Leasing

From ArticleWorld

Leasing may be defined as a contract which grants the use of real estate, equipment, or other fixed assets for a specified time in exchange for payment, usually in the form of rent. The owner of the leased property is called the lessor or landlord while the user is called the lessee or a tenant. It may also be used to refer to a transaction where the bank purchases the property which the customer is interested in and allows the latter to use the same for a certain fee.

For the time period that the estate or equipment is rented out, it becomes the sole property of the lessee to use as he /she pleases by paying to the lessor, a certain sum fixed in advance between the two parties.

Leasing property

Real property may be owned in many different ways, the most common way in civil law states being a fee simple absolute ownership. Property may also be leased or rented out in many ways. The three main ways are:

1. for a fixed period of time
2. dependent on a condition (like the death of the lessor or lessee)
3. dependent on the will of both parties – either can dissolve the relationship at any point of time

The two basic types of personal property leases are open-end leases, under which the lessee pays an additional amount at the end of the term and acquires the ownership of the property; and closed-end leases, under which ownership reverts to the lessor at the end of the term.

Advantages

Instead of an absolute purchase a piece of equipment, such as a car or a piece of machinery can be rented, to avoid the capital cost involved in owning it. In some companies it is advantageous to use capital for other purposes and to lease some equipment, paying the rent out of the income. The equipment is for the time period then an asset of the leasing company rather than the lessor. Then again sometimes it makes better business sense to lease equipment rather than buy it outright because sometimes some equipment quickly becomes obsolete.