Blog Post

How Leasing Works 

You may have seen from our previous post that there are a few types of asset finance, also known as leasing. How leasing works is fundamentally, each type fits one of two categories: 

Direct Lease 

You identify the asset (and negotiate the price) and arrange for the leasing company to buy it from the manufacturer (if new) or the previous owner (if used) to rent it to you. 

Sale-and-leaseback (also called purchase leaseback) 

You sell an asset that you already own to the leasing company for fair market value or book written down value (whichever is less) and then lease it back. 

In both cases, the Lessor owns the asset and will agree to rent it to you. As with any other rental agreement you will return the asset at the end of the lease to the Lessor. Some leases grant you an end-of-lease option to renew the lease at a minimal cost (in so-called secondary period) or to sell the asset to a third party as agent of the lessor. 

Specific Leasing Conditions

Return of Asset Conditions 

If you choose to return the asset at the end of the lease, the condition in which and the place where it must be returned are important aspects to consider carefully. 

Notice Period 

If the lease includes the option to renew, you should take note of any time periods in which to give notice in case you do not want to renew the contract. Some leasing companies will automatically renew the contract if you fail to give notice. 

Purchase Rights 

If negotiating the right to purchase the asset at the end of the lease, a predetermined fixed price may offer more value and surety than the ‘fair market value’, which theoretically is always available to you if this is subsequently lower than the fixed priced option. 

Maintenance Responsibility 

You, with our support, should clarify which service and maintenance programs are included in the lease. If you are responsible for service and maintenance of the asset under the terms of the lease you should make sure you do not have to provide an unreasonably high degree of it. 

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