Leasing

A lease is a contract under which the owner of an asset (the lessor) grants another party (the lessee) the right to use that asset for an agreed period in exchange for periodic lease-rental payments, without transferring ownership of the asset itself. Leasing has become an important way for businesses — including many of the new service businesses described in this chapter — to acquire the use of costly equipment (computers, vehicles, office equipment, machinery) without committing the full purchase price upfront.

Two broad types of lease are usually distinguished. An operating lease is comparatively short-term and cancellable, with the lessor continuing to bear the risks of maintenance and obsolescence — it suits assets, such as office equipment or vehicles, that a business needs only temporarily or that change technology quickly. A financial lease (or capital lease), by contrast, runs for most of the asset's useful economic life, is generally non-cancellable, and effectively transfers most of the risks and rewards of ownership to the lessee, even though legal title stays with the lessor — it is, in substance, a way of financing the acquisition of an asset rather than merely renting it. …