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200 Financial Management
According to the equipment leasing association of UK definition, leasing is a contract
between the lesser and the leaser for hire of a specific asset selected from a manufacturers
or vender of such assets by the lessee. The leaser retains the ownership of the asset. The
leassee pass possession and uses the asset on payment for the specified period.
Elements of Leasing
Leasing is one of the important and popular parts of asset based finance. It consists of the
following essential elements. One should understand these elements before they are going to
study on leasing.
1. Parties: These are essentially two parties to a contract of lease financing, namely
the owner and user of the assets.
2. Leaser: Leaser is the owner of the assets that are being leased. Leasers may be
individual partnership, joint stock companies, corporation or financial institutions.
3. Lease: Lease is the receiver of the service of the assets under a lease contract.
Lease assets may be firms or companies.
4. Lease broker: Lease broker is an agent in between the leaser (owner) and lessee.
He acts as an intermediary in arranging the lease deals. Merchant banking divisions
of foreign banks, subsidiaries indian banking and private foreign banks are acting
as lease brokers.
5. Lease assets: The lease assets may be plant, machinery, equipments, land,
automobile, factory, building etc.
Term of Lease
The term of lease is the period for which the agreement of lease remains for operations.
The lease term may be fixed in the agreement or up to the expiry of the assets.
Lease Rental
The consideration that the lesae pays to the leaser for lease transaction is the rental.
Type of Leasing
Leasing, as a financing concept, is an arrangement between two parties for a specified
period. Leasing may be classified into different types according to the nature of the
agreement. The following are the major types of leasing as follows:
(A) Lease based on the term of lease
1. Finance Lease
2. Operating Lease
(B) Lease based on the method of lease
1. Sale and lease back
2. Direct lease