract.
In a net lease, all costs in connection with the use of the property are to be paid by the lessee and are not a part of the rental: for example, taxes, insurance, and maintenance are paid directly by the lessee. Most finance leases are net leases.
A lease which is cancellable
- only upon the occurrence of some remote contingency,
- only with the permission of the lessor,
- only if the lessee enters into a new lease with the same less, or
- only upon payment by the lessee of a penalty in an amount such that continuation of the lease appears, at inception, reasonably assured.
A transaction in which the lessor provides specific services, such as insurance and maintenance, as well as financing. The number of services provided by the lessor are generally negotiable and vary in each transaction. Operating leases are non-payout .
An agreement by which a party guarantees to purchase the property from the lessor at the termination of the contract for a prearranged price.
An arrangement through which a company sells fixed assets for cash and retains their use by leasing them back from the buyer (Lessor).
The value of property at the termination of the lease.
A transaction that is recognized both in law and by tax authorities as providing the lessor with the benefits and risks of ownership. A true lease may be either non-payout or full payout. A basic qualification of a true lease is that the lessee may not build an equity position in the asset during the lease term.
The period of time during which an asset will have economic value and be usable. Useful life of an asset is sometimes called the economic life of an asset.
Related topics
| Payment options |
| End of lease options |