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Am I insane or is this "Drive"?
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What Is A lease?
A lease, by legal definition, is considered to be a contract
that allows the use or occupation of property for a specific
period of time, with a specified amount of rent. There are
different lease types, all with variable conditions and subject
to the laws governing each state.
Different types of lease:
Finance lease
Also called a financial sale, it allows for the benefits of
flexibility as payments are spread out to a period of several
years, often the equivalent of the actual cost of the equipment
or property.
A common misconception is that payments made for a finance lease
equals to ownership, but this is not always true. Nevertheless,
the lessee does have the option to purchase the property after
the lease expires, for a significantly much lower percentage of
the actual cost.
This kind of lease, however, is not suitable for individuals who
wish to acquire rapid tax benefits.
True lease
Also referred to as a tax lease, this is the better choice when
one wants to have rapid tax benefits.
It is also advantageous to professional institutions, as the
lessor still remains the owner of the equipment, thereby
trimming down costly investments when it comes to computers and
other office-related gadgets that are prone to becoming
technologically obsolete.
You will get the advantage of lower monthly payments as compared
to that of a financial lease, and in some instances, these could
actually be tax-deductible. When the contract expires, the
lessee is given the option of purchasing the property for a very
minimal amount.
Operating lease
This is considered, in general, as a short-term lease, usually
three years or less. It is often associated with high-tech
equipment, or property that is prone to becoming technologically
obsolete.
In this type of lease,
the lessor takes more of a risk in
ownership, therefore allowing for much lower monthly payments
for the lessee. The lessee also has the advantage of the lease
being considered as neither an asset nor a liability when it
comes to taxes.
The lessee also has the option of buying the property at fair
market value after the contract expires, similar to a tax lease.
Skip lease
Yet another flexible lease type, wherein lessee and lessor agree
to a payment schedule where some months, a set period of time,
have no payment and penalty.
This kind of lease is typical for business institutions and
organizations whose operations rely on a seasonal schedule. This
is most common in school systems, and the agricultural and
recreational industries.
Sixty or ninety-day deferred lease
This type of lease allows businesses that rely on
income-producing equipments that take several months to generate
revenue. A sixty or ninety-day deferred lease can be similarly
structured to a finance and true lease. Lessees are required to
make an advance payment, to be followed by the next ones after a
sixty or ninety-day period.
Pre-paid purchase lease
This is an option often taken by new businesses which have no
credit history. Lessees are required to make a one-time advanced
payment of ten to twenty percent of the property's total amount,
thus reducing the monthly payments significantly.
When the contract expires, the lessee is given the option of
purchasing the property for a very minimal amount.
Sub-lease
Often termed as "sub-let," this is a lease from one lessee to
another.
About the author:
James Monahan is the owner and Senior Editor of LeaseSpot.com and writes
expert articles about leases.
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